FM asks for price cuts; industry ignores

Yesterday, Finance Minister Mr. P. Chidambaram requested industry leaders from automobiles, airlines and real estate to cut prices to boost demand. However, industry leaders have declined to do so or are not committal on the proposal. Mr. Rahul Bajaj, Cahirman Bajaj Auto, said that the two wheeler industry operates at a low margin of 4-5%; hence, it is not possible for them to reduce prices. Even car manufactures are not interested in reducing prices because the current inventories with them and dealers were manufactured at a time when commodity prices were high. They said that only interest rates cut could boost demand in the market.

Real estate firms too have same problems. The current inventories of cement and steel were purchased at a time when raw materials were quite expensive. Hence, they can not sell their properties at a steep discount. It might take few months for the construction costs to come down. Also, they are of the opinion that buyers would not be interested in properties unless interest rates come down to the level of 8-9% from the existing level of 13-14%. Higher interest rates have kept buyers away from the market.

What I believe is that a mix of rates cut and price reduction is the need of the hour. Even buyers with enough cash are not willing to buy houses because they believe prices are either too high or prices may come down soon! Both buyers and developers would be locked in a bridge game for a while!