Prices won’t fall fast as Cenvat effect will take time

Even as the central government announced a 4 per cent deduction in Cenvat only sectors like automobiles and consumer durables have announced price cuts so far.

Consumers will have to wait for some more time before prices across the board start dropping. Even as the central government announced a 4 per cent deduction in Cenvat (central value added tax), only sectors like automobiles and consumer durables have announced price cuts so far. Others are yet to pass the benefits to the consumers.

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Economists said that it may even take another couple of months for prices to ease as the new reduced prices will be applicable for those being manufactured post the announcement.

Goods which are already available at the retail outlets or showrooms have been priced based on the earlier Cenvat regime. “We will have to wait for inventories to dry up and once the new stocks start pouring in, consumers can expect to get the price benefits,” said tax analyst Mahesh Purohit.

The 4 per cent cut in the ad valorem Cenvat rate is expected to boost the manufacturing sector, which in turn will bring down prices.

Chandrajit Banerjee, director general of the Confederation of Indian Industry (CII), said that the right environment has been created. “We can expect to see prices moving southward very soon as the ground has been made,” he said, adding that prices are determined by market situation. Companies will also have to analyse other factors including logistics which affect pricing of their products.