Reality check for automakers after SIAM, ACMA sessions

Over the past few years, the ministries are calling the shots — be it Road Transport, Finance, Heavy Industries, Power, Petroleum or Environment. Beyond that, there is NITI Aayog. An analysis on the challenges ahead for SIAM now.

By Murali Gopalan

15 Sep 2020

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Reality check for automakers after SIAM, ACMA sessions

The recently held annual conventions of SIAM (Society of Indian Automobile Manufacturers and ACMA (Auto Component Manufacturers Association of India) happened at a time when the Indian economy is going through its worst phase in recent times. For good measure, FADA (Federation of Automobile Dealers Associations) also had an independent conference, which effectively meant that three vital entities within the automotive ecosystem had their brainstorming sessions during this challenging period.

The template was pretty much on the tried-and-tested pattern of having representatives from the government and industry to discuss issues, make requests for a host of concessions and promises to get back with some solutions. It is also true that the conventions had their share of top-class speakers, who brought profound insights to the table on the challenges ahead.

Yet, manufacturers only know too well that they are on a sticky wicket right now even while some vehicle segments are seeing a spurt in sales. There is no denying the fact that a slew of medium and small component suppliers are strapped for cash; labour continues to be a challenge with migrant workers slowly getting back to factories while there is no telling if there will be further disruptions in terms of state-wide lockdown with the rising number of Covid-19 infections.

These are enormously difficult times for the Indian automotive industry. Sure, the pandemic may have derailed the growth story but equally there is no denying the fact that the country was already in the midst of an economic slowdown when Covid-19 struck in all its ferocity.

Today, you have a situation when GDP has plummeted by nearly 24 percent for the April-June quarter and States are virtually broke with no GST compensation coming in from the Centre. It is in this backdrop that the automotive industry is seeking fiscal sops in the form of reduced GST, implementation of a vehicle scrappage policy and what have you.

“Where there is no clear policy outlined for economic growth, it is unrealistic to expect something positive will happen for the auto sector,” says an industry executive. On the face of it, there is a strong case for reducing GST on two-wheelers from 28 to 18 percent while hoping that the added volumes could more than offset potential loss of revenue.

Less can be more
But even here, if there is a move to extend this concession to only a segment of motorcycles and scooters in the 100-125cc range (perceived as basic commuters), it may not quite help anyone’s cause least of all the manufacturers. After all, some would argue that people still use 150cc-plus — going up to even 350cc — motorcycles to commute to work and there is good reason for them to avail of a lower GST.

In the first place, there is really no telling if this lower levy will be offered given the precarious financial state of the government, which means the status quo will continue. And, two, even if GST is reduced, it is unlikely to be across the board in the two-wheeler space. “Call it a socialist baggage or whatever, but governments over the years have been loathe in offering incentives to what could be perceived as the privileged layer,” adds the executive.
This also explains why affordable cars have always got the breaks by way of lighter levies and this principle may well extend to the two-wheeler segment should there be any move to reduce GST. Effectively, this could see only entry-level motorcycles and scooters becoming more affordable while other options will stay at the higher 28 percent level.

Likewise, a strapped-for-cash government will have its work cut out in offering incentives for scrapped vehicles. And when this is not possible, old cars and trucks will continue to operate on roads and contribute little by way of cleaning up the air.

Ad hoc growth hiccups
Over the past few years, it is more than apparent that the auto industry just needs to fend for itself in the midst of ad hoc policy changes. Never mind that it contributes to nearly 50 percent of manufacturing GDP and is clearly a key vehicle for exports. You have had instances of Delhi banning large diesel vehicles four years ago to curb pollution which, in turn, seriously impacted a section of manufacturers.

Beyond this, there has been constant legal intervention on the issues of environment, be it the diktat on a virtual overnight transition from Bharat Stage III to IV in 2017 and, more recently, the ruling on extinguishing a portion of BS IV stocks. While nobody is arguing against the need for clean air, it is only fair that manufacturers are given a timetable that assures zero disruption along the way in their product planning exercise.

Unfortunately, this has not been the case going by recent instances like the time a section of the think-tank at NITIAayog decided that the two-wheeler industry needed to go electric by 2025 — more specifically for sub-150cc motorcycles. For those manufacturers who had already invested considerably in BS VI programmes, this was the last straw and it required the likes of Bajaj Auto and TVS Motor to put forth their objections to the proposal.
For now, the idea has been buried but as industry experts say, this could just be the proverbial calm before the storm. After all, it was not too long ago when a senior minister spoke of “bulldozing” the automotive industry at a SIAM convention if they did not make cleaner vehicles (hence, electric instead of fossil fuels). CEOs present at the event were aghast hearing this, especially when their companies were already grappling with the BS VI challenge.

The more recent turn of events has been the anti-China debate and the need for India to become more self-reliant as a result. Even while there are no quibbles about the ‘atmanirbhar’ vision, the truth also remains that for a country with an annual production of barely three million cars and SUVs (which translates into a tenth of China’s output), there is just no way economies of scale can be achieved.

Further, as industry observers point out, global supply chains are imperative in a world without any barriers, despite political rhetoric coming in from the US and UK. At present, China has done precious little to endear itself to other countries, and India in particular, but it still holds the aces when it comes to its competencies as a global manufacturing hub.

This, in turn, is a result of scale and if India were to achieve something like this, it requires all support in terms of ease of doing business. For any investor to come in, they would look at doing away with needless red tape and moving on quickly with clearance of formalities relating to land acquisition as well as assurance on power, water and access to roads and ports.

It is no secret that such obstacles are characteristic of India and unless they are removed, there is no way any industry like auto can expect to record rapid growth on the lines of China. It is here that government support becomes critical to get the ball rolling after which manufacturers can pretty much take care of themselves.
What can premiere bodies like SIAM do to help the industry’s cause? Over the past few years, it has only been a helpless bystander as various ministries are calling the shots — be it Road Transport, Finance, Heavy Industries, Power, Petroleum or Environment. Beyond that, there is NITI Aayog which is now an integral part of the automotive roadmap.

It is, therefore, no surprise that the importance of SIAM may have been diminished in the process even while there are no two ways about the fact that the auto sector needs a face to take up issues with the Centre. For this to happen, stakeholders must stay united across vehicle categories from two- and three-wheelers to cars and trucks. A divided house is hardly helpful to anyone’s especially at a time when the automotive industry is in dire need of a push to get onto the fast track.

(This was first published in Autocar Professional's September 15, 2020 issue.)