NEW DELHI: Indian corporations should try to find lower price points for selling products to stay afloat in the current global economic crisis rather than cutting production and laying off people in order to reduce costs, Asian Development Bank’s managing director-general Rajat M Nag said.
“In times like this, one should look at increasing market share. Reducing prices to stay in business and get a greater market share may also be a strategic move,” Nag told DNA Money in an interview on the sidelines of the India Economic Summit organised jointly by the World Economic Forum and the Confederation of Indian Industry.
“One must of course cut costs, but look at where to cut costs,” Nag said, adding, “One has to look at the economics of the situation and take a slightly more strategic view than reacting to day-to-day fluctuations.”
“Companies need to take a mid- to long-term view as well, because this crisis will pass, and the price of money will come down as the monetary situation eases and thus, the credit will start to unfreeze,” Nag said.
Asian countries, including India and China, need to increase the contribution to their earnings through domestic consumption to insulate themselves to some extent from the global slowdown .
“India needs to ensure domestic consumption stays high and increases,” Nag said.
“Domestic consumption is a very important part. 55% of India’s gross domestic production is domestic consumption. Therefore, even while falling exports will have an effect on the economy, it will not completely throw us off our feet,” he said.
China has a lot of scope to enhance its domestic consumption for increasing its economic growth, as China’s domestic consumption is 37% of its GDP, Nag said.
The Asian countries also need to increase the share of goods and services exported to within Asia as a proportion of those exported to the western nations in order to hedge against a slowdown in demand in the developed countries.
“Asia exports 60% of its output to USA, Europe and Japan. If that 60% can be brought down to 40%, i.e. if Asia exports more within itself, then just because the Western economies are in difficulty, it would not mean that there is no other market,” Nag said.
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