1. ‘Make in India will be lost if we aren’t globally competitive in input cost’

‘Make in India will be lost if we aren’t globally competitive in input cost’

RC Bhargava, chairman of Maruti Suzuki India, says India ‘never had a culture of manufacturing’, sees contract labour and the tendency to view management and labour ties as adversarial as problematic, and blames lack of communication for the 2012 Manesar violence

By: | Published: July 26, 2015 12:11 AM
On pollution, there is a lot of misconception. Our major worry is PM 2.5. Petrol cars of Euro or Bharat II do not emit PM 2.5. And petrol cars make up 70% of cars on the road, said R C Bhargava.

On pollution, there is a lot of misconception. Our major worry is PM 2.5. Petrol cars of Euro or Bharat II do not emit PM 2.5. And petrol cars make up 70% of cars on the road, said R C Bhargava.

Why RC Bhargava

RC Bhargava, 81, is a retired bureaucrat, former CEO and now chairman of Maruti Suzuki India Limited. Having ruled the entry- and middle-segment of the passenger car market for over two decades, the company is now hoping to target the premium category. The company has set an aggressive sales target of two million cars by 2020. As a leading automobile manufacturer, Maruti Suzuki is a key stakeholder in the government’s Make in India drive and in the reform of labour laws.

Sandeep Singh: The auto sector is known to set the benchmark for the manufacturing sector and is at the centre of the Make in India initiative. After one year of the new government, is there a road map in place?

In India, we never had a culture of manufacturing. If you look at the growth strategy from 1950 onwards, there was never pride of place or primacy given to manufacturing. In fact, if you look at the actual results of policies, they have all put down manufacturing. Inputs have been more costly for manufacturing than for agriculture or any such thing.

We are trying to change a culture which has developed over 65 years.

But most people in the political establishment still have that old socialistic mindset. Over the years, the bureaucracy has also developed a distinct attitude of not helping private business. The laws are  such that if you help private business, then the famous section 13(1) d(iii) of the Prevention of Corruption Act comes into play. Expecting a lot in one or two years is unrealistic. A lot of things have to be done in this country before we can say we have a manufacturing culture. Policy changes, the ease of doing business — the intentions are all there — but it is not going to happen in a hurry.

Sandeep Singh: You are the biggest player in the auto sector but the industry is not growing. How do you read that?

It is not a good thing for Make in India. The automobile industry is one industry which actually makes in India. This is because most manufacturers are in India. My understanding of Make in India is that you should make in India by being globally competitive in terms of input cost . If you don’t achieve that, the purpose of Make in India will
be lost.

Shobhana Subramanian: Can you cite two changes that are needed in labour laws to make the environment conducive for manufacturing?

The concept behind labour laws is that workers and management are adversaries. And laws have to be made to protect one against the other. This concept is no longer valid in today’s globally competitive world where barriers to trade are low and becoming lower. The purpose of labour laws is to create conditions to change this relationship from adversarial to cooperative in the interest of the company. The biggest irritant today is contract labour. A large number of industry strikes in the NCR are related to contract labourers and their problems — that needs to change. We have changed the system in Manesar. I believe there should be a provision in the law for temporary workers. The system now is that contract workers are hired and if they remain in the company for 280 days or so, they become permanent. That leads to the present system.

Sunil Jain: So the government should have a fixed term for temporary employees?

I would like to have a temporary worker who is just a temporary worker. If there is a downturn in the industry, and there has to be a reduction in the workforce, the junior-most guy is laid off. When demand picks up, the same guys are brought back on the basis of seniority. Temporary workers could form 30-35% of the total workforce. All the regular vacancies are filled with temporary workers who then become regular workers. I would want that when temporary workers are laid off on a downturn, they should get a subsistence pay. Today, none of these things exist. For global competitiveness, we need retention of skilled people.

Maneesh Chhibber: What lessons has Maruti learnt from the incident of 2012 (one person died and over 90 people were injured in clashes at Maruti’s Manesar plant on July 18, 2012)?

That incident highlighted what happens if you don’t adequately educate and communicate with workers before introducing, say, a Japanese style of management. In Gurgaon, we took several years before we got workers to do what they are doing in terms of punctuality, attendance, discipline. It was not Japanese style when we started production in Gurgaon in the 1980s. Some of them were recruited by Sanjay Gandhi, some were freshers from villages. How can they be expected to know what an industrial working culture is? They can’t know. You can’t just impose the industrial work culture on people from villages without going through a process of education and change. There were other mistakes such as too much concentration of people from a particular region or particular caste. The recruitment system was faulty.

Sunil Jain: Is there a problem in the way companies like Maruti work? You don’t hire people directly, you work through contractors.

The contractor system is very defective. It is absolutely wrong. When I was MD of Maruti till 1997, we never had contract workers in production. It all happened suddenly. I think it was the result of people seeing what is happening in the rest of the industry, like in Hero Honda. They said if Hero Honda can have these workers and maintain discipline and pay lower wages, then why not us.

Anil Sasi: The proposal to sub-contract manufacturing in Gujarat has come in for opposition from institutional investors.

The opposition came right in the beginning. But I haven’t seen any opposition after we made our last clarifications in March-April. Look at the share price. If people were unhappy, they would not be buying the shares and pushing up the price. The shareholder of Maruti is going to benefit enormously from the Gujarat plant. Because the entire profit of manufacturing in Gujarat is going to come into Maruti. Which means the shareholder of Maruti will be part of that profit. There is no profit being retained or repatriated in any way from Gujarat to Suzuki. As a shareholder, Suzuki gets 56% of that profit. I don’t see the Gujarat project facing any opposition.

