Low-cost hybrid cars seem to be the solution for moving further towards more fuel efficient cars. The Indian government should, in partnership, undertake a joint R&D project
07 Jan 2015 | 3009 Views | By Shobha Mathur
Low-cost hybrid cars seem to be the solution for moving further towards more fuel efficient cars. The Indian government should, in partnership, undertake a joint R&D project for developing a suitable low- cost hybrid system for the Indian market that is predominantly a small car market, RC Bhargava, chairman of ...
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Low-cost hybrid cars seem to be the solution for moving further towards more fuel efficient cars. The Indian government should, in partnership, undertake a joint R&D project for developing a suitable low- cost hybrid system for the Indian market that is predominantly a small car market, RC Bhargava, chairman of Maruti Suzuki India, said at the first leadership talk of EEPC India.
He was speaking on the topic ‘Knowing how to lead from the front’ and pointed out that most countries like Japan and Europe are doing hybrids for upmarket cars. “Most of the OEMs in India are global car manufacturers and they will develop a hybrid somewhere. With the Indian car market pegged at nearly 3 million cars, and to grow to 6-7 million cars in a few years, it will big enough to excite anyone to do this R&D and vendors have to be supportive to make hybrid parts for it. The only deficiency is electronics as hybrid parts are very electronics intensive. So we have to develop the Indian electronics industry,” Bhargava added.
He ruled out electric cars as being the answer to India’s problems related to achieving higher fuel economies and despite the government rolling out the National Electric Mobility Mission Plan 2020 for EVs. He also ruled out that Suzuki is developing a small hybrid for the Indian market in the near future.
Already prime minister Narendra Modi has said that electronics is one of the areas where India needs to grow exponentially.
Elaborating on the prime minister’s ‘Make in India’ vision, Bhargava said that since independence it is the first time the government had laid out a clear target of what is required to be done and why it is required.
To push forward the make in India objective, growth of the manufacturing sector has today become a priority of the government and it is very apparent that till the industrial sector reaches a growth rate of about 12-15 percent a year, the GDP cannot grow beyond 8 percent annually per year if manufacturing lags behind.
The services sector which, at one stage was the growth driver of the GDP and growing at around 8.5-9.5 percent, has now plateaued out with no scope for it to grow the way it did before. The agricultural sector constitutes a very small portion of the GDP and even if it were to grow from the current 2.5 percent to 5 percent per year, its contribution to GDP would be quite small. Hence, only industrial sector can help raise the GDP. However, along with GDP growth, job creation is equally important.
Focus on job creation
“We have a huge number of young people who want jobs and have different aspirations from what we had when we were young. I don’t think at that time the knowledge level was even 5 percent of what it is today aided by Internet, media and cellphone communication and that is a huge game-changer. That was apparent in the last elections when the voting percentage was much higher than ever before and it happened because young people turned out to vote because they had aspirations and were looking for someone who would fulfil their aspirations. They want productive jobs and will not tolerate mistakes and unkept promises.”
Bhargava spoke about the current government policies becoming redundant as they are based on old ideologies. He recounted how in 1963 when he attended an American college he was told that India must specialise in labour-intensive methods of manufacturing and produce low technology products as the high-tech products would be made by the more developed western countries. And all the Indian economists who are also western trained have developed the same mindset. In fact even the micro, small and medium enterprise (MSME) policies have been developed with the same mindset and are not consistent with the need to become globally competitive and move up the value chain. Hence if the country has to grow, mindsets have to change – the more one produces, the more it sells leading to more job creation in the service sector due to manufacturing activities.
Citing the example of the automotive sector, Bhargava said after the car is produced and begins selling, the dealerships have jobs of salesmen, mechanics, financing and insurance agents, repairs, servicing of cars, spare parts sales and drivers, all unrelated to manufacturing jobs and these are created every year in addition to those created in the earlier years.
So the issue is how to sell more and create a demand for products. The greater the value it gives to the consumer, the more likely he is to buy that product and generate value for money. For this, better and more consistent quality at lower cost, more reliability and better aftersales service will be basic to any product.
Falling barriers
Another change that is underway is that barriers to international trade are coming down compared to those that existed 20-30 years ago when there were restricted lists of products and banned products too. All these have disappeared today as competition rises. This is happening globally increasing opportunities of selling the products in other countries where there were barriers earlier.
Bhargava’s suggestion for growing business is to become more competitive in terms of technology, product cost, design, quality, distribution and packaging. Unfortunately in India, manufacturing has never received the kind of priority that it is now receiving and while in the last 10 years while there has been talk of FTAs and competition, the government never looked at manufacturing on a level playing field like in other countries.
High and multiple taxation systems and an inverted duty structure adding to costs have not helped ease doing business in India either.
For the first time, the present government has embarked on making doing business in India easier but it will not happen overnight. “Both the prime minister and the finance minister fully understand what it means to be competitive and with them at the helm of affairs, doing business will progressively become easier. Already a lot of improvements have been made but unless every segment of industry becomes competitive and the final product is competitive manufacturing cannot grow and jobs cannot be created.
In fact in 1982 when Maruti Udyog kicked off operations, it followed a phased manufacturing programme that required that local content within 5 years reached 93 percent in a phased localisation manner. At that time, not a single part of the Maruti 800 was available in India and every part had to be developed. “We worked out a vendor development policy primary with the thought that our cost, quality and ability to increase volumes were completely dependent on the cost, quality and capability of our vendors. Even one vendor could hold up production and therefore 100 percent success was required in these areas. Government policy in those days required tenders to be put out for components with the lowest bidder bagging the order. This meant no consistency of business for the vendor,” Bhargava recounted.
This policy was not conducive, so Maruti decided to follow an alternate policy of treating its vendors as partners in business. According to this, the vendor would also grow along with the growth of the company with vendors’ profitability linked to the OEMs growth and vice-versa.
Bhargava says Indian manufacturing is not so competitive as the supply chain is not consistent. Foreign manufacturers also feel that the biggest weakness is an inadequate supply chain. Maruti still faces problems of stepping up production if the demand suddenly goes up as suppliers are unable to raise their capacities. This further adds to quality problems at Tier 2 and Tier 3 vendors who are, by and large, MSMEs.
Hence Bhargava’s suggestion is that if the Make in India vision is to succeed, finished products should be competitive globally and policies should be framed to maximise competitiveness at the suppliers end as well.