Stimulus needed for quick revival of economy: Maruti’s Bhargava

India needs a fiscal stimulus to ride out the crisis caused by covid-19, Maruti Suzuki India Ltd chairman R.C. Bhargava said, as he joined a chorus of business leaders and economists calling for the government to announce a fiscal package to support businesses and create jobs.

Bhargava said that the government should make consumer products more affordable as he hinted at tax cuts on automobiles. He said also that the Suzuki Motor Corp. unit will decide on its future investment plans (capex) after studying the demand for its cars in the future.

India’s largest car maker is meanwhile witnessing an increasing number of queries online for its vehicles, Bhargava said, underscoring pent up demand for entry level or affordable hatchbacks in the domestic market.

“The poor who have no means of living will require direct transfer. More important than just transferring money is also to ensure that there is a demand creation in the economy. My belief is that demand creation is more effectively done by making products affordable rather than by transferring some money to everybody’s pocket since everybody is not a customer and transferring money does not create the type of demand required for industrial revival,” Bhargava said in an interview on Sunday.

He said “countries are already working out big packages to stimulate economic revival and I am sure our country will do something on the same lines.”

Maruti is considered a bellwether for India’s passenger vehicle industry with more than 50% market share. The automobile industry contributes almost 7-8% of India’s gross domestic product (GDP) and provides employment to millions, directly and indirectly.

Maruti and other automakers are meanwhile waiting for a decision on the status of the ongoing 21-day national lockdown.

The lockdown, which runs through Tuesday, may be lifted though in a decentralized manner based on the severity of the coronavirus outbreak in various parts of the country.

With the pandemic expected to severely hit the Indian economy, rating agencies have trimmed their outlook of GDP for this fiscal year. Moody’s Investors Service has lowered its projection for India’s GDP growth for 2020 from 5.3% to 2.5%.

Several countries such as the US, Japan and the UK have come up with fiscal stimulus packages to mitigate the impact of covid-19.

Bhargava said the current crisis is a lesson for corporates to focus on generating internal resources to withstand similar shocks in the economy in the future.

“High wages to the top management results in weakening the generation of internal resources. It is necessary for all businesses including dealers, vendors and small companies to understand the importance of building internal resources which means keeping salaries of top management as low as possible, minimizing dividend payments and putting money back into the company,” he said.

According to Bhargava, companies like Maruti will try to cut down on travel of executives since lot of business can be done using video conferencing. Also, conventional advertising expenses will be reduced, and customer outreach will be increasingly made through social media and other technologies.

“At times of rapidly rising demand, some companies including Maruti develop a certain amount of fat in their working system and whenever there is a depression or downturn these companies work hard to cut out that fat and become again lean and efficient,” he added.

Bhargava said Maruti may not defer the process of looking for land to shift its factory in Gurgaon and may resume the process once the situation normalizes.

The covid -19 pandemic has exposed the dependence of auto and other manufacturing companies worldwide on components sourced from China. Some companies are also likely to shift some part of their supply chain network out of China in order to stave off recurrences of such a situation again.

Bhargava said the ease of doing business in India needs to improve further to attract more foreign investments.

"What particularly we (the auto industry) import from China is electronic parts and unfortunately, the Indian electronics industry has not developed at all. So, despite the covid situation, you still need sources for electronics supplies. It’s not going to develop overnight in India," he added.

“Investors even if they move out of China will still consider the options available to them. India is not the only options though the ease of doing business has improved due to government initiatives. Still, we are not seeing the kind of influx of foreign investment in manufacturing and, therefore, we have to look further into seeing how do we make it more attractive for foreign investors.”

The automobile component industry will lose ₹1,000-1,200 crore in revenues each day because of loss of production, according to an internal estimate of Automotive Component Manufacturers Association (ACMA) of India. The Society of Indian Automobile Manufacturers (SIAM) has pegged the daily loss ₹2,300 crore.