Job cuts can be avoided by reducing prices: FM

Finance Minister P Chidambaram has said that industry can avoid layoffs by taking rational decisions and by cutting prices, while dubbing the decision of some companies to shut down their plants for a few days in a week to combat the economic crisis as "short-sighted".

"The surest way to ensure that you continue to produce and sell and grow is to cut prices. But if somebody wants to close down their factory for three days a week, I think it is a short sighted approach," Chidambaram said in an interview to NDTV.

The industry, he said, would not need to lay off workers if it takes the "correct rational decisions and cuts prices".

When pointed out that noted industrialist and Bajaj Auto Chairman Rahul Bajaj had said that it was not possible to cut prices, Chidambaram said, "Rahul Bajaj can be persuaded to change his views."

A classic response to a demand slowdown is to cut prices, he said, adding, "what is the option? The alternative is to allow inventories to build up, cut back production; layoffs and retrenchment, which hurt your loyal workers, losing market share, allow your account to become an NPA with a bank. That to me is a no go option".

A much better option, he said "is to cut prices, take a hit on your bottom line, if necessary, take a hit on your profits, but at least keep your market share, keep your production lines, keep your product in the market, keep your loyal workers".
Many companies, including auto majors like Tata Motors and Ashok Lelyand, have decided keep their plants down for a few days in a week to cut production.

Pointing out that prices of inputs like fuel, steel, coal and shipping, among others, have come down substantially, Chidambaram said "you (industry) must take a rational call and cut prices for the medium term. Hotels must cut tariffs, car manufacturers must cut prices, scooter manufacturers must cut their prices, airlines must cut their rates."

Replying to questions on the global credit crunch, the minister said the problem would be fixed by the first week of December.

"We have done a good balancing act so far, interest rates have come down and there is adequate liquidity. I would first like the RBI governor to address the issue of ample liquidity," Chidambaram said.

Asked why the government had not taken the opposition into confidence for discussing the financial crisis, he said he was open to talking to the opposition, but the BJP's 11-point programme "contained nothing new, nothing that we had not anticipated or acted upon".

On not inviting Opposition leader L K Advani for talks to discuss the economic problems, Chidambaram said, "Advani is our own John McCain. I think if he wants to instruct himself on matters relating to business, then why should one grudge it. I dont think he has spoken in the past about economics, but I think if he wants to instruct himself, that's well and good."
When asked whether India has seen the worst, Chidambaram said, "I dont know. If the world has seen the worst, then India too has seen the worst. But if the crisis in the world deepens or extends to some other sectors, the corresponding sector in India will also take a hit."

Answering questions on stock markets
, Chidambaram said, "I am very keen that the market bounces back. I cannot imagine that a company like Tata Motors or Tata Steel or Hindalco can have a price earning ratio of 2 or 3. That is absurd. How can you have a price earning ration of 2 or 3 for these companies?

"Nothing has happened to these companies. These companies are well-managed companies, producing quality goods and services, but how are their price-earning ratios two or three.

Therefore, I think while Sensex is an indicator, what I told the World Economic Forum is - 'Don't be obsessed with one number. Look at many other numbers'", he said.

On why the private sector banks have not yet cut interest rates, Chidambaram said, "I cannot direct private banks or advise private banks... The private sector banks should follow suit of the public sector banks and cut their rates."

On the possibility of a cut in prices of petroleum products following a dip in crude prices in the international market, he said, "This is certainly not my subject. It is the Petroleum Minister's subject. And this is a decision, which the Prime Minister will take after looking at numbers. My job is to provide the numbers, to support the argument one way or the other."

When asked whether the crisis was giving him sleepless nights, he said, "None at all. I think I have released 2 or 3 books in this period and I have read every book and watched you guys on television and there is no sleepless night and I think what we are doing is the right thing.

"If I were the Secretary Treasury in the US, then I would have had sleepless nights, but being Finance Minister of India this time does not require me to lose sleep," the minister said.

India, he added, would "return at decent satisfactory rate of growth and the next year we are looking to bounce back to high growth path."