RC Bhargava, former CEO and current chairman of Maruti Suzuki, takes questions on a range of issues, from how the carmaker stayed on top and how he looks at future challenges. Excerpts from 6th edition of Delhi Dialogue, The New Indian Express
The Indian automotive industry has operated without any formal planning or inclusion in government policies such as five-year plans. It is difficult to believe that a government organisation could handle the pressure of VIP demands and vehicle registrations.
Shahid Faridi: Maruti started as a joint venture and it became a private company. How and when did it happen?
The government started with the intentions that the foreign company should take 40% equity. At that time, no foreign manufacturer wanted to actually put cash into the company. The other people who were offered to partner with Maruti wanted only to give second-hand equipment, but nobody wanted to invest.
Suzuki, on its own, agreed to take 25% stake. Later they agreed to take 26% when they understood 26% gives them more rights.
Then there was a revision in the contract within five years, and Suzuki was given an option of increasing its stake to 40%. So, they went up to 40% within five years.
Then came 1991 liberalisation and we wanted foreign investments. The PMO told us to persuade Suzuki to increase its equity into Maruti and see if we could get any other foreign investment in the company.
We talked to Suzuki and it was decided that they will become equal partners with the government. In 1995, trouble started between the government and Suzuki. When they had become 50-50 partners, they said that the managing director would be the nominee from the partners, alternatively retiring in 1997.
There was a big difference of opinion on who should be the one. Ultimately, the issue went into an international arbitration. The government changed and Sikander Bakht became the Industries Minister. He realised that there is no way a government could run a car company. There were talks that we wanted Suzuki out but then Bakth negotiated and the court case was settled. He said the government would make money selling the shares. The government first gave Suzuki some shares so that it became the majority partner and the government took a premium of Rs 1,000 crore for giving Suzuki the control that time.
Maruti got listed in 2003 and the government totally sold its shares after 2003-2007.
Dipak Mondal: What are the steps the government should take to increase manufacturing sector’s contribution in the GDP?
Fundamentally, the government can’t do much. However, one thing the government must do is to understand the value of time. You know the most costly thing for a big project is time. We are doing this project in Kharkhoda. Our people calculated that each day’s delay would cost us something like Rs 40 crore. In most government places, people are not willing to take decisions. Any project you want to do, you have to take so many approvals. It is one of the most frustrating things.
Dipak Mondal: Are you saying not much has changed on the ground?
State governments decide on clearances. If something is not happening, we blame the Central government. However, all clearances, such as on electricity, water, sewerage, afforestation and the environment, are taken by state governments.
Monika Yadav: What is your assessment of the rural consumption pattern? Do you think India can overtake US and China as a manufacturer in the automobile sector?
I don’t think we can overtake China, probably not even the US. A major factor that we have to consider is the number of people in India is so large that if I want to get to the US standards, where they have more cars per thousand people, we would have 150 crore cars in India, which makes it impossible in terms of resources.
China is way ahead of us, especially in terms of infrastructure. Politically in India, it is impossible to do what China does in rebuilding rural infrastructure.
Over the last 10-15 years, we have seen that the focus of growth has shifted from big cities. Given the infrastructure of cities like Delhi, it’s impossible for many more cars to fit into this place. A lot of people in rural areas are buying cars. We had recognised this trend about 10-15 years ago. Over 40% of our total sales come from rural markets, including small towns.
Monika Yadav: About artificial intelligence, do you think driverless cars are the future?
There are two aspects of it in India. One, it doesn’t make sense because we have so much unemployment, and drivers are a major source of employment. If you are selling 4 million cars, you are probably generating 7-8 lakh driver jobs every year. The other is a purely technical reason. For AI to grow, some degree of predictability is needed with some data. I don’t think any technologist today can predict the Indian behaviour.
Rakesh Kumar: What is your view on the semiconductor ecosystem in India?
The situation is improving. From what one is reading, following the PM’s recent visit to the US, is that there’s going to be more movement in that area in India. I think the chipmakers are recognising that the future growth market is India.
Neha Periwal: Why Japanese, why not Germans?
