Home > opinion > online-views > Collaboration between industry and govt is the need of the hour: Ravi Kant

Auto makers are mounting India’s biggest ever show at the industry’s lowest ever phase.

Paradoxical though it may appear, to my mind, this is what ought to be done. It is at the worst of times that the industry must demonstrate its best to bring consumers back and to induce stakeholders to partner it even as it, on its own, deploys technologies and efficiencies to overcome speed breakers.

How grim the situation is can be gauged from the fact that the medium and heavy commercial segment is down by over 40% compared with two years ago, the passenger car segment is contracting by 10%, for the first time in a decade, and non-performing assets (NPAs) are climbing steeply, especially in the last six months, which foretells of unknowns that still could unfold in the near future. This situation contrasts sharply with other important global markets. China, showing a growth of 14%, has exceeded 22 million vehicles to become the world’s No. 1 market, the US has shown growth of 8%, and Europe and the UK are witnessing green shoots.

Till two years back (fiscal year 2011), the rate of growth of the industry in India was good. The commercial vehicles segment was growing at 27%, passenger vehicles at 29% and two-wheelers at 26%. As is believed, the industry indeed mirrored the economy. The commercial vehicles segment reflected the economy’s health, passenger vehicles showed progression in urban prosperity, and two-wheelers echoed the strength in semi-urban and adjacent habitations. With its forward and backward linkages, the industry positively impacted the Indian economy, in sectors as diverse as oil, steel, non-ferrous metals, rubber, plastic and glass industries. Above all, it created millions of jobs of varying skills, as well as lakhs of entrepreneurs especially through the sale of small commercial vehicles.

It is this virtuous circle which has to be restored. It is well-known that the auto industry is cyclical by nature. The severity of cyclicality varies by segments. For example, heavy trucks, the blood flowing in the arteries of the economy, are heavily cyclical, and can go down by as low as 50% as we have seen and go up by 70%. Being capital-intensive and highly competitive, the industry’s margins, at best of times, is modest and, at worst of times, simply non-existent. This is true of a substantial section of the industry today.

Governments across the world are acutely aware of the extreme importance and criticality of the industry to the economy. Therefore, they are sensitive to its fluctuating fortunes. It is for this reason that even in the most developed economy of the US, the administration spontaneously rescued the industry by providing substantial incentives in 2008. Criticized then, we all know how that support has now paid out very well paving its recovery. Similarly in China, the support by the government in encouraging vehicle ownership has made it the largest auto market in the world. Similar has been the experience of the pragmatism being demonstrated by European governments.

The government in India, too, has acknowledged the industry’s key role. In fact, the Prime Minister himself released a 10-year Auto Plan 2006-2016, which envisaged that the auto industry will reach the turnover of $145 billion and will generate additional employment for 25 million people. Steps to achieve this were clearly laid down, to be implemented by both the industry as well as the government. It was this partnership approach which led to a quick rebound of the industry from the recession of 2008.

Partnership is once again the need of the hour. Both the industry and the government need to take urgent steps.

The industry must take steps to:

a) reduce its break-even point by cost erosion, by being asset-light and by increasing productivity so as to protect itself from future shocks, as well as to ensure resilient benefits.

b) make increased investments in new variants and products to attract more customers towards more desirable, comfortable and economical vehicles.

c) enhance their resilience by adopting new processes and techniques like scenario planning for long-range alternative futures, disrupter analysis to understand the impact of black swan events and analytics to discover trends and opportunities for present and future benefits.

d) imbue organizations to adopt an outside-in approach and be more customer-centric.

The government should:

a) implement fleet renewal scheme for older vehicles. This will substantially reduce the oil import bill and pollution by replacing more fuel consuming and higher emission vehicles. The scheme can be worked out to be revenue-positive for the government.

b) defreeze all government and defence purchases, and go beyond the Jawaharlal Nehru National Urban Renewal Mission scheme to encourage greater movement of people. Also, strictly enforce the ban on overloading of trucks.

c) heavily incentivize investment in new technologies and R&D efforts.

d) kick-start aggressively nearly stalled road development projects, especially the Pradhan Mantri Gram Sadak Yojana, which can become a true game-changer.

A down cycle is inevitably followed by an up cycle. A general upturn in the economy will fan these efforts to results of higher magnitude. Acted upon in time, the auto industry accounting for nearly 25% of manufacturing sector can become the engine of our economic growth, to fulfil the aspirations of half a billion Indians, under the age of 25. A collaborative effort between the government and the industry can make it happen. Are we ready for it?

Ravi Kant is vice-chairman and former managing director, Tata Motors.

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