FM asks India Inc to cut prices, not production
FM P Chidambaram has asked the Indian industry to cut prices and maintain production levels in a bid to address demand slowdown, while exuding confidence that the economy will bounce back next year.business Updated: Nov 18, 2008 15:39 IST
Finance Minister P Chidambaram on Tuesday asked the Indian industry to cut prices and maintain production levels in a bid to address demand slowdown, while exuding confidence that the economy will bounce back next year.
"The classic response to demand slowdown is to cut prices for the short-term," the finance minister said on the concluding day of the Davos-based World Economic Forum's (WEF's) India Economic Summit that began in New Delhi on Sunday.
He said this was the only way India Inc could maintain its financial health, keep the inventories down, continue to enjoy the hard-won market share and retain the loyal and hardworking employees.
Giving an example, the finance minister said when people buy cars, they know that its value would depreciate. But when they buy a house or an apartment, they want the value to appreciate. "Unfortunately, that assurance is not there," he said.
"While banks are ready and willing to lend, the borrowers are not ready to buy at current prices," he said, calling for a cut in the cost of homes, cars, two-wheelers and other consumer products.
He said thanks to pragmatic policies of the government led by Prime Minister Manmohan Singh and the nine per cent growth rate, India Inc was used to a 30 per cent or higher rise in its profit after tax. When this growth falls to 10-12 per cent, it is concerned.
"All I ask is, there are enough people to spread gloom and doom. Just have your chin up, and in six-nine months, or maybe 12, we will be back to normal growth rates that we are used to," he said.
"At the end of this year, you will find that India has returned a satisfactory and decent growth rate. Next year, we will bounce back," he added.
According to the finance minister, when inflation was rising and the government was addressing the issue, critics said it was ignoring growth. Now when price rise has moderated, they say we are focused on growth and ignoring inflation.
"That's the luxury of sitting on the other side of the aisle," he said, adding: "We will continue to balance growth and inflation."
The finance minister maintained that the government and the central bank had ensured enough liquidity in the system and cut interest rates to keep the industry insulated from the fallout of the global financial crisis.
"We will take more steps to stimulate the domestic economy to compensate for the downside caused by the downturn in the world economy."
He also said that while the average excise duties had been cut from 16 per cent to 14 per cent, he was willing to consider more. "I am open to examining any suggestion," he said.