Automobile Conundrum


A slump in the automobile sector is a reality but before blaming the government we need to analyse this slowdown in a larger perspective

 Madan Diwan

Being a stakeholder, the opinion of Rajiv Bajaj should be taken seriously on auto sector. Equally, the views of RC Bhargava should be debated with ferociousness. Instead of all this, who is taking flak is PM Modi, who is a gravitational force for his opponents, on all issues. Even for all that is happening in automobile sector he is being targeted.
The conundrum is perfect description of automobile sector of 2019. It is confusing and a vexatious puzzle. Modi 2.0 is riding on massive base of poor and marginal voters whose aspirations are waiting to be addressed. But instead, attempts are made to draw him into solving a problem that industry has created. Answers to a few questions will throw some light, on how industry and political critics are adding fuel to the fire.

Was the industry not aware that emission norms were changing? Was it not aware that globally multilateral trade was under threat due to powerful trade wars? Was it not aware that Bharat is moving to a more formal economic platform? Was it not aware that banking system is under repairs, damaged by some of their own brothers and sisters? Was it not aware that citizens are demanding better public transport such as Metro? That younger generation doesn’t want stress of driving and prefers pooling? Was it not recognising that app-based hailing services were providing better cost-effective solution than employing a full-time driver? And a lot more, which is that should have normally discussed in strategy rooms. Then why blame PM Modi and call Finance Minister a fall girl for crisis and push for her transfer?
Having aspirations for growth is one thing. But demanding sops and concession each time going gets tough is another. Today’s issue is about demands that should not be met. An industry which was not inventing till globalisation compelled it, needs another push for a change. A push to make it less dependent on Government, particularly on PM Modi Government. Because he is pursuing policies to uplift the poor, make lives of urban middle class safer and better.
Introduction of Metro Rail service and better public transport has long been demanded by taxpayers and experts. As more metro lines will be commissioned, pressure on roads ought to come down. So, fewer people will upgrade or change cars. With better connectivity to Metro and local transport, two-wheeler riders would wish to return home safe with minimum chances of accidents. Steps to reduce cost of logistics as a percentage of GDP to match global standards will see changes in carrying capacity of trucks and commercial vehicles. So will come the new technologies. This is effectively resulting in more tonnes per vehicle and lesser vehicles on roads. Commissioning dedicated freight corridors of Railways will reduce burden on road transport. And much more like Bharatmala is coming.

Liquidity crises in Public Sector Banks is here to stay for some more time. PM Modi will have to squander more capital to save PSB from uncontrolled QE of 2008 subprime. Dr Rajan who was custodian of banks had not anticipated quantum of dirt beneath the carpet. He had come with noble thoughts and intentions; never to realise that RBI LFAR (Long Form Audit Reports) had all that you must know about health of large branches. From his days till today, the Supreme Court is struggling to make LFAR public under RTI. Then whole world will know which regime had bad governance in banking sector and how big a price PM Modi is paying.
NBFC liquidity is yet another question which the financial services industry must ask to its constituents. Is it greed, pure inefficiencies, governance standards or wrongly targeted loans have led to this crisis; should be introspected? Or is that recovery practices adopted for stressed assets or procedure to liquidate possessed assets and malpractices in auction procedure have caused customer resistance; needs to be examined. Actually recovery agencies are also covered under RBI code and time may have come to revisit norms led down for recovery agencies. Maybe this confidence-building will help to attract more customers and better NPA management at NBFC.
Startups like Uber, Ola, Red Bus et al are all here to stay. There will be fierce competition amongst public transport and hailing apps. Better facilities at affordable costs will reduce stress and burden of travel. For younger generation and senior citizens alike, these apps have improved mobility at minimum damage to pockets and bodies.
Globally emission norms are changed to suit environmental challenges. More and more vehicles will have to be accommodated with less impact on the environment. Technological changes will have to be adopted for controlling emission. Like in earlier regimes, Modi 2.0 will not keep moving deadlines to suit recalcitrant industry. Change is a must, should be made and in tandem with policy decided after public discussions. Safety gadgets are here to stay and all manufacturers will have to upgrade themselves. It is industry which has to find cost-effective technologies and develop products and procedures for safer travels with less impact on consumer pockets.
Electric Vehicles (EV) are here to stay. However, NITI Aayog could have taken a little bit more time. When technology is still under evolution, as a nation we should not debate deadlines to stop production of non-EV in time to come. The vehicle scrapping policy is still on standby. In fact, EV will be least cost product than the current haphazard hybrid technology. More so batteries are still untested for recycling and environmental impact. Yes EVs are here to arrive and so will benefit auto industry in coming years as this will bring whole new class of vehicles for replacement.
What has actually hit economy is undue expectations from Modi 2.0. Expectations without understanding the fundamentals and basics of PM Modi’s economic policy! He will focus more on distributive economic justice, bring farms closer to forks and give his nation inflation less predictable economic regime. PM Modi is capable of countering his critics by his actions. In every sector of economy he has sown seeds which industry can harvest, as it matures and grows competitive.
Automobile Industry should not stand as a divided house. The economy has migrated and committed to transparency like never before. To expect that some state governments will give incentives at the cost of few others will not happen like in the past. GST is consensus based body. The industry will have to also take auto clusters and MSME on board while taking every decision. Most big auto component suppliers have been harsh with MSME and service providers. Industry per se should set its governance standards. Several new players in sales and service agency segment have suffered due to long term policy vacuum and flawed expansion strategies.
Every step of Modi 2.0 is to make the economy achieve target of $5 trillion. It expects stakeholders to respond by expanding markets and continuously improve to meet customer expectations. Every paisa is spent either for well being of the poor or to create infrastructure that will improve experience of citizenry. There is no scope for largesse as nation comes first, citizens next & entities last.
(The writer is a social economist)