Excise cut: FM asks cos to hold price line

Days after cutting excise duty across sectors, Finance Minister P Chidambaram today urged manufacturers to hold prices or lower them.

"Those industries that have enjoyed a deep fiscal cut should hold the price line," Chidambaram said at a post-Budget meeting here with the members of industry chamber Ficci.

Chidambaram also advised industry to expand production and gain in volume what they might lose by not increasing prices. "Manufacturers have to become more competitive and hold the price line and not indulge in cartelisation", he said.

Chidambaram's remarks are directed at industries like pharmaceuticals, two-wheelers, automobiles and paper, among others. The government hopes the cut will act as a stimulus to boost consumer demand as manufacturers bring down prices and easier liquidity conditions in the coming months help propel the economy forward.

Some industry sectors have already responded. Car manufacturers like Maruti Suzuki, Hyundai and GM have lowered prices of some cars between Rs 6,500 and Rs 14,000. Bus and chassis manufacturers have lowered prices between 3 per cent and 5.5 per cent.

While the automobile sector has been quick to pass on the benefits, others have not shown a similar enthusiasm. In the case of pharmaceuticals, it was the regulator, the National Pharmaceutical Pricing Authority, which yesterday decreased prices of drugs under price control by 4.58 per cent.

Chemicals and Fertilizers Minister Ram Vilas Paswan wants the pharmaceutical industry to reduce prices of non-scheduled drugs as well, something the industry is against as the excise cut benefit has been nullified by the reduction in abatement on excise from 42.5 per cent to 35.5 per cent.

The consumer durables sector has not cut prices on the grounds that it has got no major relief in terms of duties.

Industry expects prices of infotech and electronic hardware like MP3 and DVD players to decline. Wireless data cards, which will no longer attract excise, are also expected become cheaper from April.

Reacting to Chidambaram's comments, Amit Mitra, secretary general, Ficci, said prices would drop in all sectors that had benefitted from the excise cut. "We assure the FM that in whichever sector he has given direct benefits, the price line will drop. In sectors like infrastructure and others where the benefits are indirect, the reforms will speak for themselves".

Mitra added that industry realised that it was advantageous to reduce prices because of high price elasticity. "Even in the past, in response to excise cut, industry has responded within 24 hours. I am sure this time manufacturing companies will set the trend for other sectors as well," he said.