The 4 per cent cut in central value added tax (CENVAT) has led to a decline in steel prices by as much as Rs. 1,600 per ton. Steel makers such as SAIL, ISPAT, Essar Steel and JSW Steel are all set to reduce prices of their steel products by up to Rs. 1,500 per ton.
Automakers are likely to benefit immensely from this price cut, passenger cars being composed of almost 70 per cent steel. They are, however, non-committal regarding whether or not the cut will lead to a further lowering of car prices. The main reason for this is the depreciation of the rupee, which has limited the benefit accruing to car companies, and also the re-imposition of a 5 per cent duty on steel import.
Car prices have already gone down by 2-4 per cent following the stimulus package. A number of car companies are now hinting at an impending hike in prices, rather than further reduction, though according to industry pundits this may be just a threat designed to drive up sales before the New Year to clear year-end inventories.
