M&M chief flags concerns on auto roadmap

Pawan Goenka took over as Managing Director of Mahindra & Mahindra barely four days after the Centre announced its big bang demonetisation drive on November 8.

The new MD met teams across divisions to ensure that the company’s tractor and commercial vehicle customers, as well as dealers and suppliers, were offered a helping hand. As he put it, “There is a certain expectation from Mahindra that these people have and it is during times of crisis when you show your true colours.”

Goenka is, of course, no stranger to M&M and has taken on a host of challenges since he came on board 23 years ago. Even today, he is referred to as the ‘Father of the Scorpio’, the vehicle that catapulted the company’s profile in the SUV space, where it has grown over the years since then.

And while he is coping with the present issue of demonetisation, Goenka is more concerned about the road ahead for the Indian auto industry. This may sound ironical, given that the country is poised to be third largest in the global automobile arena by 2020. Yet, from his point of view, there are just “too many things coming together” that could pose the threat of derailing growth.

Beyond demonetisation and the implementation of the long overdue Goods and Services Tax, there are new safety standards coming in too. On top of this, the industry faces its biggest test in meeting the Bharat Stage VI emission norms in 2020.

Given that the whole country will move to BS IV only in April 2017, it leaves the auto industry with less than 1,200 days to fast-forward to the next level. Bypassing BS V and moving directly to BS VI is something no country has ever attempted before and this is clearly a cause for concern. It is precisely for this reason that Goenka believes it is important to take a holistic look and see if this is a realistic objective.

While there is no question of being able to accomplish the task, a hefty price could literally be paid in terms of the investments needed to make this happen. More importantly, this could result in automakers taking their eyes off investing in capacity, while focusing solely on making BS VI-compliant products.

“Jobs do not come from investing in products to meet regulations, but from investing in capacity,” says Goenka. “If demand does not grow, which is quite possible since prices will go up with the new safety and emission norms coming in, where is economic development going to happen?”

Is the country, therefore, missing the woods for the trees? The M&M chief does not for a moment believe these are wrong initiatives except that bunching them together makes it extremely difficult for automakers. “This is nothing to do with M&M, but are we trying to achieve too much? We have to space things out and cannot fix everything in a short timespan,” he says.

The Indian auto industry has constantly been the target of environmentalists and road safety experts for a host of issues ranging from pollution to products failing crash tests. “It is wrong to say that we are self-serving, solely interested in profits and do not care about the environment or safety of the people,” retorts Goenka.

As he insists, every developed country in the world has a strong automotive industry. It is also one of the cleanest sectors in governance and ethics that contributes to a substantial part of manufacturing GDP.

And as much as Goenka welcomes BS VI norms, he adds that India cannot be compared to Europe. “Of course, we will be like Europe someday. This will not be tomorrow but the day after tomorrow. In the zeal to do everything today, one should not take the risk of making the auto industry dysfunctional,” he says.

Goenka also makes it clear this has nothing to do with the ability of Indian companies to rise to the challenge but to rethink priorities. “We will not be shy of doing things aggressively but we also need to look at all facets on what drives the industry,” he says.

Getting back to the present, the priority is to meet the challenges of demonetisation. While it is almost a given that the Union Budget in February will have good news in terms of tax breaks, the industry is keeping its fingers crossed about GST being on schedule too.

“The real value of GST is in simplifying business and making India a single market, while taking out hidden costs in manufacturing. This will make goods more affordable,” says Goenka.

This is why he believes it will be very unfortunate if it is delayed, since “we will be sacrificing something that is very, very key to our economy”. To put this in context, investment is not happening because there is no demand that does not justify setting up a manufacturing plant. It is here that GST becomes critical to generating demand especially in segments where duty slabs are low and can trigger economic activity.

Beyond this, says Goenka, the demonetisation woes can be offset in part by the Budget which can provide a stimulus to growth. It is as important to plug all the loopholes on black money so that it can never resurface and will do away with the need to replicate another cleanup drive. Finally, he adds, nature should oblige and assure a good monsoon going forward.

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