The president of the Society of Indian Automobile Manufacturers in a wide- ranging interview.
Recently, SIAM has become a permanent member of the OICA. How will it be beneficial for India?
Organisation Internationale des Constructeurs d’Automobiles (OICA) is the international association of all auto industry bodies of the world. Being made a permanent council member of OICA only reflects the growing recognition of India as a major automotive nation in the world. This will facilitate networking and access to common data for new technologies and markets. India will also be able to voice its opinion on forthcoming rules and regulations and will get a say in international advocacy programmes on emission norms, vehicle standards, quality check parameters and safety among others. Overall, it will enhance the credibility of the Indian automobile industry. The Auto Expo is an OICA-accredited show, which has catapulted the Expo as one of the premium, well established auto shows in the world and now finds a place in the global auto show calendar.
How do you foresee growth in the industry?
For most of the developed economies, the automotive sector has been a driver for economic growth, becoming a significant contributor to manufacturing, GDP and the exchequer. The current slowdown in the market is part of the cycle, so there is no need to push the panic button. When the global market was slowing down in 2008-09, India withstood the recession to a reasonable extent. This time around, the car segment has taken a beating but the two-wheeler segment has not experienced a drop, while the commercial vehicle (CV) sector has done quite well. The performance of the CV segment is a function of GDP growth, as goods and people have to be transported and railways cannot keep pace with the rising demand for movement of goods and passengers. On the other hand, passenger car sales are driven by factors like fuel prices and interest rates both of which have gone up significantly. A major part of the fuel price constitutes government taxes that have impacted market sentiments. In fact, in the last 18 months, a more than 350 basis point increase in interest rates has been witnessed, due to which lending rates have risen. But this is a short-term phenomenon and will stabilise once disposable incomes of buyers start growing. Though sales of petrol cars are down, diesel cars are faring well because they are more fuel efficient and with less expense on fuel cost, there is a pull towards diesel cars leading to a long waiting list. The motorcycle segment is growing and Royal Enfield also has a waiting list. So, overall the industry in the medium to long term will be a growing market, hence there is no need to get worried about it. We should take the current year drop in our stride and move forward. The industry only hopes that the government does not take any punitive steps in the upcoming annual Budget 2012. We are optimistic that excise duty on large cars will be reduced from the existing 22 percent to 16 percent and the additional duty of Rs 15,000 will be removed from that segment. We also hope that the national calamity contingency duty will be withdrawn.
How far is the Indian automobile industry from becoming a global automotive hub?
India has a very large automobile base, be it commercial vehicles, motorcycles or passenger cars, with a major presence in the international market. Secondly, the growth of the Indian automotive industry is higher than many of the global markets and many international players are entering or investing in India for trading like Harley-Davidson, or establishing a manufacturing base because the consumption base in India is huge. The automobile industry's potential in India is high as the number of cars, CVs or two-wheelers per thousand population is still very low, so the headroom for buying is enormous. India is known for its cost arbitrage with respect to overall economic operations and despite some cascading costs, foreign OEs find it worthwhile investing in India. The country also has high-quality professional and engineering competencies; therefore, many companies are setting up hubs in India for manufacturing components and exporting them back to Europe or the US. Establishing R&D bases is important for them as it will lower R&D costs for them from the global perspective and they could export new products and new aggregates innovated in India.
Goods and Services Tax is expected to be enforced by the central government from April 2012. How do you visualise its roadmap for the automobile industry?
We would like the government to implement GST in the country and while enforcement from April 1, 2012 does not seem likely, we are optimistic that the government will implement it by October 1. The central sales tax is currently hovering around two percent, brought down from its earlier four percent level. The roadmap was to make it zero or reduce it to one percent till GST was introduced and I do believe that the government should make the change as there are a number of tax anomalies that need to be removed to make the industry robust. GST, when enforced, will improve the entire economy. Currently, there are two levels of taxes including the cenvat that is excise duty and VAT charged by the states. GST will subsume all other taxes and cesses so that only a single tax will be charged pan India. There will be no cascading effect because of the setoff provisions and overall costs will also come down. It will also make filing of returns easier. Further, industry has been asking for octroi/entry tax to be also subsumed into GST that will make movement of goods from one state to another freer, thus evolving India into a truly open market. Globally, the world has transited to it already.
The industry has been seeking clarity on the government’s diesel policy. What is your stand?
