'Policy stability is vital for those looking to invest in India.'

Vishnu Mathur, the director general of the Society of Indian Automobile Manufacturers (SIAM) on the status of the industry, ambiguity in government policies, the diesel vehicle ban in Delhi-NCR, deregistration of old vehicles, GST and the need for a long-term roadmap for the industry. An interview by Sumantra B Barooah.

There is fragmented market growth and an uncertain environment in the Indian auto industry due to many factors including the ban on diesel vehicles and NGT order on old vehicles. What is your view on the general health of the industry?

What we have been seeing over the past few months is a recovery process which has been taking place in the automotive industry. It is a gradual recovery, and not a very robust one. However, the industry has been able to sustain this recovery over a period of time.

The passenger vehicle industry has been showing some improvements over the past few months. I think, as we go along, rural demand will come back on steam and give a more robust boost to overall industry growth.

There is decent and good growth in the commercial vehicle segment. There has been some level of moderation in the last one-and-a-half month, which means demand is coming back into the economy. Right now, most of the growth is being fuelled by the demand for replacement vehicles. Once this replacement demand starts moderating, we will see the actual growth in the new vehicle segment as well.

The real demand will only come when there are economic activities and more freight to be moved. The indications are good with a healthy monsoon so far and a turnaround in rural sentiments. The light vehicle industry is also showing good growth for a few months now and is coming back on stream, which is good news.

The mining and infrastructure segments are also witnessing additional investments. The outlook certainly is better than last year. Although we do not forecast growth, we are saying that the (market demand) prospects are better than last year.

The latest news of GST coming in is also going to be extremely good for the industry. Also, there are certain reasons why we are expecting more vehicles to sell towards the end of this year. For example, BS IV emission norms will come into effect, especially for commercial vehicles by April next year. This means sales, particularly of trucks, will see some pre-buying later this year.

However, once this pre-buying happens, there will be a dip (in market demand) for a particular period. After all, this would be only an advancement in demand and not the additional demand. Overall, the industry is improving and it is on the revival path.

How will GST benefit the Indian auto industry?

It is very good news for the industry and we are hoping that GST will be implemented soon. It will certainly reduce our overall cost structure and finally we will be one single market. It will definitely give a boost to the economy by, maybe, one-and-a-half percent to the overall GDP. I think that the automotive sector will be one of the most positively impacted sectors.

Also, we currently have multiple rates of excise duty and with the incoming GST regime, we will be seeing not more than two rates. It will be a very positive development for the auto industry, which has been very highly taxed. We have not seen the GST rate as yet. Whatever it will be, it certainly will be lesser than what it is cumulatively now.

As regards the ban on diesel vehicles, we see big ambiguity on the policy today as it lacks clarity.

Do you think there is a correlation between that ambiguity (in the policies) and the potential decisions by OEMs, mainly multinationals, on either holding back or withdrawing their investments from India?

I think there is a direct correlation between the two because when any company invests in a country, it looks at two factors – market potential and the policy environment.

Usually, countries have a stable policy environment, so market potential becomes the primary reason for companies making investments. These are not short-term investments but very large capital investments. The policy in the country is not clear and the prospects of sudden changes to the same will only make investors extremely cautious about making (new) investments in India.

Even if you look at simple things like taxation, I know companies are going for advanced rulings before setting up investments. The advanced-rulings will tell them in advance which taxation will be implemented on their product(s). In the case of an ambiguity, they opt for these procedures. Hence, policy stability is extremely important for any investor who is looking at investing thousands of crores.

When you find that you have invested that sort of money and overnight the policy is either changed or made ineffective due to judicial intervention, it brings ambiguity and confusion in the entire system. The companies then do not talk about further investments; instead, they think about protecting their existing investments and securing due returns on them.

I think it is critical that the policy environment in the country is made absolutely clear. We, as an industry, look for stability in policies and long-term road maps.

Do you think that this can have a negative impact on the contribution of the auto industry to the overall GDP?

The potential (economic) danger to the country is huge because today it (uncertain business environment) is happening in the automotive industry. Tomorrow, it may happen in some other sector.

If we take perception-based and emotion-based decisions that are not scientific and not rational, then any segment of the industry can get hurt tomorrow.

How does SIAM weigh the ruling of removing older vehicles from India’s roads? At the time when diesel cars were banned, the industry suggested that old vehicles be removed instead of the new emission-compliant models.

In principle, the idea of removing old vehicles from the road is good because these are the vehicles that have been following the older and less stringent norms. The concept of removing old vehicles from the roads follows a correct thought process. The way that it is implemented may be not right.

When you specify the age of a vehicle, it has no bearing on the condition of the vehicle. I think a vehicle should be removed from the road, depending on its condition and not simply because of its age.

You may have a five-year-old vehicle which could be in such bad shape that it doesn’t deserve to be on the road. Or you may have a 20-year-old vehicle, which has been maintained well and has not lived its economic life. There is no cause for that vehicle to be removed from the road.

There is no law which says that all 10-15-year-old vehicles will be delicenced. Secondly, the law gives an authority to the government of India to prescribe an age (of the vehicle) through a gazette notification. Only the Union government can do so.

All over the world, end-of-life examination of vehicles is not done through their age but through inspection and certification procedures. All countries including the USA, European nations, Japan and others follow it.

There has to be a robust policy which must demand that all vehicles will have to undergo a periodic technical inspection, get a roadworthiness certificate and only then should they be allowed to ply on the road. In case they fail the test, it should be up to the user to invest in making the vehicle roadworthy or scrap the same and buy a new vehicle. That is how the end-of-life of vehicles happens in developed nations.

That’s where the active centres will play an important role, won't they?

Yes. The government has started taking action and initiatives in this regard. Ten centres have already been set up across the country by the Ministry of Road Transport (MoRTH). One of them, in Madhya Pradesh, has been set up by SIAM for the government of India. We need many more centres like these before we can make a robust process. However, this is a good beginning.

In the context of electric mobility, how would you define the road beyond 2020?

The NEMMP (National Electric Mobility Mission Plan 2020) was a long-term plan. The approval was given for an initial period of two years for pilot projects, for which around Rs 750 crore was approved.

In the first year, the industry received an actual allocation of about Rs 75 crore. In the second year, the industry got around Rs 125 crore. Beyond that, we don’t know what is going to happen.

Although we are quite certain that the scheme will continue, there is no commitment either for funding or extension of the two-year pilot project that was initially announced. That is where the industry has a lot of concerns because products of electric and hybrid nature can come in only when investments take place within the industry. And the industry will make investments only when it sees a long-term road map.