Price cut is an initiative that industry will take. I think this is going to
happen
— K. V. Kamath, CII president and ICICI Bank CEO |
New Delhi, November 18
Finance minister P. Chidambaram today called upon the automobile manufacturers, realty firms and airlines to reduce prices. He also promised to consider excise duty cut for the sectors which were facing the heat of global financial meltdown.
“Hotels must cut tariffs; airlines must cut prices; real estate companies must cut rates of apartments and homes they sell, car makers and two-wheeler makers must cut prices,” he said, while addressing industrialists at the Indian Economic Summit being organised by the World Economic Forum and the CII here.
Automobile industry reacted strongly to the suggestion of finance minister for a rate cut to spur demand by saying “there is no scope for price reduction” in the industry and that such a step was unlikely to increase the demand.
Reacting to Chidambaram’s statement, Rajya Sabha member and Bajaj Auto chairman Rahul Bajaj said, “There is no scope for price reduction in the two-wheeler industry in the near future”.
“The two-wheeler industry is not like other industries where the margins are 30-35 per cent. This industry has a margin of about 4-5 per cent only and in the near future we do not see any price cuts,” Bajaj said on the sidelines of the India Economic Summit.
He said price reduction was not the solution to the problem faced by the two-wheeler industry, adding that the main
issue of credit availability to consumers still remained unaddressed.
“If everybody cuts price then how would the market share of one company increase,” he said while pointing out that banks needed to cut interest rate for customers so that they can make new purchases.
Hero Honda, the country’s largest two-wheeler maker, also said cutting prices was unlikely to spur demand. Hero Honda Motors chairman Brij Mohan Lall Munjal said, “Price cuts are unlikely to spur demand.”
“Minimum wages are increasing, fuel price has increased and electricity prices have also increased, so how do we bring down the prices of our products,” he said.
Volkswagen India managing director K.K. Swami also expressed a similar view and said, “Price reduction can happen only when there is a reduction in the input cost.”
Globally, commodity prices have gone down but it has not been reflected in the input cost and most of the automakers have long-term contracts to procure component from suppliers.
Meanwhile, the finance minister said India would record satisfactory growth in the current fiscal and the GDP growth rate would bounce back during the next year.
