Driving in the reverse gear

Economic liberalisation in 1991 and the opening up of the industry in 1993 was followed by robust growth in the entire industry, rising to as much as 20 per cent. However, following the economic downturn that began in 1996, the industry has become increasingly aware of the uncertainties of the market. Companies were forced to look inwards, transform in order to save their bottomline. Even as betterdays are around the corner for the industry and demand is picking up, there is fear. Fear of what the withdrawal of quantitative restrictions on imports and opening up of imports could do to the existing players. These factors, according to V M Raval, Executive Director, Telco, pose a 8220;threat to the survival of the industry8221; President8217;s Message, The WTO Regime and its Implications for the Indian Automobile Industry, published by AIAM.

Some in the industry disagree with this fear of getting wiped out. 8220;I can8217;t justify this sense of insecurity,8221; concurs S G Awasthi, Managing Director, Daewoo Motor India Limited. 8220;The industry has to learn to operate in adverse conditions. Why should we look towards the government? Why not look inwards,8221; he questions. Even Richard C. Swando, President and Managing Director, General Motors India Limited, holds a similar view. 8220;Ultimately, market forces determine the market. You cannot avoid competition. It also brings in expertise, technologies, economies of scale8230;8221;says Swando. 8220;But I don8217;t want to talk about what the government must do. We leave all policy matters to the government,8221; he adds.

Even as the industry lives with the fear of the WTO regime, it has a vision that sets for itself a target of achieving 10 per cent of industrial production from 4 per cent by 2010. This will require the industry to grow at 14 per cent CAGR compounded annual growth rate in real terms or 22 per cent in nominal terms over the next 12 years in order to match the rates of the 1992-97 period.

To meet these targets, SIAM has asked for government support. Since the passenger car market is too small, accompanied by low demand and high acquisition cost as compared to other countries, SIAM feels that the government policy of unrestricted entry to global players will only worsen the existing conditions for the industry and that includes overcapacity and a low scale of operation. Thus the industry body has recommended that the existing memorandum of understanding MoU policyshould be reformed to restrict the entry of players till 2002-2003. Moreover, the industry wants the MoU policy to apply to all players and focus on localisation. Like before, SIAM wants the excise duty to be brought down from 40 per cent to 25 per cent in order to boost demand.

The WTO regime would also allow import of second-hand cars. At present, vehicles can be imported by only those individuals who have an import licence such as embassy persons and exporters. Moreover the customs duty is very high. But after May 2002, anyone would be able to import a car. Since second-hand cars are available in the developed world at throw-away prices, much of the Third World buyers would only be too happy to grab one if tariffs are not too heavy. If second-hand car imports are allowed to flood the Indian market, the passenger car industry is certain die under its own weight. And therefore, SIAM has recommended a five-tier tariff structure that puts used car imports in the highest bracket, followed by CBUs, CKDs/SKDs,components and recommends the lowest duty on raw materials.

According to R. Seshasayee, President, SIAM and Managing Director, Ashok Leyland, 8220;second-hand car imports also pose a serious threat to the environment and would also not be backed by an able service support.8221; But what about the consumer? When would the Indian consumer get the real choice the option to own a car of her dreams, be it the VW New Beetle or the BMW Z3? The consumer, does not always have a long term perspective, feels Awasthi. And it is the prerogative of the government and industry to provide that.

Fair enough. But Awasthi, like several other industry players, also believes that the industry mustn8217;t keep looking at the government for support. Isn8217;t there a contradiction here. Awasthi disagrees. 8220;No government can afford to ignore the interest of the domestic industry,8221; he says. But what about fresh investments. On the one hand, the nation is concerned about investments not flowing in, on the other hand, one of the largestindustries in the country is seeking protection in the form of debarring more players.

Both Swando and Awasthi feel that non-serious players are detrimental to the interests of the consumer. 8220;The consumer loses out because there is an improper service network left to fall back on,8221; says Swando.

8220;The country has to be open for technology and markets,8221; says Awasthi. 8220;It cannot be allowed to remain a dumping yard or a testing ground of global players without any contribution to the country8217;s growth. Our approach is that India is open, should be open,8221; says Awasthi. It is probably this viewpoint amongst a section of the industry that forced SIAM to rethink and debar only non-serious players from the Indian market.

Therefore, the body has asked the government to allow only those players that plan to bring at least US 50 million in equity into the country.The fact that the SIAM task force had predominantly Indian players gives the impression that desi companies have a different outlook as comparedto the MNCs. Barring John G Parker of Ford India , the task force behind the SIAM document has only Indian players Seshasayee of Ashok Leyland, Madhur Bajaj of Bajaj Auto, Abhay Firodia of Bajaj Tempo, Pawan Kant Munjal of Hero Honda, Ravi Santhanam of Hindustan Motors, Alan Durante of Mahindra and Mahindra, Jagdish Khattar of Maruti, V M Raval of Telco, Venu Srinivasan of TVS-Suzuki, besides representatives from the component industry.

Awasthi disagrees. 8220;The MNC concept has changed,8221; he says. 8220;It is not restricted to someone who is entering India, it is also extended to someone who is exporting to other countries from India,8221; he concurs. So even Telco, he feels, is an MNC. According to Swando, 8220;the existing MoU policy is quite similar to what the market forces demand from the manufacturers 8212; and that8217;s to localise.8221; However, in the post-WTO scenario, he does feel that companies like his will definitely weigh the option of importing certain components if they work out cheaper and rework theircosting. This could give the MNCs an edge over others like Telco and Bajaj.

Awasthi feels that the industry is not seeking help or protection, but support. But what is important is to believe that the industry won8217;t die without that support. Whether it will or it won8217;t is difficult to answer, but hopefully the government won8217;t take any chances!