Finance minister Nirmala Sitharaman's corporate tax cut announcement will be of enormous importance for getting new investments into India and motivating existing companies to invest in capacity modernisation, capacity improvement, etc., but it does not give much scope for price cuts, said RC Bhargava, chairman, Maruti Suzuki, on Monday.
"If you look at a company’s corporate ratios related to the turnover... the savings in tax will be something like one-fifth or one-sixth of the total tax payment. Then you see how much it comes as a percentage of the sale value... you have to keep in mind also that most companies are giving very big discounts today anyway. So all of that has to be considered. It may take a couple of days to work out what is possible,” Bhargava said in an interview with CNBC-TV18.
Bhargava added that more steps were required to create demand by making manufacturing more competitive. "We have to lower the cost of manufacture and people have to look at the tax regime looking at the price elasticity of demand and what rate you want to grow,” he said.
Bhargava expects sales to pick up during the festive season as the uncertainty around the GST cut is over.
“Customers never buy when there is uncertainty. This expectation of a goods and services tax (GST) cut is always something which dampens sales until a decision is taken. Now that the decision is taken and the picture is clear, I think sales will pick up during the festival season," he said.
“It is very necessary that now people start looking at how to manage the growth of demand in India. Enough attention has not been paid for this aspect but now we need to look at the demand side of manufactured product,” he added.