New Delhi, Nov. 18: The finance minister today asked industry to cut prices to boost demand and help rejuvenate the economy, specifically nudging consumer-driven sectors such as realty, automobile, aviation and hospitality.

In return, the government offered to consider excise cuts and create a shield for domestic industry. Some protection was offered right away by bringing back import duties on steel and soybean oil.

However, the industries being nudged appeared to be biding time in anticipation of lower interest rates or sector-specific relief before committing price reductions.

“Hotels should cut prices, airlines should cut prices, realty should cut prices of the flats they sell and auto makers should cut prices,” P. Chidambaram told an economic summit in Delhi today. “The classic response to demand slowdown is to cut prices for the short term.”

Price cuts are the only way for firms to maintain financial health, keep unsold stocks down, retain market share and hold back hardworking employees, the minister added.

Chidambaram’s price-cut advice comes against the backdrop of predictions that growth could slip to 6-7 per cent in 2008-09 from 9 per cent over the past three years.

“While banks are ready and willing to lend, borrowers are not ready to buy at current prices,” Chidambaram said.

But some industry captains didn’t seem to believe banks had gone far enough. Bajaj Auto chairman Rahul Bajaj said: “The finance minister’s suggestion on price cuts can only be implemented if interest rates fall.”

DLF group chairman K.P Singh, whose company has had to shelve projects because of low demand, claimed that “prices have already hit rock bottom”. “If there is a price correction in the future, it will depend on market forces.”

Some real estate analysts disagreed, saying many developers had not formally announced the lowered prices.

But chambers welcomed the government’s suggestion. “I am sure you will find newer set of prices in most product categories,” said CII president K.V. Kamath.

Airlines linked a cut in ticket prices to lower taxes on aviation fuel. “We are open to reducing fares if there is some tax rationalisation,” Ajay Singh, SpiceJet director, said.

Economists warned that market forces could force “harsher” price cuts if companies didn’t slash rates themselves. “It makes sense to cut prices and spur demand,” said N.R. Bhanumurthy, lead economist with the Institute of Economic Growth.