SIAM is very clear on deregulation of diesel prices. An alternative can be found for farmers; for instance, a subsidy similar to the proposal for fertiliser subsidy can be given directly to them. Today, diesel vehicles are more expensive so the government should look at the taxation structure and bring parity between diesel and petrol prices instead of giving diesel subsidy to oil companies. Once you have a price variation between fuel prices, it leads to a lot of misuse of the fuel. Diesel has also become a cleaner fuel after the enforcement of BS III and IV norms with sulphur content reducing to 50ppm. Internationally, it is 10ppm and oil companies are planning to reduce the sulphur content further in future. But they have to make substantial investments. If diesel continues to be a subsidised fuel, it will lead to low recoveries for the oil companies due to lower diesel prices. So we are kind of throttling them; hence, we should enforce market-adjusted prices for diesel like it prevails internationally. The government is hesitant to remove subsidies on diesel for farmers, for usage in agricultural tractors and pump sets. But diesel is also used for running generator sets by the corporate sector and telephone towers for power backup; so how is subsidising diesel justified? Why single out diesel cars? On the contention that it pollutes the environment, it is important to note that all vehicles today have to meet the government-mandated norms on emissions. Once the emission norms are met, it would be unfair to call the vehicles as ‘polluting’. Furthermore, are diesel generator sets not polluting the environment as well? Diesel pollution is further enhanced due to adulteration with kerosene. This needs to be checked strictly. Tractors that are overloaded in villages also emit smoke. So why give diesel to rural areas if it is polluting the environment?
There is a view in industry that diesel-engined luxury cars should be taxed.
Most of the trucks, buses and utility vehicles that are a mode of public transportation run on diesel. What percent of diesel is used by luxury cars in the larger spectrum and if you do tax them, then what is the kind of revenue that will be generated when you are already incurring huge losses due to subsidy on the fuel? SIAM data reveals that less than one percent of diesel is consumed by privately owned cars. If we take luxury cars and SUVs, the consumption of diesel by such cars would be a fraction of one percent.At present, diesel cars constitute 32 to 35 percent of the total car parc. But most of them are MUVs, jeeps, vans and taxis that are used for commercial passenger transport and also rural connectivity. If you continue with this subsidy, the figure will rise as diesel is 15 to 20 percent more fuel efficient. Moreover, if you tax all diesel cars, then small cars and MUVs, jeeps and vans that are the backbone of rural mobility will also come in that dragnet. The Automotive Mission Plan aims at facilitating small cars to attract concessional excise duty as we want India to become a small car hub. That will also be beneficial for component manufacturers due to huge export potential with the establishment of auto clusters and hubs. Do we sacrifice this opportunity?Diesel MUVs are currently used in rural markets for transportation of goods and passengers so taxing them will impact their sales and revenues defeating diesel subsidy. The government needs to work out steps for periodically increasing diesel prices marginally so that diesel prices can be freed from subsidies and the gap between the two fuel prices can be cut. The market will absorb the diesel price hike. Customers will continue to buy trucks as they are required for movement of goods and life will go on. Moreover, automobile companies mulling investments in diesel engine plants want longevity and stability of policies and the current uncertainty of policy is making investment decisions difficult.
When are Bharat Stage V emission norms likely to be enforced?
BS IV emission norms have so far been implemented in some cities only due to issues relating to fuel availability of the right quality. What is the point in announcing new emission norms when you don’t have the necessary fuels in place? It only causes confusion as it means having two levels of technology running at any point of time that is a high cost option. Industry wants to see one single emission norm applicable throughout the country with a reasonable time frame for absorbing the incremental cost for developing new technology. Give the auto industry five to six years after every change in norms to ensure a return on its investments; otherwise, it will be difficult to make fresh investments.
When will the Centre enforce the end of lifecycle regulation for vehicles?
Vehicles should be scrapped beyond 10 to 15 years and government should give incentives for doing so. Once a vehicle is scrapped, it should not be brought back on the road. The newer vehicles result in lower emissions and higher fuel efficiencies. At present, the population of older vehicles is higher than the new ones being added and automobiles of the 1960s are still plying on the roads. Another issue is overloading that leads to pollution, higher number of accidents and damaged roads. Restrictions on overloading should be strictly implemented in all the states.
What is your opinion on commercialisation of electric vehicles?
Electric scooters and cycles are not popular without subsidy. Globally, electric vehicles are popular but not commercialised because of the prevalence of issues related to battery charging, battery technologies and short runs. It will take a long time before they become commercially viable. Among foreign countries, China for one is investing billions of dollars on development of electric vehicles. We need to focus on electric as well as hybrid vehicles and the government has to have a multi-pronged strategy, both in terms of investing in the infrastructure required and also incentivising in the initial phase of implementation.
The automobile sector has, of late, been witness to a number of labour problems? What steps is SIAM taking to curtail them?
It is wrong to expect SIAM to solve labour problems because it is a company level issue, and common in all industries, not just auto. There is an urgent need to implement labour reforms in the country. The Centre and state governments should work towards it. At present, it is not easy to lay off people in the industry if there is market volatility due to business cycles. The world over, companies have the flexibility to match market demands, otherwise there will be sick companies.
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