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A real recovery in India’s automobile industry will be achieved when sales grow in double digits compared to FY18-19, said R.C. Bhargava, chairman of Maruti Suzuki India Ltd. In an interview, Bhargava refrained from giving a sales forecast for this fiscal, citing the continued uncertainty amid a rising number of covid-19 cases.

He said the sales rebound seen in July was led by the rural market though there has been some improvement in urban demand as well.

Edited excerpts:

How will you interpret the current recovery in sales in the sector?

There has been a lot of pent-up demand and this has its origins partly in the fact that in the previous year (FY19-20), because of various factors, sales of cars for the industry as a whole went down by 18%, and Maruti, as a consequence, was down by 16%. That was unusual because, usually, every year, we used to have at least 6-8% industry growth. Then, because of these three months of the shutdown and the subsequent restart, there was no sale and there were a lot of people waiting to buy cars. To a large extent, I think the recovery is based on the pent up demand of the past.

Is the demand revival led primarily by rural markets?

It is true the rate of growth in sales is higher in rural areas, but it not as if urban areas are not growing. This kind of sales cannot happen without contribution from urban areas as well.

Is the current recovery in demand sustainable?

The demand level where we have reached is way below FY18-19 and sustaining this is either not very difficult or of any relevance as we go forward and try to develop the industry and the employment (opportunities) of the country. The real issue we should look for, and I am not talking of the next 4-6 months; the recovery would really be when we get to FY18-19 volumes and then, on top of that, we can get growth in double digits. Then you can say the industry has recovered and Indian manufacturing is on a strong wicket. One should remember that in May, there was no production virtually, and production in June was also very small. So, the base from which you are comparing is actually very low. Also, last year, sales in July were low.

What steps should the government take to ensure the recovery is sustained?

I am sure everybody in the government must be paying a great deal of attention to the recovery of the economy. Certainly, the automobile industry is a big part of the economic recovery because of its potential to create jobs and generate taxes. The recovery of the auto industry, though, is not entirely in the hands of the Centre. In fact, probably the states have a larger role to play.

Ultimately, if sales have to improve to double digit growth from FY18-19 level, the cost of acquisition of a car has to come down. The affordability factor is most important today and has become even more now because income levels are down. The cost of production needs to be cut and a lot of factors that go into the cost of production are controlled by the states. Taxation on cars, like road tax, is entirely on states and GST can’t be changed without consent of the states.

Will the industry be able to match the growth seen in February 2020?

There are too many risks and unknown factors. My approach is let’s take it month by month as the Covid situation is very unclear. So, who can predict how it will go in the next two months. We are planning on the basis that we have to maximize our production consistently, following all the regulations which are required for the safety of our employees, associates and customers. We will continue to do that and keep increasing production, but if suddenly some changes happen in the market, we have to follow those changes.

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