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FM asks industry to slash prices, stimulate growth

FM asks industry to slash prices, stimulate growth
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First Published: Wed, Nov 19 2008. 12 18 AM IST

Solution seeker: Finance minister P. Chidambaram. Harikrishna Katragadda / Mint
Solution seeker: Finance minister P. Chidambaram. Harikrishna Katragadda / Mint
Updated: Wed, Nov 19 2008. 12 18 AM IST
New Delhi: Finance minister P. Chidambaram on Tuesday vowed to “stimulate” economic growth and asked the industry to cut prices to boost demand.
Speaking at the India Economic Summit organized by the World Economic Forum, Chidambaram said: “Hotels must cut tariffs, airlines must cut prices, real estate (companies) must cut prices of homes, (and) car makers and two-wheeler makers must cut prices. The classic response to a demand slowdown is to cut prices for a short term. That’s a much better option than allowing inventories to build up.”
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But industry’s response to his appeal was lukewarm. Bajaj Auto Ltd chairman Rahul Bajaj said there is little scope for price reductions in the two-wheeler industry. “This (two-wheeler) industry has a margin of about 4-5% only, and in the near future, we do not see any price cuts.”
However, Godrej group chairman Adi Godrej told Mint: “When you cannot sell more, it is better to cut prices and increase sale.”
The finance minister said the government will take measures to stimulate the services sector. “Agriculture (growth) is robust. We will ensure that the services sector, dominated largely by small-scale industries are provided with adequate liquidity so that they can carry out their business. And we will take steps to stimulate domestic economy to compensate downsizing caused by downturn in the world economy,” he said.
Solution seeker: Finance minister P. Chidambaram. Harikrishna Katragadda / Mint
Late in the evening, the finance ministry announced it would levy customs duty on certain iron and steel products and soya bean oil to protect the domestic industry in the wake of a fall in international prices of these items. Pig iron, spiegeleisen, semi-finished products, flat products and long product will be subject to a basic customs duty of 5% and crude soya bean oil will be subject to a basic customs duty of 20% effective 18 November.
Chidambaram also said the current crisis will affect exports, capital inflows and external credit, but he said these are not insurmountable problems.
He was confident the measures being taken will help economy grow at a satisfactory rate this year and growth will bounce back next fiscal.
(Sanjiv Shankaran, Tarun Shukla, Regina Anthony Nair, Shabana Hussain and Samar Srivastava contributed to this story. )
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First Published: Wed, Nov 19 2008. 12 18 AM IST