Sharmistha Mukherjee: You have R9,000-10,000 crore as cash reserve in the bank. Where do you want to invest it?
We need to invest in building our new Nexa network (consisting of dealers of only premium cars). We are going to invest in real estate. Because the biggest problem is the availability of real estate for the sales and service outlets. Today we are selling 1.2 million cars. We want to go up to two million cars. Which means, many more outlets and workshops are required. We need real estate for that. So we are setting up a separate division and hiring people who specialise in acquiring real estate.

Sandeep Singh: What is the rationale behind dropping ‘Maruti’ from ‘Suzuki’?

It is in line with international practice. It is not a permanent decision. We will watch for a few months, do a survey to see how the customer reacts to not putting Maruti on the car. Showrooms still say Maruti Suzuki. It’s not that Maruti is dropped. Only that we are not writing Maruti on the car. But we may put it back if the market feed says customers like it.

Sandeep Singh: What about royalty (paid to Suzuki)?

Royalty is paid to cover the costs and the risks of developing new models. If Suzuki is developing a new model, they put money into doing that. Nobody knows how many numbers of that car will sell when it is actually launched. Some cars do exceedingly well, some don’t, and that’s the risk part. The royalty numbers went up two-three years ago primarily because of the yen appreciation. As the yen has weakened, this year’s numbers are much lower in royalty terms. Going forward, for all the new models which we will now be making, the royalty will be in rupees, not in yen.

So this element of fluctuation with the yen will go away. And you have a royalty which is fixed at 5%. This 5% will get reduced to the extent that work is done in India also. We will be doing the maximum work in India compared to anybody else so our royalty will actually become lower.

Shobhana Subramanian: Do you think labour is increasingly becoming militant or do you see them becoming more reasonable?

I think labour has always been reasonable. I think the problem we have is that there is very poor and little communication between managements and workers. You hire people, you spend a lot of time bringing them into the culture — we do it for managers, but we don’t do it for workers who are much more in need of education. If you are willing to invest time in talking to workers, explaining and discussing with them general issues of management, economy, manufacturing and competition, they understand very well.

Anil Sasi: There are some apprehensions about the safety of cars being manufactured in India. Alto failed the test and Swift too didn’t fare too well at the New Car Assessment Program tests. What are manufacturers doing about the crash test facilities being mandated as necessary in the new law?

Manufacturers comply with whatever law the government fixes for both safety and emissions. No manufacturer can adopt standards different from the national standards. The government has now mandated that certain crash tests are needed from 2017. So we will comply with those. But it’s for the government to fix the standards taking into account the traffic requirements, the costs of bringing in higher safety levels and what people can afford to pay. If we talk about safety, it’s not just cars, look at so many things in this country compared to what they are in the world. Are we at the same level?

Shaikh Zoaib: In the 2012 incident and in all such cases, it is the blue-collared workers who are blamed.

There is a feeling that the management gets away. If you are talking of the police investigation, it is the white-collared workers, including the managers, who were beaten up, the people beating them were the blue-collared workers. Now if you want the white-collared workers who were beaten up to go to jail for letting them (workers) beat them, then I cannot argue with you. But police have arrested the people who actually committed the crime. Ninety four managers went to hospital with fractures. One died. So who should have been arrested?

P Vaidyanathan Iyer: In contract labour, you have two sets of activities — core and non-core. In core activities, what are the things that are different for the temporary worker vis-à-vis the permanent worker?

The salary difference in Maruti between contract and regular workers for more or less equal length of service is minimal — Rs 2,000 or less. They are entitled to provident fund, ESI. They are not entitled to productivity-linked bonus. In any case, I believe that in the production area, there should be no contract workers.

Monojit Majumdar: In a city like Delhi, there are two major problems: pollution and congestion. As a prominent representative of the auto industry, what is your take on what should be done about it?

First, people should not get driving licences without knowing how to drive and the rules of the road. Secondly, we just do not have the infrastructure to enforce laws relating to traffic and driving. Policemen standing and trying to enforce red-light jumping… that’s impossible. We need much more technology today. Nowhere can you break laws with such impunity, like the way we do in India. Third, the road infrastructure itself — designing of the roads and the traffic (is a problem). Traffic lights don’t work… The government needs to take the question of road safety more seriously. To say put airbags in the cars and the roads will become safer is rubbish.

On pollution, there is a lot of misconception. Our major worry in pollution today is PM 2.5 (fine particulate matter). Petrol cars of Euro or Bharat II do not emit PM 2.5. And petrol cars make up 70% of the total cars on the road. Diesel cars do emit PM 2.5, and Bharat IV still has some amount of PM 2.5 as far as diesel is concerned. It’s only when you get to Euro V or Bharat V that diesel cars become reasonably clean. But Euro V is not going to happen till 2019-20 because the fuel for Euro V is not available in India, and oil companies are unable to give that fuel until 2019-20. The bulk of PM 2.5 in India comes from heavy trucks. You have between 40,000-80,000 heavy commercial vehicles crossing Delhi every night. These are hugely polluting in terms of PM 2.5.

Rishi Raj: In cities like Delhi there are too many cars. Some countries have deterrents to buying an additional car such as higher registration, road tax etc. Do you advocate this?

As a car manufacturer I won’t advocate it. Incidentally, it is very difficult to enforce it because cars will be registered in the names of different people. In a family, the father has a car, the mother has a car, the son has a car, the daughter has a car. And how do you say they shouldn’t have a car? Why is one more eligible to have a car than the other? Nobody is willing to give up his own car. ‘I should have a car but others shouldn’t because it is too congested.’ So this giving up call won’t do. We need more and better infrastructure, and better driving for the kind of mixed traffic we have.

Transcribed by Sunil Kumar & L Ramakrishnan

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