 "India's largest automaker says the worst is over")
Within days of Maruti Suzuki announcing it might have to postpone its investment in setting up a new plant in Gujarat, Chairman R C BHARGAVA talks to Surajeet Das Gupta & Sharmistha Mukherjee about the immediate challenges facing his company and the sector. Edited excerpts:
There has been a decline in car sales in the first half this year. Do you think the worst is over? Will the rural market now begin to push sales, especially after a good monsoon?
Yes, I think the worst 4-5 months are over. The festive season is coming and the good monsoon will boost rural growth. Then, there will be elections towards the end of the financial year.
Our rural market has grown 20 per cent this year (up to July). It now accounts for 30 per cent of Maruti’s sales, up from 25 per cent last year. The urban market is not growing much, so the rural one is where growth can come from. Following a good monsoon, I expect the growth rate in this market to accelerate to 25 per cent over the next few months. So, we are expanding sales points in villages. Today, State Bank of India is present everywhere. So financing is not a problem. Last year, we were selling in 44,000-45,000 of the country’s 600,000 villages. This year, we aim to be in 100,000 villages. We have the kind of products people in rural areas want. That gives us an edge over others. Also, we have a better range (under Rs 5 lakh).
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But it looks unlikely you will be able to meet your growth target, despite the expected better months...
At the beginning of the year, we had said 8-10 per cent. But in the current economic situation, that is not possible. In the first four months, both industry and Maruti sales declined. But with the festive season, the impending elections and the good monsoon, the industry might grow again. We are looking at a 2-4 per cent growth rate. In Q1, the rate of GDP growth was 4.4 per cent. But the government says it will be 5.5 per cent for the full financial year. That means the growth should be around six per cent in the rest of the three quarters. If that happens, we will certainly be in a better shape.
Has the sudden fall in the value of the rupee made you indigenise faster?
Indigenisation only insulates us from devaluation and helps us show profits. But it does not help us grow. We started the indigenisation programme three years back and we are getting the benefits now. But companies starting will have a long wait ahead. Maruti is 90-95 per cent localised. Vendor imports have come down to 17-18 per cent from 25-26 per cent. But the electronics industry in India has not developed much. So we have to import electronics, more of which is now getting into cars.
The industry has attacked the passing of the land acquisition Bill, saying it will increase the cost of putting up new plants or projects and make those unviable. You have acquired a lot of land for your car plants. Is this attack valid?
The process of giving compensation to the farmer itself was faulty. The land acquisition officer in a district fixes the price based based on the price at which land was registered for sale in an area. But that does not reflect the actual price paid. It is way below the market price. And what about rehabilitation of farmers who sold their land? Farmers have not got fair price for their land.
But industry is saying land costs will hit the roof and their projects will be unviable?
Even if land costs go up four times, a project won’t become unviable. In Manesar, we had bought 600 acres for around Rs 120-130 crore. It’s a different issue that we are now being asked to pay another Rs 800-1000 crore, with court cases and interests. If the land price had been calculated correctly in the first place, the land cost might have increased to Rs 400 crore. Would Rs 400 crore be unviable in the total investment of ~5000 crore that we were making in setting up three assembly lines in the unit?
We pay absurd prices for gas, power, and diesel. Why can’t everybody pay the market price and directly transfer the amount of subsidy to the weaker sections. Why should people get them at subsidised rate and farmers not get market price for their land?
Today everyone is worried about the rupee’s depreciation and the government’s failure in seeing it coming. Is it a big worry? Should the government be blamed?
Today, everyone is worked up because the rupee has devalued. But that is not the most important aspect of our economy. To me, the most important aspect is the ability to create enough productive jobs for people. Agriculture cannot create more jobs. The services sector creates jobs for people who are graduates or above. For the other section, with up to high school education, the manufacturing sector is important — something the government recognised two years back. All state and central governments that came and went in the past 50 years are guilty of not creating a competitive manufacturing sector. It is this failure that is ultimately responsible for what is happening today.
Why is it that currency has not been much of a problem in Singapore, China or Japan? Why is there a CAD in the first place, even if you are importing? Even if the rupee stops falling, will that help you five years from now if manufacturing remains the same?
How is Maruti tiding over this slowdown crisis?
We have to be a little bit more efficient and more competitive than other carmakers. There will be some growth, I have to make sure I get a good share of that and that I keep my costs under control. We have to get closer to the customer; everybody is trying to do that but we have to see who does it better.
Are you postponing your investments?
We have to see what is happening before we make new investments. The Gujarat plant was to start by March 2016. We are delaying Phase-II of the diesel engine unit (150,000 by 2014) because of a weak market. We will have a capex plan of around Rs 3,500 crore for normal expenditure.
Will you now become more aggressive on export, as that looks attractive?
Devaluation of the rupee certainly makes it easier to export but global markets are not hot, either, and it cannot be done suddenly. Also, we are a domestic carmaker. India is a big market. The car industry will only revive if people’s incomes revive.
All car companies are offering discounts, including Maruti. Does that help boost sales?
Discounts are happening but that does not take you anywhere. You cannot get volumes from discounts; there is not much buying power. I can give you discounts but that won’t help you run your car. Discounts help in being competitive. If everyone is offering discounts, it will increase the market size to an extent.
Is the diesel car honeymoon for the industry over? Does that give you an advantage, as you have been strong on petrol?
With diesel prices rising, the attractiveness of diesel-run vehicles has got reduced. Petrol cars, in fact, grew in July, for the first time since May 2011.