During the Union Budget speech earlier this month, Finance Minister Nirmala Sitharaman stated that to realise India’s goal of becoming a $5 trillion economy, the manufacturing sector has to clock double digit growth “on a sustained basis”. The auto sector’s role in this regard will be crucial as it contributes to nearly half of the country’s manufacturing GDP. In the most recent edition of a video interview series with captains of the automotive industry, Autocar Professional Dialogue, Maruti Suzuki’s chairman R C Bhargava shares his perspective.
An industry veteran, Bhargava says that the Union Budget’s focus on manufacturing is more crucial than the announcement of the much- awaited scrappage policy plan. “It’s the first time that I remember ever hearing a government formally announcing and on such an important occasion as the Budget that they intend to grow manufacturing in double digits,” says Bhargava.
He also adds that given the auto industry’s scale of contribution to India’s manufacturing GDP, it will require policy interventions to regain good health and play its role well. “The automobile industry in the last decade particularly has been declining, and in the last five years it was down to a CAGR of 1.5 percent. So from that to reach double digits will require government to take several policy initiatives to ensure that the growth rate on a sustained basis gets to double digits,” says Bhargava.
A well designed scrappage policy could be one of the key growth injecting policies as it will help replace a big population of old vehicles currently playing on Indian roads. While the policy details are awaited, the government stated that commercial vehicles of 15 years or older and personal vehicles of 20 years or older will have to undergo fitness tests to be certified for road worthiness. The scale of vehicles to be scrapped will have a positive demand impact on the auto industry.
According to government estimates, over 28 million end-of-life vehicles or ELVs (bought before March 31, 2005) across vehicle segments were ready to be discarded by April 2020. Being the passenger vehicle market leader, the opportunity for Maruti Suzuki could be huge. There are 3.9 million Maruti Suzuki vehicles which were sold 20 years ago or earlier. Even if many of them are already scrapped, and some of the existing customers replace their vehicle with another Maruti Suzuki model, it will be a big positive to the OEM, not to mention the positive environmental impact. “It (fitness test under scrappage policy) will of course lead to scrapping of unfit vehicles which will lead to growth because today there are too many unfit vehicles on the road. But that's a byproduct. I think safety and environment and traffic management for the citizens are far more important,” says Bhargava.
With the Union Budget setting on record the government’s vision and plans, the industry would now look for them to get translated into timely action.