Car makers are unlikely to cut prices despite nudges from the government but will seek reduction in interest rates to pep up demand. Prices (of automobile) are fixed based on input cost and market competitiveness. There is not much scope for price reduction now. Last year, when input cost went up, we did not increase price, said Venu Srinivasan, the new president of the Confederation of Indian Industry and the chairman and managing director of TVS Motors.
Recently, there have been reports of the government asking auto firms that they run the risk of missing out on further stimulus packages if they dont cut prices.
Reeling under the economic downturn, input cost pressure and high interest rates, Maruti Suzuki, General Motors, Hyundai, Honda and Ford have increased prices. This happened despite two stimulus packages of the government for the industry.
The CII, however, sought a reduction in the interest rates and asked banks to be more open on lending. Its true that the government has infused a lot of liquidity into the system, but interest rates are still very high and banks are reluctant to lend.
In a meeting with corporate leaders last week, Prime Minister Manmohan Singh had hinted that the RBI might further cut key interest rates.
With ample liquidity and low inflation, there is scope perhaps for a further moderation in interest rates, Singh had said, adding that the availability of credit for productive needs should be maintained at reasonable costs.
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