Do We Want To Kill the Industry that Truly Makes in India?
At the annual convention of the Society of Indian Automobile Manufacturers, or SIAM, the industry association of makers of cars, trucks and two-wheelers, on 8 September 2017, Nitin Gadkari, the minister of roads, transport and highways, said: “We should move towards alternative fuel… I am going to do this, whether you like it or not. And I am not going to ask you. I will bulldoze it.”
 
By making this very strong statement, Mr Gadkari made the headlines of leading newspapers across the globe, with plans to make India an EV (electric vehicle) nation by 2030 – the first country that would become so. 
 
In comparison, when French President Emmanuel Macron announced his government’s plans to ban the sale of petrol and diesel vehicles by 2040, the move looked positively tame compared to Mr Gadkari’s strident pronouncements. 
 
Even China, which has been leading the EV 'movement' globally, did not have as ambitious a plan as India’s.
 
Yet, by February 2018, it was obvious that Mr Gadkari’s and the Union government’s plan for making India an 'EV nation by 2030' was unrealistic. 
 
A proposal by the Indian automakers’ lobby, SIAM, suggested that India could realistically look at a target of 40% of automobile sales to be of EVs by 2030, and aim at 100% only by 2047.
 
In 2018, India produced more than 5.17 million four-wheelers (cars, commercial vehicles and buses), which took it to the fourth place amongst the car-making nations of the world, behind China (27.8 million), the US (11.3 million) and Japan (9.7 million), but just ahead of Germany, which had manufactured 5.12 million cars, trucks and buses during the year. 
 
For the financial year 2018-2019, as many as 24.5 million two-wheelers and over 1.2 million three-wheelers were also produced in India, making the country, in all likelihood, the largest two-/three-wheeler manufacturing nation in the world.
 
(China’s figure for fossil-fuelled two-wheelers is lower than India, but the country may have made more if the numbers for electric two-/three-wheelers are also included, which come under the category of cycles in that country.)
 
The one industry in India, which perhaps exemplifies the concept of 'Make in India' best, has been the automobile industry. With exports of all automobiles (two/three/four-wheelers) amounting to almost four million vehicles in 2018, the industry has also been an important foreign exchange earner for the country. 
 
Yet, a series of pronouncements, policy announcements and fiscal steps taken by the government over the past two years, has brought this once-burgeoning industry to its knees, as sales of cars during August 2019 plummeted to just 195,524 units, compared to 287,198 in August 2018, a crash of 31.57%, the worst since 1997-98. 
 
It has been a similar story for two-wheelers too, as well as commercial vehicles, with the entire industry in a free fall.
 
Reasons for the Free Fall
 
What could be the reasons? The weakening economic growth is one. The other is liquidity crunch brought about by the collapse of some of the non-banking financial companies (NBFCs), which used to account for a significant share of automobile financing. 
 
Demonetisation and the imposing of GST (goods and services tax) , as well as the implementation of stricter emission norms, BS-6, for all cars on sale in India, could be some of the other factors impacting demand.
 
Some of the other reasons suggested by several experts and observers are: excessive price of the automobiles, recession and trade wars in the global economy, the rise of Ola, Uber and car share apps, and the Indian companies having it a bit too good. 
 
Among the Indian carmakers, only Maruti Suzuki and Hyundai (accounting for two-thirds of the total car market between themselves) have been making money over the past many years. Most others have been losing money. Which is why General Motors and Fiat crashed out of India and Ford has been seriously considering quitting.
 
Given the protection provided to the industry, in the form of tariff barriers, historically, recessions in the international markets has hardly ever reflected in the Indian marketplace. 
 
When car sales fell dramatically across the globe during the recession of 2008-2010, sales of automobiles in India kept growing, albeit at a slower rate than before. 
 
The argument of shared mobility, as propounded by the finance minister (FM) Nirmala Sitharaman, may not be valid either. In the past one year, Paris has seen remarkable growth in shared electric scooters, with more than 20,000 of them available at the tap of an app button. 
 
What the operators had not reckoned was the life of these no-one-owns-one products. More than three-quarters perished within three months, due to the very rough usage. Thus, the fleet needed to be replenished three-to-four times every year... and so there goes all the calculations of one such vehicle replacing three to four vehicles.
 
