‘I will see what Budget has on Make in India’

Pawan Goenka says he is keen to see if Saturday’s Union Budget will have any specific thrust on ‘Make in India’. “If things are in place, it will be a thrust for the auto industry because they go hand in hand and one cannot happen without the other,” says Mahindra & Mahindra’s Executive Director and President (Automotive and Farm Equipment Sectors).

It is here that an important initiative like the Goods and Services Tax will play a big role in boosting growth. GST is scheduled to kick off in April next year and till that happens, industries like automotive will be at a disadvantage in the absence of a level playing field vis-à-vis cheaper imports.

For instance, importing tractors from Thailand is duty-free and, hence, this is a cheaper option to making them in India. And even while locally-made tractors are free of excise levy, this does not extend to inputs where the duties go up to eight per cent. “This is a disadvantage and you cannot have Make in India when these disparities exist. It is not about making it expensive to import but making it affordable to manufacture,” says Goenka.

From the auto sector’s point of view, the Budget needs to spell out a cohesive roadmap especially when things are looking up after a two-year downturn. Today, the industry is reasonably optimistic of the road ahead even though there was a bit of a speed bump with the recent excise duty rollback.

“We do think that by the second quarter of this calendar year (April onwards), sales will take off again and get back to double digit growth,” says Goenka. This recovery was apparent from June till December 2014 when growth was back to almost 10 per cent till the excise rollback happened. However, given that commodity prices are not going up, car prices are not expected to increase either and will offset the excise setback. Further, the industry expects interest rates to come down which will improve buying sentiment.

Goenka admits that there are concerns about the rural economy which is under pressure right now. Tractor sales were “really bad” in Q3 of this fiscal and saw the steepest fall in 15 years. Falling farm income has also had its impact on auto sales.

“I do not think the rural economy will turn around till a good monsoon sets in, which should happen in end-June or July,” he adds.

According to him, the natural growth path for India’s automobile sector should be 12-14 per cent annually.

“We were otherwise growing at 12-14 per cent and I see no reason why this should not happen in the time to come,” says Goenka.

His optimism is based on the fact that penetration of cars is the lowest in the world at barely 14 per thousand (people).

Yet, the aspiration to own a car in India is as high as anywhere else. In addition, affordability levels have distinctly improved in the context of higher incomes and competitive car prices, which means payouts are a lot simpler and quicker.

“If you add all this up, we should see growth with demand coming across every part of India. In my view, 12 per cent growth is our right, 16 per cent will be nice and less than 10 per cent is a problem,” says Goenka.

As he puts it, nothing has changed fundamentally.

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