While the government has been rolling out schemes to attract global manufacturers to set up shop in India, RC Bhargava, chairman, Maruti Suzuki, believes these may work in specific sectors such as mobile phone manufacturing. Bhargava tells Sunil Jain and Shobhana Subramanian he is not sure companies that are moving out of China will necessarily move to India as the situation on the ground, by and large, remains hostile. Excerpts:
September wholesale despatches have been strong…
Monthly wholesale numbers are not a good indicator of what is happening. September was good, on a low base. Also, at the end of August, the inventory dipped below 80,000, which is 50,000 less than it should be. Our norm is that dealers need to have one month’s stock; else, if there aren’t enough cars in the showroom, the buyer will go elsewhere. The numbers look good, but that doesn’t mean we are in a happy situation. September retails are not high.
How are you reading the demand in the festive season, and how sustainable do you think the demand would be?
At the moment, we have good prospects till December, because the Navratras will start in mid-October, which is a good period, and then we have Diwali. In December, most companies offer discounts to clear models, and December often sees some of the highest sales because customers get good deals. Post that, however, we have no visibility. Since Q1 was a washout and Q2 was spent adjusting to the new operating protocol, we won’t get to last year’s figures. However, provided January to March is reasonably good, H2FY21 will be as good as the second half of last year.
Have you had to support your dealers with demand dropping due to Covid-19?
A few dealers needed some support, but by and large banks have been very helpful in providing working capital, there was the moratorium also…
Are you expecting a lot of discounting?
Discounts are determined almost on a day-to-day basis. It is not a fixed amount, and is largely a function of supply and demand. If there is a waiting list for a particular model, there is no point in offering a discount, but if there is a surplus and you want to push sales, we have some incentive schemes.
Is the share of first-time buyers to total buyers going up?
I don’t have the exact numbers. But what is apparent is that sales of compact and entry-level cars have grown faster than overall sales.
Given Maruti’s share of cars priced less than Rs 10 lakh is about 60% compared with the market level of 50%, are average realisations getting hit?
It is true we have a high share of compact and smaller cars, but that is also helping compensate the loss from the absence of diesel vehicles. Despite not having diesel models, we have 50% of the market. But yes the average selling price would be impacted.
There is strong competition from Kia’s Sonet…
Kia has done well, but the market is also growing. On a base of 35 lakh cars, if we can manage 8%, that’s 2,80,000 additional cars a year, and that is a lot of cars, so there is scope for other players to grow. One or two companies cannot be picking up all the demand; it is simply not possible for a company to add a line for 2,50,000 cars every year. Earlier much of the market was shared by Maruti and Hyundai, now others have come in.
A lot of the success of a car also depends on the availability of spare parts, after-sales service. The Kwid (Renault) did very well initially, and then it just petered out.
How much of the market will be electric cars in the next few years?
That depends on the changes in the tax policy. What has happened is that the cost of cars has gone up, not because of manufacturing costs, but because of the changes due to safety and environment norms. If you exclude these costs, and do a like-to-like comparison, the cost of the car has come down in real terms.
What is your view on the GST rate structure?
The government realises that if you want sustainable high demand, which is required to grow manufacturing and employment, we need to make cars affordable. But the resources are not available, and there are conflicting demands on them, making a reduction of GST on cars both politically and financially difficult. But what we forget is that by putting high taxes, we reduce volumes, and by doing that you put a brake on manufacturing and employment. Also, whenever taxes have come down, there has been buoyancy in revenues.
From cutting corporate tax rates to more flexible labour policies, the government has made a lot of changes to attract investment. Do you see more foreign firms coming to India, especially those looking to exit China?
There are certain specific schemes such as those for making cell phones which look like they will have an impact.
But whether in general companies moving out of China will come to India in big numbers—and not go to Vietnam, Cambodia or Indonesia—is an open question. I am not sure we have done enough to attract these companies to India. The attitude of the bureaucracy and the political system towards manufacturing is not friendly enough. The bureaucracy has been shy of supporting the private sector, and acting as facilitator. The prime minister may be industry-friendly, but the same can’t be said of the bureaucracy, especially at the level of the states. And several moves like the agriculture Bills which will boost rural demand are facing tough opposition.
Where is the problem?
If you look at what happens in the states, the time it takes to get approvals and clearances before you can run operations, a lot of it still costs money. It is not as though it is being done without consideration. I don’t think corruption has gone away at the field level, not at all.
Look at our input policies … the system is weighted against industry which pays much higher prices in order to subsidise others.
When a firm comes into a country, it does so with a plan to expand. But if you have such high taxes—as on automobiles—how will the demand grow. That’s why there are such few firms in India with global scale even after being here for 50-60 years. If you aren’t able to grow agriculture incomes, this hits rural demand … all of this keeps industry away.
Is the lack of stability of policy a factor? The MEIS benefits, to name the latest problem, were suddenly capped. Restricting/delaying Chinese imports may be required from a nationalist point of view, but it hurts business…
The long-term stability of policies is an absolute necessity for creating confidence amongst investors and enabling them to invest in India. We have not had any problems with imports from China. While I am not sure of exactly what has been happening, if restrictions/delays are affecting other manufacturers, this would not be positive for investors. Again, take the issue of royalties. This was settled last year when SEBI revised the change to 2% royalty and restored the 5% limit. Apparently, the government now feels that royalty payments should be justified in terms of technology received. While that is correct, the impression should not be given that the royalty policy can be frequently reviewed.
Has the problem with Indian labour laws been sorted out? You can have as many fixed-term employees as you want now.
My view is quite different from yours. We need a certain amount of flexibility to hire on fixed-term contracts, but the core of a factory has to be permanent employees … it is only when their long-term future is tied to a company that you will benefit from their learning. A lot of the productivity improvement we have got is due to our workers’ commitment and their ideas … this can’t happen in a hire-and-fire regime where people are incentivised to jump from one job to another. Labour has to be made a partner for a company to do well.