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Time not right for withdrawing fiscal stimulus

Time not right for withdrawing fiscal stimulus
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First Published: Tue, Feb 02 2010. 09 04 PM IST

Advising caution: M&M’s chief of operations Rajesh Jejurikar. Ashesh Shah/Mint
Advising caution: M&M’s chief of operations Rajesh Jejurikar. Ashesh Shah/Mint
Updated: Tue, Feb 02 2010. 09 04 PM IST
Mumbai: India’s largest maker of utility vehicles and tractors, Mahindra and Mahindra Ltd (M&M), reported a 71% surge in January sales at 30,149 units. In an interview, Rajesh Jejurikar, chief of operations (auto sector), spoke on the performance and outlook for the sector. Edited excerpts:
What is your own assessment of demand going forward?
Advising caution: M&M’s chief of operations Rajesh Jejurikar. Ashesh Shah/Mint
Obviously there is no reason not to be optimistic as we go forward. We hope that fiscal stimulus does not go away because that is one event which did lead to the creation of positive momentum...a lot of buying in automobile is very sentiment-driven. Anything that upsets the sentiment, one has to be a little cautious about. So right now the momentum is good and we just hope it continues that way.
You would admit that given the macroeconomic situation, withdrawal of the stimulus measures is only a matter of time. How are you then factoring that in terms of sales?
When you look at it in terms of pricing effect, obviously there is a couple of per cent price increase that will happen depending on how much is the impact that it could have on excise. So if there is a 2% increase in excise, then equivalent kind of pricing and likewise. So 2-4% impact in pricing is not insignificant.
As you know a lot of us are taking price increases, which are in line with the input price increases. So I think the time for withdrawal of the stimulus package is not right because the economy, as you know, is growing well. But that is also leading to a rise in commodity and input prices. There is cost pressure right now in the economy... This could have a double whammy effect. So that is the reason one has to be careful in terms of timing (the removal of stimulus).
How do you foresee the impact of a rise in interest rates on consumption?
Marginal changes in interest rates do not really affect personal car buying behaviour, especially in cars which are priced more than Rs5 lakh, which is where most of our personal product brands—Bolero, Scorpio and Xylo—lie. So we do not see a marginal change in interest rates really rocking the demand momentum.
But the sentiment that comes out of an excise-driven price increase could have that effect. So one has to...watch and make sure that...all effects, or all the cost pressures, do not happen at the same time. That is something, I think, the government has to keep in mind. We do not want to upset a good thing; do not fix what ain’t broken.
So right now things are good, and one has to be careful not to do too much...which could lead to a slowdown because right now buying behaviour is very good and that is what is keeping the economic momentum going. You don’t really want to kill the golden goose.
cnbctv18@livemint.com
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First Published: Tue, Feb 02 2010. 09 04 PM IST