Moreover, it may not be valid for cars either. Instead of the vehicle perishing in three months, these shared cars perish in three-to-four years. Most of Paris’s first shared mobility programme, Autolib’s purpose-designed Bollore Bluecars were written off in less than four years of intense usage. The average lifespan of a car in Europe—under personal ownership – is upwards of 16 years.
 
The other argument has been about the high price of automobiles in India. This is not true for cars priced up to Rs10 lakh or so. For instance, the price of the Maruti Suzuki Swift diesel starts at Rs6 lakh. The same model in Europe retails at close to €14,000, or Rs11 lakh. 
 
Of course, the base model in Europe has more equipment than the one in India (such as airbags). Otherwise, the specifications are very similar. 
 
On the other hand, the price of a Skoda Octavia in India starts at Rs16 lakhs, as compared to less than €16,000 (Rs12.8 lakh) in Europe. It is a reflection of the extent of localisation: as most of the cars up to Rs10 lakh are close to 100% localized, the prices are very competitive, compared to cars like the Octavia with limited localisation. 
 
This price competiveness is despite the fact that taxes in India is markedly higher than in Europe—with the government still treating automobiles as a luxury good, harking back to Nehruvian thinking. GST (plus cess) for cars range from 28%-50% in India, depending on size and specs. VAT (GST in Europe) is between 18%-21%. Lowering of GST could lower prices—for the sub-Rs10 lakh cars—even more markedly.
 
Needed: A Road Map
 
What could really help save the industry though is a road map. The single most important factor that may have caused this (drive) train wreck of the industry, may have been the uncertainty of government policy and direction. 
 
With the government’s aggressive barrage of pronouncements on going electric, banning diesel, phasing out petrol-engine vehicles to scrappage of older vehicles, the consumer, as well as the automobile industry, is completely confused. 
 
Should one replace one’s car with a petrol-powered vehicle, or wait until EVs come into the marketplace? Will it be possible to run a diesel-engine vehicle a few years down the line? Will cars over 15-years-old, will they be scrapped in my city? BS4 versus BS6, EV versus ICE (internal combustion engine), shared versus owned? 
 
If the main complaint earlier was that of a government that did not do anything. The problem today is of a government that is firing on all cylinders… and chaos reigning everywhere, as the one “Make in India” industry is getting unmade by the same government that has coined this phrase. 
 
(Gautam Sen is acknowledged globally as a leading automotive journalist, writer, automotive design consultant and expert from India. He founded the country’s first newsstand car magazine Indian Auto in 1986, followed by Auto India, Auto Motor & Sports and BBC’s TopGear. Mr Sen has also been directly involved with the automobile industry in India and Europe, and has worked with eminent designers such as Gerard Godfroy, Tom Tjaarda and Marcello Gandini.)
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    User

    COMMENTS

    Garima Kushwaha

    3 weeks ago

    My builder is not working on the project. I filed case in maharera 1 year back still no conclusion. Builder also sold project land to some other third party. Builder also keep on selling remaining plots but not updating any details on rera website.Maharera is of no use.

    Ramesh Poapt

    4 weeks ago

    mr gadkari is right. suitable policy/incentives to be given.

    Harinee Mosur

    4 weeks ago

    Very good article. Also too many models released with no differences and advantages especially the crossover SUV has been overkill where all look same.Innovation is seriously lacking in the car segment right now. We need cars which will handle the hits of traffic(body material needs change), drive over potholes and allow more space.Why will buy a new car to see a dent within a week driving in the city? No I am not a bad driver but its inevitable within a week or month.

    P S SHANKAR

    4 weeks ago

    The author makes very valid points about the hyper activity of the government. Too many initiatives at the same time - GST, BS 6, EVs - has slowed the industry down.

    This article also addresses the common reasons many believe for the auto sector slowdown - ride sharing and cars being costlier in India.

    However we should note that comparing car costs in the same Euro currency is not fair, since people in India earn much lesser than their Euro counterparts. For cars made in India, safety features are less, service quality is low and maintenance costs are very high.

    I believe that the housing market slowdown is an important factor in car sales slowdown, because most Indians would buy a car only after getting their housing right. In congested cities, buying a car is not an option for many Indians with means who may be waiting to move to a suitable house.

    Not just the government, a majority of Indians think cars are a luxury. The slowdown in the real estate sector has made many Indians to rethink/pause their car (luxury) purchase plans.

