Media, both television and large English newspapers, are on an overdrive to voice the demand of automobile manufacturers for tax reliefs.
It should be no surprise: the power of the auto lobby is strong and the sector is among the large advertisers. The time and space they command to project their viewpoint are understandable. Only, they are one-sided with the industry blaming it on government policies.
Listen to the most prosperous of them all, Maruti Udyog. Its Chairman, R C Bhargava, points to a “paralysis of decision-making in the banking sector and the mandate to introduce safety features such as airbags and ABS on new cars that have made cars costlier.” He also blames higher taxes on petrol and diesel and an upward revision in road and registration charges. And hear his ludicrous comment: “stipulating additional safety norms, which are prescribed in the developed countries, has no practical logic for a country like India (with far lower per capita incomes). (Times of India 10 September) The media continues to give generous space to its prized advertisers.
Two days later, Shekar Viswanathan, Managing Director, Toyota Kirloskar in an article, points to the signal contributions made by the auto industry despite its hefty tax burden and to the unfair criticism of the auto industry. “India suffers very high rates of tax – the GST rate on vehicles stretches from 28 per cent to 50 per cent. The margins made by the government are huge- all of which go to shore up budget collections. In comparison, the margin that vehicle makers get on the sale of each vehicle is often less than 10 per cent of the cost of the car.” He sheds buckets of tears: “for all the blood, sweat and tears of Indian industry, the taxes are being paid by the consumers.” (Times of India) Shekar also pats himself and his industry for the tremendous improvement in the quality of Indian vehicles and to keeping defects at single-digit levels compared to two decades ago when it was at a triple-digit high. There has been an unhealthy and unfair focus on the profits the auto industry makes, says Shekar and thunders: “we are here to make sustainable profits.”
A mature industry
Indian manufacture of automobiles had its beginning almost seven decades ago in the 1950s. The liberalisation of the economy in 1991 paved the way for several multinationals rushing to set shop in India. The Indian automobile industry, particularly the passenger car segment, is dominated by multinationals. Copious availability skilled labour at modest wages, a pro-auto policy of the government, states’ race-to-the-bottom incentive wars and the large market of a rapidly emerging middle class with handsome surpluses, have contributed to the auto industry building volumes and enjoying unbeaten run almost continuously for years. The balance sheets of most of the automobile companies, including two-wheelers and commercial vehicles, have been showing healthy growth over the last decade with handsome profits.
Poor Commitment to R&D
The industry has been resisting changes in techno-logy and safety as much as it could. Two decades ago, I pointed to the failure of the vehicle manufacturers to switch to automatic transmission for the city buses. These are standard in the metros across the globe, reducing a lot of strain on the driver. 20 years later, this has still not been introduced. The reason is ‘customers’ unwillingness to bear the extra cost.’ But just relate the humongous cost increases in the end-customer prices over the last two decades. Is there adequate customer-concern?
The Society of Indian Automobile Manufacturers (SIAM) has lobbied for a reduction in GST. After all the taxes levied are ad valorem, ie. a fraction of the price. If the price is 100, the GST at 28 per cent on most models is Rs 28. Logically, if the manufacturer reduces his cost by efficiencies, the tax element would be reduced in proportion. But in contrast, the consumer has suffered a relentless and continuous increase in the end prices. Ratan Tata could dream of a Nano and offer it at Rs 100,000 that will enable a two-wheeler user to graduate to a four-wheeler. But the entry price for a small car is at least three times costlier. Add to this the high costs of maintenance and running.
Poor fuel efficiency
Toyota’s Shekar talks of improved fuel efficiency. For 50 years, I have been driving a car. I find this claim a myth. Three decades ago I complained to Maruti Udyog of my Maruti 800 giving hardly 12 kmpl. The company attributed this to cities’ driving conditions requiring frequent shifting of gears and low speeds. A mid-size petrol engine of a Honda Amaze or a Toyota Etios continues to give a mileage of 8-9 km per litre. On US government mandate to increase fuel efficiency post the 1973 oil crisis US auto makes did substantially increase fuel efficiency and in course of time went for hybridisation. Of course, the preference of the US is for big, roomy cars and SUVs and much cheaper petrol price has killed the initial zeal.
The R&D spend of auto manufacturers until 2000 was next to nothing. Bajaj Auto spent just 0.17 per cent on turnover on R&D. It has not improved over much, reaching hardly 2 per cent by most auto manufacturers. Contrast it with the consistent massive spend on R&D by auto giants like Daimler and Toyota for years.
I had the feel of what such investment would mean in a recent visit to China. I found almost 100 per cent switch of two-wheelers to battery power. Almost the entire 250 million electric two-wheelers of the world are in China. The switch to electric is also very high regarding buses plying in major cities. I found most of the buses in Beijing are electric. In Shenzen city 100 per cent buses are electric. China already accounts for more than half the electric cars sold in the world. Within the next five years, China hopes to switch fully to electric vehicles. SIAM and its members are deafeningly silent over any such plan. If anything, we hear of protests over suggesting any deadline for such a switch over.
Shekar refers to the admirable manner of the industry responding to consumer safety, but Bhargava holds that the stipulation of additional safety norms which are prescribed in the developed countries has no practical logic for India. Relate this to the cry of Transport Minister Nitin Gadkari, of humongous deaths on Indian roads of over 150,000 a year. This 50 years after Ralph Nader accused cars as “unsafe at any speed”.
Several auto component manufacturers enjoy a thriving export business. These conform to the stringent quality norms and third party liability clauses of developed countries like the US. Several car manufacturers also enjoy handsome export custom. These also conform to the rigorous specifications stipulated. Yet when it comes to meeting the customer concerns regarding safety and quality, auto manufacturers succeed in persuading the Indian authorities to keep the norms to the minimum.
