India Inc had reacted cautiously to Reliance Industries chairman Mukesh Ambani selling a stake in the core assets of its oil business to Saudi Aramco in order to mop up its debt within 18 months. However, being a farsighted individual he was able to get his business in order considering the low liquidity concerns.
In this context, one wishes the automotive industry, and especially big players like M&M, Bajaj, and Maruti, etc, also learn a thing or two.
Our Indian economy traditionally comprises three sectors, with the manufacturing sector being the backbone and employing a huge workforce of blue-collared and white-collared personnel. However, for the past three decades, this sector has seen complete stagnancy. The automotive sector which forms an integral part of manufacturing has witnessed spiralling sales and increased inventories. The sector has lost 2.30 lakh jobs with the industry failing and witnessing its worst crisis in 20 years.
The global and national environment has also contributed to an extent, with an uneven monsoon, drought in important manufacturing hubs like Chennai, trade wars between China and USA, banks inability to lend due to the IL&FS meltdown has made the sector bleak.
The Indian economy was always considered to be prudent and its fundamentals strong. This helped India survive the 2008 global meltdown after the Lehman brother’s fall. However policymakers did not gauge the fallout repercussions, banks continued to give loans which helped create liquidity and purchasing power, therefore fuelling economic growth. A decade hence, the RBI has cut growth rate from 7 percent to 6.9 percent. Moreover, the swiftness to introduce Goods and Services Tax (GST) and demonisation has also affected our economy and its ‘fundamentals’.
However, the automotive industry also remains upbeat about the monsoon improvement, a supposed fiscal stimulus package by government, and has also asked the government to cut GST rates on their sector from the present 28 percent.
Challenges to the sector, however, remain in plenty. The government has already notified the new Bharat Stage (BS) norms from BS-IV to BS-VI, therefore, bypassing the BS-V. The government’s faster adoption of electric vehicles, its newer safety mechanism in vehicles, therefore, increasing costs. Added to that the low liquidity in the part of the banks making it competitive to take loans, unlike a decade back, have resulted in the shortfall by 18 percent of car sales for 2019 in July.
Automotive industry and their ancillary need to understand the fast pace of the economy and its movement rather than waiting for the government to bring norms and parameters, they should take a clue from the richest Indian and also think far-sighted.