Germans, to some extent, are similar in a sense that they have a much higher involvement of employees in their companies. However, they haven’t managed to do what the Japanese have. And the cost is much higher. When we went for a partnership at that time, Volkswagen was interested. They even offered us a car, not the kind of a small car that Japan was using. Europe wasn’t using small cars. But then, they changed their mind. They thought India wasn’t a good market. Why Suzuki agreed to enter India, I have no idea.
Amit Mukherjee: Do you think Maruti is late in entering the EV market?
I don’t think that we are late in this (EV segment) market.
We had developed an electric car a few years ago. WagonR was converted, but the cost was too high. The Indian market is a much more price sensitive. Our Per Capita GDP is $2000 or so; Europe’s is $45,000. The cost of electric cars was not low at that time; the battery cost was quite high. The other big issue is that the major component of the car is the battery. Nobody is making batteries in India. And there was a lot of talk about battery technology.
Even now, nobody is sure whether lithium ion batteries will be able to continue for five years from now. Who is going to invest in battery manufacturing? Then there is uncertainty behind the technology of batteries. You invest in a factory, the battery gets obsolete; you are stuck.
Prabhu Chawla: You are shifting to EVs because of environmental concerns. Similar to the scrappage policy of petrol and diesel cars, would the EVs also be scrapped after 10 years?
We are introducing EVs correctly to improve the environment, and get nearer to carbon neutrality. The question is until we change the composition from predominantly coal-fired to renewable clean energy sources, are we really reducing the carbon footprint?
A car should be scrapped if it fails to meet the environmental and safety standards.
This means there has to be periodical checking of fitness. We don’t have the infrastructure to do it.
Jitendra Choubey: Is there a dilemma in the industry whether we should go for EV or hydrogen?
The use of hydrogen on a commercial scale is not possible. You need big infrastructure and safety measures. In India, we have other options — created by a large agricultural, human and cattle waste — which offer you the possibility of compressed biogas and ethanol.
We look at hydrogen and electricity because the West is doing it. The West doesn’t have these options of cattle dung and agricultural waste.
Ketan Tanna: What is the future of affordable cars?
It is a tricky issue. We do need to provide cars that meet the best safety standards. But safety standards mean cost. Small cars become less affordable than big cars because the percentage increase in the price of the car is much higher, when the car itself is low-cost. Airbags in small cars and airbags for a big car don’t make much difference. However, if you put an airbag in a car costing Rs 50 lakh and you put it in a car costing five lakh, there’s a big difference in the impact. Thus, small cars have become less affordable. Therefore, their sales have more or less stagnated.
What is the answer? One is that you reduce taxes on small cars. I’ve been saying that taxes on cars in India are the highest in the world. Europe has a VAT maximum of 19%, Japan has about 10% and the US has something similar to that. Our small cars go at about 29-30% and the big cars at 45%.
Arshad Khan: Carmakers are leaving India.
How many carmakers are there in the US, how many in Japan? How many do we have in India? How do you make them all viable? How can they all be profitable? The simple thing is India has partnered with carmakers. Many of them just didn’t make the cut. They have to fall out. We can’t support so many carmakers.
Arshad Khan: On Tesla…
Tesla is welcome as long as they work on the same basis of all other carmakers. People should have freedom to exit, and enter. Tesla has asked for some tax concessions earlier. They had said that they should be allowed to import cars at lower duties to test the market. So why should they be allowed to import cars at lower duty when nobody else is allowed to import? Now they’re not asking for that.
Neha Periwal: What is the best advice you’ve got and an advice you want to offer?
Something that always made an impression on me happened in school. One of our teachers, a British, had once said that the purpose of education is not to teach you the subjects and make you very good at them. The purpose of education is to instill in you the inquisitive Greek spirit, which means you should keep questioning everything. On the way of life, there is something to learn from the Gita. Don’t let yourself be stressed by events you can’t control and change. Learn to accept them and do your best.
RC Bhargava, former CEO and current chairman of Maruti Suzuki, takes questions on a range of issues, from how the carmaker stayed on top and how he looks at future challenges. Excerpts from 6th edition of Delhi Dialogue, The New Indian Express