Though there are some early signs of economic recovery, rural demand remains tepid as unseasonal rains and weak income growth continue to be overhangs, believes VS parthasarathy, chief financial officer, Mahindra & Mahindra (M&M). In an interview with Malyaban Ghosh and Pranav Nambiar, he says electric vehicles are a viable future option and government support is crucial to their success. Parthasarathy also feels the GST will have a multiplier effect on the economy. Excerpts

When do you see rural demand picking up for the auto industry?

There are some green shoots and some segments are showing signs of a turnaround. Our construction equipment business, for example, is showing an uptick, which indicates that industry is gathering pace. Heavy commercial vehicles (CVs) are also showing encouraging signs.

Rural demand is probably a little more muted as unseasonal rains and weak income growth have been deterring first-time buyers. In this scenario, huge infrastructure projects will help things rally around them.

All in all, we definitely see rural demand picking up over time, but there are some grey clouds on the horizon at the moment.

How do you see the proposed goods and services tax (GST) benefiting M&M and the economy in general?

I think it will bring huge benefits. Canada, for example, saw a 1.4% increase in its gross domestic product (GDP) and also witnessed a multiplier effect. In India, GST is likely to have a much bigger impact. In fact, higher productivity is the key reason behind its implementation.

I hope we can stick to the implementation timeline since the faster it comes, the better it is. That said, the passage of the Bill will take time as it is a reasonably long process — it has to be passed by the Lok Sabha and the Rajya Sabha and half the states. Thereafter, an empowered committee will be set up, which will decide on key issues.

What’s your take on the reduction in corporate tax announced by the government?

Broadly speaking, it’s a positive, though it comes with caveats. All we have heard so far is that corporate tax will come down and the exemptions will be done away with. If these exemptions are more than 1%, we will not benefit. But if they are less than that, it will help us as a company. Overall, it’s a positive move but we have to see the fine print — at the moment, we don’t know what these exemptions are.

Do you think Indian manufacturers are investing enough in R&D to keep pace with their global competitors?

There are Indian companies with global ambitions and their operations resemble those of multinational corporations. From M&M’s point of view, R&d investments are done keeping in mind global standards, but it takes time to evolve to a position. Even countries like Japan and South Korea took a while — similarly India needs time.

There are no short-cuts to that territory. Technology has to improve and the focus has to be on skill development.

The response to electric cars has been poor in India. Will you invest further in the segment?

One has to make a calculated guess on what will be a feasible option in a climate-changing environment. One can’t disagree that the Reva, which is an electric vehicle, fits into future perfectly.

But 10 years from now, we will be surprised at the pace of change. So I see this as an evolution rather than revolution, but it will take some time and government support will be needed.

If electric vehicles have been successful in Europe, it’s because of government support. We have to make the price palatable for the customer and the infrastructure has to be good enough. There is both need and want.

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