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BW Businessworld

Paving The Road For A Smoother Ride

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The past four years have not been good for the economy and for the automobile business. The growing dissatisfaction with the lack of progress led to the elections in May 2014 producing an absolute majority for the BJP. The mandate for Narendra Modi, who was the face of the BJP, was to bring change, better governance, job creation and faster economic growth. 
 
Sentiments have changed with the new prime minister taking over at the Centre. The stock market has reached record levels. Expectations of change are very high. However, not many people are realising that putting India on a sustainable high-trajectory growth path requires structural and mindset changes at all levels. Presently, most of our laws, rules, procedures and attitudes are built on distrust. Not surprisingly, most decisions take time, and rules are tortuous and unreasonable. No wonder India ranks very poorly in terms of ease of doing business. Distrust leads to an unfriendly taxation environment, huge litigation and costs for business undertakings. Infrastructure and other projects are frequently delayed. Our implementation machinery, at all levels and in all areas of civil administration, is creaky and rarely able to do what needs to be done. The education system has fallen below acceptable levels and the skills required for effective working are just not there. Widespread corruption further compounds our problems and the quality of implementation.
 
Building Trust
I believe the Prime Minister is right in his assessment that unless some of these issues are resolved, trying to push through reforms will be futile. They will remain largely on paper, as has been the fate of laws and policies in the past. 
 
Hence, the Prime Minister’s  emphasis on a number of changes that may appear small, but will lead to improvements in the implementation capabilities of the country. This process will continue.
 
Also I believe that in the second half of 2015, these steps will start producing results, and we will see their impact in the quality of the administration. However, the change in mindsets cannot happen in a short period of time. During 2015 and beyond, efforts will have to continue to build trust, and the private sector will have to play its role in this process. Ministries will need to keep improving their implementation capabilities and processes. The pace of economic growth may begin to pick up in the second half of 2015.
 
The fall in crude prices, lower inflation, the disinvestment programme, and the steps being taken to better deliver subsidies by reducing leakages and waste, will help the government’s finances in 2015. I expect that would enable the government to take steps that would promote growth and more expenditure on infrastructure building.
 
The automobile industry has continued to struggle since 2011. The decline in the growth rate of the economy, rising petrol and diesel prices, inflation, the negative fallout of scams and poor job creation combined to impact automobile sales. Sales of petrol cars saw negative growth in 2011-2013. It was only in 2014 that sales of petrol cars once again saw a pickup. But diesel car sales have been declining and, as a result, the first nine months of this financial year are likely to show a growth of around 3.5-4 per cent for the industry as a whole. Only a few companies have done well this year, Maruti being one of them. In fact, if our sales are excluded, the rest of industry is still in negative territory. 
 
The year 2015 should see the car industry doing better. The falling price of crude has resulted in not only arresting the steady upward movement of fuel prices, it has also brought about price cuts. Hopefully, this situation will last in 2015 and make car ownership more affordable, thereby increasing sales.
 
Change In The Air
Commodity prices have also softened and, as a result, the pressure to increase prices is less. It is also likely that in the first quarter of 2015, we will see a lower interest rate regime, as inflation is now at its lowest in five years. The cumulative result will be greater affordability of cars and hence stronger sales. 
 
The sales of heavy and medium commercial vehicles have also started to grow after a long time. Gross capital formation is likely to increase in 2015. The extent of foreign direct investment in infrastructure and manufacturing should also increase in the second half of the year. These will be positives for the automobile industry.
 
India is increasingly being treated by car manufacturers as a base for manufacturing cars for export. As the mechanism for repealing obsolete laws, rules and processes strengthens, decision-making will become faster, and the tax administration more friendly. Costs of production will come down and manufacturing for exports will become more competitive. The extent and reach of e-governance will grow.
 
Overall, I do not see 2015 suddenly becoming a year when economic growth and car sales will zoom. But I do see processes for making that happen take shape.  
 
The author is chairman, Maruti Suzuki
 
(This story was published in BW | Businessworld Issue Dated 26-01-2015)