A few years ago, a British test report depicted all small cars in India unsafe in the absence of airbags as standard fitment. Without exception, the entire range of small cars produced in the country with US, Japanese, Korean and Indian technologies had to take this odium: none of these passed the crash test.
While launching the Kwid in Chennai in 2015, then Chairman of Renault-Nissan, Carlos Ghosn, explained the impressive R&D efforts in designing and engineering the Kwid that was produced with a 97 per cent indigenous content and was priced attractively in the small car segment ‘with the design features of an SUV.’ Kwid quickly built a reputation for an affordable, quality small car. The lesson here relates to volume, local skills, and infrastructure to produce at competitive rates on the global plane.
I suggested at the press meet that Renault could have endeavoured to offer airbags as standard fitment. In my discussions with the research team, I found the cost of an airbag was in the region of 70 euros or around Rs. 5000 each. Ghosn explained that the company couldn’t do this then but hinted at moving towards this. The Indian auto manufacturers complied wit this after the government made it mandatory and of course, passed on the costs liberally on the customer.
The BS-IV norms fiasco
Even concerning pollution norms, the industry has not been proactive. It was triggered by the court mandate in the late 1990s and the government has been progressively enforcing improved standards. Remember the fiasco of the manufacturers not conforming to the expecting a routine extension of the deadline of 31 March 2017 for the implementation of BS-IV norms, and complaining bitterly about unsold vehicles?
This time the auto manufacturers are scrambling for sale of BS-VI vehicles well before the deadline of 1 April 2020. The over-zealous transfer of the cars produced to the dealers in a period of falling demand has only resulted in bankrupting several of the dealers. Yet Bhargava coolly blames it on banks and higher taxes on petrol and diesel. The price of gasoline, except in the US and rich oil-producing countries, is as high or if not higher as in India. Petrol used by the wealthier sections of the population has to bear the burden of high taxes.
Buffer stock for motorcycles? Of course, funded by the government!
Another veteran, Rahul Bajaj, said: “there is no demand and no private investment. So, where will growth come from? The auto industry is going through a challenging period. Cars, commercial vehicles, and two-wheelers are going through a rough patch.” Perhaps he is expecting the government to build buffer stocks as the government does for foodgrains.
The business cycle is a universal norm for any industry. The auto industry enjoyed a continuous boom and earned handsome profits for years. It has the potential to draw from its vast reserves to tide over any blip. As suggested by BVR Subbu, a past CEO of Hyundai Motors, multi-nationals can step up efforts at exports as also forego a portion of the royalties or technology fees until better times.
Not just India, the world has been witnessing significant changes. Two years ago Dr. V Sumantran and two other brilliant professors from Harvard had warned of the tectonic shifts in urban transportation like shared mobility and mass transit systems like metro rail and electric vehicles.
Reduction of GST will result in revenue loss of Rs 60,000 crore
Metros like Chennai have been breezily going for personal transportation due to the neglect of public transport by the administration. It is strange that despite its huge size and power, the auto industry, ostrich-like, refuses to see the bold and bright writing on the wall. The reduction in GST, as admitted by Maruti’s Bhargava, will not make much of a difference and be avoided. And the government cannot afford to lose revenues estimated at over Rs 60,000 crore.
The economic slowdown has affected not just the automobile but a vast spectrum of other industries. Should they also cry for tax reliefs?
SIAM should be aware of large auto companies in developed parts of the world, not blaming it on the government for cyclical blips. If individual companies are unable to step up R&D spends, so much needed at this juncture of significant shifts in technology, SIAM should work on a cooperative effort, pooling the resources of the industry to look at the switch to electric vehicles. But with the industry dominated by giant multinationals from different countries they may not be enthusiastic over any such cooperative efforts.
TRIBUTE – RAM JETHMALANI
The unchanged, unrepentant maverick
In the death of Ram Jethmalani, the legal profession has lost a colorful, multifaceted maverick. As stated in his autobiography, he was able “to marry a successful legal practice with an almost uninterrupted parliamentary career of 35 years.”
He was too independent to stick to any party. Still, he functioned as a minister in Vajpayee’s cabinet. He attempted to reform the judiciary as the Minister of Law and Justice. Of course, it was a tall task. The reform he suggested included limiting the number of adjournments to cases, the bane and the cause for prolonged litigation. Of course, the lobby of the lawyers was too strong to be disciplined, and Jethmalani was shifted as a Minister of Housing and Urban Development. Even there, he did not last long.
Jethmalani revelled in being the devil’s advocate. He took up the cases of Harshad Mehta, Ketan Parekh, Haji Masthan, the killers of Prime Ministers Indira Gandhi and Rajiv Gandhi, Jayalalithaa, V Bhaskaran, nephew of Sasikala and even Premananda. His defence: “he was serving the law as an officer of the court. The law allowed an accused to put forward his best defense. It was up to the courts to declare a person guilty.”
Born in Sind Province before partition, he graduated in law and started practice at the age of 17. In his long years at the bar, he gained the stature as tall legal luminary, deeply involved in public affairs. He had the stature to be critical of the judges. A sample: his advice to the High Court judge, C S Karnan, to apologise to the Supreme Court: “if you do not know the enormity of your madness, do meet me; I might put some sense in your head.”
His crusade against black money in later years distanced him from the BJP over the lack of speed in tackling the problem. It appears a tribute to Jethmalani that India will be getting details of bank accounts held by its citizens in Switzerland.
