The Hindu Business Line : ‘Cut prices, not production, to tackle demand slowdown’

New Delhi, Nov. 18 Imports of pig iron and certain specified iron and steel items such as semi-finished products, flat and long products would now become dearer. The Government on Tuesday slapped 5 per cent basic customs duty on these items.

As an anti-inflationary measure, the Government had in April 2008 done away with import duty on various categories of steel products.

Also, the Finance Ministry has now levied a 20 per cent basic customs duty on crude soyabean oil. There is, however, no change in the import duty on refined soyabean oil.

The levy of import duties on iron and steel products as well as crude soyabean oil is expected to stimulate the domestic output of these items.

The latest duty changes came on a day when the Finance Minister, Mr P. Chidambaram, assured the business community that the Government would take steps to stimulate the domestic economy to compensate the downside caused by the downturn in the world economy.

Earlier in the day, Mr Chidambaram had in his address at the India Economic Summit 2008 advised airlines, real estate companies, hotels, car and two-wheeler manufacturers that a price cut rather than production cut or staff layoffs would be better option to tackle any demand slowdown in the economy.

“The classic response to a demand slowdown is to cut prices for a short term. You cut prices of homes and cars. You will find an immediate stimulus to the housing and automobile sectors. Profit and loss account will take a hit, but it is much better to keep your market share and keep your loyal workers with you by taking a price cut.”He also said that he was open to examining suggestion of excise duty cuts to help out sectors. “If any sector faces special problems, certainly I am open to examine their suggestion for excise duty cuts. Already this year, we had cut excise duty and brought this from 16 to 14 per cent.”

The Finance Minister said that India would record “very satisfactory” growth rates this year, given the world conditions. “Next year we will bounce back and record even better growth rates. What’s required is confidence, courage and steps to compensate for the ill-effects of the world slowdown.”

On exports, Mr Chidambaram said that they will dip and the target of $200 billion for 2008-09 may not be reached. “This is what we said last year also. But finally (we) achieved the target. This year, eventually we would be close to the target. We can compensate for that by stimulating domestic consumption.”

On capital flows, Mr Chidambaram noted that the country had already witnessed some outflows because of FIIs facing redemption pressures. “But we are compensating that. The World Bank has promised to substantially increase development assistance to India.”

The Finance Minister said that one should not be focused on Sensex and Nifty every day. On the balance between growth and inflation, Mr Chidambaram said that the bias would now be in favour of stimulating growth.