The Hindu Business Line : `Hold the price line'

THE BUCK STOPS HERE: The Finance Minister, Mr P. Chidambaram, with the Bajaj Auto Chairman, Mr Rahul Bajaj, at a meeting with captains of industry in the Capital on Thursday. — Kamal Narang

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New Delhi March 1 A day after presenting a slew of `dis-inflationary' fiscal measures through Budget 2007-08, the Finance Minister, Mr P. Chidambaram, has asked industry to hold the price line and co-operate with the Government in its fight against inflation.

"I urge industry to hold the price line," Mr Chidambaram said at a customary post-Budget meeting with industry captains in the Capital on Thursday.

He expressed confidence that inflation could be moderated through supply side augmentation, fiscal steps like those taken in Budget and also through monetary measures of the Reserve Bank of India.

"Supply side must be augmented and price line to the extent possible must be held," he said.

The Finance Minister also pointed out that spurt in inflation was not an uncommon occurrence in India and highlighted that there were several instances in the past years when it had spurted to over 6 per cent.

Duty on cement

Reacting to the CII President, Mr R. Seshasayee's comment that differential taxation on cement is an attempt to influence and control prices, Mr Chidambaram pointed out that a month ago he had asked the industry to hold prices and cautioned that "entrenched core inflation" would work to its disadvantage.

"A month back at a FICCI meeting, I had asked all of you (industry) to moderate and maintain stable prices and ensure that there is no entrenched core inflation. I am thankful to everyone who did so, but the cement manufacturers did not do so," he said. The Finance Minister said that pricing power has returned to the cement industry and prices have gone beyond reasonable levels.

The dual duty was intended to reward those with an inclination to hold price line and tax those who did not. "I don't know if this (differential tax) will work," he said.

The industry must not be just focused on one issue (cement) and look at larger issues.

He pointed out that even footwear and food products had differential taxation on the excise duty front.

"Industry and services should welcome the focus on agriculture. You (industry and services) will be much better off if we left you alone," he said.

Price control measure

The CII President said that he was raising the issue of differential duty on cement, not so much because of cement per se, but because of the concern that the industry had regarding use of the instrument of this nature for the purpose of price control.

"Either the cement prices are high because of the supply side constraints, in which case the solution is to remove the supply side constraints. If that is not done and the duty differential is used as a means for reducing prices, it could only result in unaccounted money. On the other hand, if supply side is not the constraint and there is a genuine price premium as a result of quality, then to have a duty differential supporting a lower price is a signal that price is the only differentiator, which is not compatible with the modern economy," Mr Seshasayee said.

Justifying the Budget's focus on agriculture, Mr Chidambaram highlighted that agriculture was the weakest of the three sectors of service, industry and agriculture.

More Stories on : Budget | Economy | Cement | Agriculture

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