FM asks airlines, auto & realty firms to cut rates

A few months after having asked the cement and steel industry to hold prices, the government today said car and two-wheeler makers, airlines, hotels and real estate developers must cut prices in order to boost consumer demand and help revive the Indian economy.

“Hotels must cut tariffs; airlines must cut prices; real estate developers must cut rates of apartments and homes they sell; car makers and two-wheeler makers must cut prices," Finance Minister P Chidambaram told a well attended gathering of industry bosses at the concluding day of the India Economic Summit organised by the World Economic Forum.

Simultaneously, Chidambaram said he is open to examining suggestions to cut the excise duty, which currently stands at 14 per cent.

The FM reminded the assembled gathering, including leading lights of Indian industry and several foreign CEO’s, that the classic response to a demand slowdown is to cut prices.

“It is much better to retain market share than to just look at profit and loss. All my friends here are used to 9 per cent economic growth and 30 per cent profit margins. They must learn to live with 9-10 per cent margins,” Chidambaram said.

Predictably, the response from Indian industry was mixed.

ICICI Bank Chief Executive and CII President KV Kamath said price cuts would happen, but said interest rates needed to come down. “Loan rates are more affordable at 10 per cent. Today they stand at 13-13.5 per cent. The lending cycle needs to get kick-started. Car loan rates need to drop by 3-4 per cent. Overall interest rates need to drop 2-3 per cent.”

“The two-wheeler industry has a margin of about 4-5 per cent only and in the near future we do not see any price cuts,” Rahul Bajaj, chairman, Bajaj Auto told reporters soon after the FM’s remarks.

“Minimum wages are increasing, fuel prices have increased and electricity prices have also gone up. How do we bring down the prices of our products?” said Brij Mohan Lall Munjal, chairman, Hero Honda Motors.

On his part, K P Singh, Chairman DLF, the country’s largest real estate developer, said there are no takers for housing at current interest rates. “The ideal rate of interest for a housing loan should be 7 per cent,” he said.

Chidambaram asked industry to take a broader view of things and not worry unduly on the economic growth front, as the government would take steps to stimulate the economy. "We will take steps to stimulate the domestic economy to compensate for the downside caused by the downturn in the world economy," he said.

Chidambaram said India was likely to end the year with a satisfactory growth rate, despite the downturn in advanced economies, although he declined to put an exact number on the expected rate. “Next year, we will bounce back to a much better growth rate," he said, adding that growth could reach 9 per cent by the second half of fiscal 2009-10.