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The coronavirus pandemic can be a blessing in disguise for the Indian economy, if it can emerge as a credible alternative for companies looking to shift part of their supply chain networks from China, said Pankaj Munjal, chairman and managing director, Hero Cycles Ltd. He said that India may be looking at a golden period in the post-pandemic world if it can emerge as a trusted partner for global firms. Edited excerpts from an interview:

Can India become an alternative for companies looking to move away from China?

India is staring at a golden opportunity. The kind of customers that we work with are the likes of BMW, Ducati, Mercedes Benz and Audi, and they are giving us future drawings, cash flows, and telling us how they will earn tomorrow. If India can prove to be a trusted supply chain partner—that means we protect their intellectual property, patents and technology, and then we have the domestic volume—then India can be a base and a market for them, compared to Vietnam or Cambodia. For instance, if we make a component for a large vehicle manufacturer in England and they have a factory in India, then the same component will go into both, and will generate scale. So, India’s golden years may be ahead.

What will be the impact of this pandemic on your bicycle and auto component manufacturing businesses?

Europe is going to bounce back well and we already have a schedule (for supplying parts) from our customers there and North America when operations resume. That part of the business is well planned and organized, and will pick up much faster. The Indian auto industry was facing a lot of challenges and this pandemic has derailed the recovery process.

In Wuhan, after the lockdown was lifted, people wanted to maintain social distancing as a new normal. So, people are not opting for cabs and metros, and are switching to individual transport and that gives me a lot of hope. If that culture comes here as well, then personalized transport will get a big push. On bicycles, I am quite bullish. We make 20,000 units every day, which caters to basic necessities. We have to travel from one point to the other, like home to school or work, in rural India.

Will a stimulus package from the government help revive the economy in the coming months, and how should that be implemented?

The magnitude of money, that is, the percentage of the gross domestic product that the Europeans are putting in, which is 10% or 20%, is quite a well thought-through plan. They are not focused on deficit now and are looking at survival, and the basic fundamentals to fall into place. It’s like a ventilator and you have to remove it slowly. In our factories in Germany, we have already received the cheques (for salaries) from the government. It’s not just a plan. It has been executed.

Here the plan is yet to come. What worries me is that half of India is small and medium enterprises (SMEs). When it comes to the execution of the re-scheduling of loans, and the gap in repayment of instalments for three months, the original equipment manufacturers (OEMs), and tier 1 component manufacturers will have dedicated teams for this, but what about the SMEs? They are the weak link here and the money has to reach them. In a car or a motorcycle, there are lots of small components required which are manufactured by tier 2 suppliers, who then supply to the tier 1 vendors and then that gets supplied to the OEM.

There are two aspects to this, which is demand and supply. To get the whole supply chain moving, the economic package has to be there in such a way that it can touch the SMEs, which generates half the employment.

Have you deferred the planned capital expenditure for the current year?

At this point in time, we can’t say anything. All that we read in the media is that demand has gone and everything is down. In China, after the lockdown was lifted, there was spike in the purchase of luxury goods and cars. So, that defies everything we are reading now. We have to wait and watch at least a month after the operations start, then we will get hold of some ground reality on the post-covid-19 scenario.

On the capex side, we will take a call after a month or two. We can now only speculate about the demand in the market. Maybe it is not that bad as it is predicted to be.

What do you think of the measures taken by the Reserve Bank of India?

The OEMs are strong companies, virtually debt-free and can negotiate with the banks for credit. If an SME goes for a loan, then the bank should not point towards his financial ratios since to get the money from the banks one requires a lot of ticks in the boxes. If that SME guy is not ready, that will affect the entire supply chain. The banks have to be mandated that they have to assist these companies.

Considering the crisis, what is your expectation from the European business?

We make components for electric vehicles (EVs), e-bikes and bicycles, which are new-age products and are not environmentally damaging. We have a double-edged opportunity there. EVs have a very small base and we have tied up with one of the EV truck makers in the US. Fortunately we are in the right business at the right time.

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