    Kochar Bipin

    4 weeks ago

    One of the key strengths of the auto industry in India is the low cost of manufacturing quality cars due to a very strong component manufacturing network -

    Maruti has been investing over 4000 cr annually on R&D and royalties for latest state of the art technology, this can easily take advantage of this slowdown to export over 50% of its production like has been done by Bajaj Auto

    Bhuvaneswaran K

    4 weeks ago

    one thing the article has not mentioned is the global slowdown. Germany's Center for Automotive Research has already warned about global slowdown mainly due to US and Chinese markets. India also exports the vehicles, and even most part of the sales for Tata motors comes from its JLR business. So Global slowdown, declining exports and declining Indian sales(after May'19 especially, as the sales numbers till May'19 doesnt look bad, from the numbers in Autopunditz) seems to showing this result. Will action from India make any remarkable improvement?! I hope it does.

    Amazon, Flipkart festival sales violate FDI norms: CAIT
    Reiterating its demand for ban on festival sales by Amazon and Flipkart, the Confederation of All India Traders (CAIT) on Tuesday said that the two e-commerce majors are flouting the norms for foreign direct investment (FDI) by carrying out festival sales.
     
    The traders' body urged the Commerce Minister to look into the violation of the FDI policy by these e-commerce companies and impose a ban on the declared festival sales. It also urged the government to institute an investigation into the business models of these companies.
     
    "Holding such sales and offering deep discounts are clear violations of Press Note No.2 of FDI policy 2018. The CAIT has earlier written to Union Commerce Minister Piyush Goyal to ban the declared festival sales by these e-commerce portals," a CAIT statement said.
     
    "CAIT Secretary General Praveen Khandelwal strongly opposed the statements of Amazon and Flipkart that appeared in media couple of days back that they empower the sellers on their respective platforms to decide the prices and offer their choice of selection to customers at the prices they deem fit and offer best value of their products to consumers.
     
    "The said statement of both the companies are devoid of any logic and just an eye wash to keep right the wrong practices they are conducting on their platform," it said.
     
    Khandelwal also said that these companies are indulging in blatant violation of the FDI policy of the Centre. CAIT noted that the key provisions of the FDI policy say that 100 per cent FDI is allowed in the e-commerce marketplace model and under which e-commerce companies can act only act as technical platforms.
     
    The policy clearly says that e-commerce entities will not influence the prices directly or indirectly and shall maintain a level playing field, the statement said.
     
    "Since these e-commerce companies are not owners of the inventory how can they offer deep discounts on the inventory hold by the sellers registered on their platform. As per policy, it should be the seller offering discounts but in this case the discounts are offered by e-commerce companies which is again a violation of e-commerce policy.
     
    "Such festive sales offering deep discounts are nothing but influencing the prices directly or indirectly which is a clear violation of the policy," it said.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  • User

    COMMENTS

    ASHOK KAMBLI

    4 weeks ago

    Chaterji sir not leasent buyer he favour talk on builder so builder get benifit & haress to buyer we ger experience

    AAR

    4 weeks ago

    Low prices are good for customers. Why make noise?

    Blackstone Group's Rs 2,700 cr deal to buy Coffee Day techpark
    Blackstone Group along with Salapuria Sattva Group has signed a definitive agreement to purchase the Global Village TechPark of debt-laden Coffee Day Enterprises' subsidiary Tanglin Development Ltd at an enterprise value of Rs 2,700 crore.
     
    "The board has approved and the company has executed the definitive agreements with entities belonging to Blackstone Group and the Salarpuria Sattva Group for investment in GV Techparks Private Ltd, a wholly-owned subsidiary of Tanglin Development Ltd ("TDL"). The completion of the transaction is dependent on the transfer of Global Village TechPark asset from TDL to GV Techpark Private Ltd," Coffee Day Enterprises said in a statement.
     
    It said that the transaction will substantially bring down the debt level of the group which was Rs 4,970 crore as on August 17, 2019.
     
    The company said the first tranche of the transaction would be complete on or before October 31, 2019, and the enterprise value of Rs 2,700 crore is subject to transaction closing adjustments.
     
    The shares of Coffee Day Enterprises on the BSE settled at Rs 72.75 on Tuesday, lower by Rs 1.55, or 2.09 per cent, than its previous close.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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