Auto sector slowdown: MCCIA Director General says impact on Pune relatively lesshttps://indianexpress.com/article/business/economy/auto-sector-slowdown-mccia-director-general-says-impact-on-pune-relatively-less-5935080/

Auto sector slowdown: MCCIA Director General says impact on Pune relatively less

Director General of Mahratta Chamber of Commerce Industries and Agriculture (MCCIA) talks to The Indian Express about the slowdown and its effect on the city’s industrial scenario. Excerpts from the interview.

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Prashant Girbane

With its massive base of automobile companies, Pune is not insulated from the slowdown in the sector. Prashant Girbane, Director General of Mahratta Chamber of Commerce Industries and Agriculture (MCCIA), talks to The Indian Express about the slowdown and its effect on the city’s industrial scenario. Excerpts from the interview:

The auto sector is facing a slowdown with industry bodies talking of job losses and orders drying up. How is the situation in Pune? Has there been a slowdown in orders for the sector in the district?

There is a slowdown in the automobile sector. It is the worst we have seen in the last 15 to 20 years. The broader perspective shows that in the auto sector there is a global slowdown. The national slowdown in the auto sector has also impacted the Pune region, one of the major automotive hubs in India. The impact in Pune is relatively less than in some other hubs as we have a sizeable mix of commercial vehicles (CV) in our auto manufacturing portfolio. Relatively speaking, CVs have faced a lesser impact than private vehicles. With more than 4,000 auto ancillary businesses in Pune, some component manufacturers have certainly seen a slowdown in orders. The slowdown has caused a negative impact on overtime, reduced shift timings, lay-offs of varying degrees and other cost cutting initiatives.

What, according to you, is the reason for this slowdown? Is there any credence to the theory that the push towards electric vehicles has resulted in it?

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Let’s first look at the global backdrop. According to International Monetary Fund (IMF), the global economy is now expected to grow only at 3.2 per cent as against the earlier projections of 3.6 per cent. I won’t be too surprised if the next projection pegs it at around 3 per cent. In India, before the 2008 financial crisis, we have seen quarters that clocked a growth of 9 to 10 per cent. Today, it looks like 8 to 8.5 per cent can take us to the dream of becoming a $5 trillion economy by 2025. For this financial year (FY), the budget projected 7 per cent, the last recorded quarter showed growth only at 5.8 per cent and it does not look like we will do more than that in the first quarter this FY either. This shows overall slowdown at macro levels. Most projections indicate growth of around 6.5 per cent for FY 2019-20. This is best represented by the auto sector, which contributes 7 per cent to national GDP (gross domestic product) and almost half of manufacturing with more than 37 million employees. In the last nine to 10 months, sales have plummeted with a spiral impact on supply chain and allied industries. There is more than one reason for this slowdown. The financial sector, including NBFCs (non-banking financial company) that provide credit to supply chain in this sector, are not in a robust health. This has had a negative impact on credit availability and hence supply at the last mile and also on demand. We also heard of the Supreme Court’s decision that increased insurance cost on new vehicles and increase in registration cost also pushed prices up. The government’s road map to progress from Bharat IV to Bharat VI and moving towards electric vehicles (EV) is inevitable and laudable; however, these initiatives and other above-mentioned causes lack coherence and have caused confusion that has eroded confidence in the marketplace.

How prepared are medium-scale companies in Pune to jump onto the EV bandwagon? Will it require more investment and are financial institutions ready to fund them?

Relatively speaking, medium-scale companies can deal with slowdown better than tier 2 and 3 suppliers with only a couple of machines in their workshops. Many MCCIA members are prepared to make investments into Bharat VI or EVs, but they are all waiting for the dust to settle down on the confusion around the lack of coherence to the initiatives that have been announced.

Do you foresee a scenario like 2008-09 in the near future? If yes, what should companies do to escape the brunt?

No. The causes are different and so will be the impact. In 2008-09, we had seen the world GDP growth rate drop from 4.3 per cent to -1.7 per cent, whereas today, the IMF is projecting global growth to come down from 3.6 per cent to 3.2 per cent. We are comparing 0.4 per cent (projected) drop versus 6 per cent drop.

What is your feedback on the announcements made by the Finance Minister on Friday?

In short, they were much needed, well-articulated, covered some specifics and many broader aspects, some rollbacks, some praiseworthy structural changes and all of this while keeping the fiscal prudence. It is welcome, but given our potential and our aspirations, there is a need for more. The package of initiatives announced demonstrate that the government is listening and has resolved to act. These steps will certainly arrest the downfall to a considerable extent. They are expected to be good news for capital markets as well, especially the rollback on surcharge on FPIs (foreign portfolio investor). All this and two more sets of expected announcements bring much more coherence to the narrative on the Indian economy that was missing. Frontloading of Rs 70,000 crore recapitalisation of banks and other liquidity boosting initiatives will certainly help credit expansion that is much needed fuel for growth. Pune is one of the largest MSME hubs in India. A slew of measures announced specifically for MSMEs will certainly help in enhancing availability and to some extent reducing cost of capital.

What additional policy measures are required to help the sector and boost sentiment?

In addition to the announced measures, there is a need to boost the overall economy by asset monetisation and privatisation to boost government revenues, speeding up land reforms and ongoing labour reforms, further facilitating the journey of informal economy into formal and focused mission to drive employment-led growth with emphasis on sectors with high employment elasticity, such as construction, manufacturing and tourism. We are hopeful that the next two sets of announcements in the days ahead will cover most, if not all the above-mentioned so that they encourage consumption and investment. These sentiment boosters, sector-specific packages and overall economy-level reforms will help not only in arresting the slump in the short term but also in the medium to long term.