R Srinivasan

India Inc must stop waiting for Godot

R Srinivasan | Updated on September 19, 2019 Published on September 18, 2019

Low morale| The stimulus packages announced by the government have failed to change industry sentiment   -  prachanart

Instead of pleading for handouts, businesses need to proactively take steps to deal with the slowdown

Finance Minister Nirmala Sitharaman has announced that she has yet another booster dose for the economy up her sleeve, which she will announce shortly. The markets reacted by tanking over 1.7 per cent, although the proximate cause for Tuesday’s fall was the drone attack on Saudi Aramco, which knocked out about half its capacity.

The first round of confidence building measures she had come out with was aimed at addressing some of the pain of the auto sector, which had seen car sales nosedive by over 41 per cent year-on-year in August, with commercial vehicle sales nearly matching suit with a 39 per cent plunge in sales. Unfortunately, since Ms Sitharaman could not give the industry what it wanted — a tax cut on automobiles, which fell within the purview of the GST Council and not the Union government, that “booster pack” singularly failed to enthuse anybody.

The same went for the subsequent rounds of “stimulus” packages, which all essentially turned out to be rectifications of policy errors and bureaucratic bottlenecks created in the past, and nothing new or dramatically different, which would help change sentiment and yank the economy out of the seemingly unending slump it is in.

Which is why the latest promise of yet another “package” is not exciting anybody at all. Tuesday’s news, that the GST fitment committee, which recommends changes in tax rates to the GST Council, had given a thumbs down to any slash in GST rates for the automobile sector (and, for good measure, biscuit makers, who had projected 10,000 job losses because biscuits had turned too pricey for consumers) only served to deepen the gloom.

Maybe this will finally push the industry into thinking of ways to deal with the slowdown on its own, rather than endlessly wait for the government to solve its problems.

Auto blues

Last month, when Rajiv Bajaj, head of India’s second largest two-wheeler maker, said the industry’s crisis was of its own making, he was severely lambasted by his industry colleagues. But Bajaj was only stating the facts. Most of the issues the sector is currently facing — on emissions, on fuel efficiency and the shift to electric vehicles — are not which cropped up after the economy started slowing down.

As for the demand slump, a GST cut may not help. After all, during the boom years in the pre-GST era, the tax incidence on automobiles was actually higher. Currently, I am told there is a discount of almost ₹8 lakh on a truck costing ₹36 lakh — and vehicles are not moving. Will a further reduction of ₹50,000-1 lakh through a tax cut magically bring back demand? The thing is, the factors impacting the slowdown in commercial vehicles sales — better roads (lower wear and tare), multi-axle vehicles (higher loads), and faster turnaround times (GST) were all not new developments or surprise ones.

They also knew for decades that fuel was a finite resource and it would keep getting costlier. They have known for years exactly how much emissions from their products are contributing to global warming. And they knew that the transition to non-polluting vehicles — electric, fuel cell or whatever — was inevitable.

But have they taken proactive measures to address these issues? Not really. Unless forced to by regulatory change, they have done little to move on these fronts on their own. Even now, basic safety equipment like airbags are not standard across all makes and variants. Despite having the highest road accident deaths in the world, a large chunk involving two-wheelers, bike and scooter makers don’t offer a helmet as a standard accessory with their vehicles.

Global markets

On electric mobility, the debate in India is endlessly circling around charging technology and charging infrastructure. My question to Indian automakers is: did Elon Musk wait for the US government to create the necessary infrastructure before launching Tesla? He just went ahead and created a fantastic product and created a market for it. Everybody else was forced to play catch up.

On the other hand, if Indian businesses had focussed on global markets from the get-go (as the IT sector did decades ago, because there was literally no domestic market then), they would have had some elbow room. To quote Rajiv Bajaj again, if you are selling globally, if one market sneezes, you don’t end up catching flu.

Depending on policy

But why blame our automakers? Almost all our major industries routinely wait for either policy arbitrage opportunities or government incentives before actually going out and doing something. The real estate sector is a good example of lack of foresight, greed and outright dishonesty contributing to its own troubles. Ditto for the telecom sector, which bid madly for spectrum to achieve competitive advantage and now wants a bailout. It’s the same reason why Jet and Kingfisher collapsed and other airlines are struggling.

This is not to say that the government can’t help. The best thing government can do is to stop endlessly tweaking policy to appease one lobby or the other. The auto industry’s woes are partly policy induced. Ditto for the e-commerce industry, which has been badly dented by changing rules, ostensibly to benefit small players, who seem to have gained nothing from this, while billions of dollars of investments and lakhs of jobs are under pressure. The flight of foreign capital from Indian capital markets is almost entirely policy induced. This can, and should be addressed by the powers that be.

But that should be about the extent of what business should expect from government. By all means fight to get bad laws and poor regulations corrected. Certainly fight for a level field vis-à-vis foreign capital, and push the government to get you better market access abroad. But beyond that, expecting the government to address each and every one of your troubles is futile and self-defeating.

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Published on September 18, 2019
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