India’s automotive industry is going through a rough patch, after having scaled exciting heights in the 2000s. The downward trend is reflective of the overall sloppiness in the country’s economic growth. The sector has to rise to the challenge by offering more for less
The health of the automotive industry in any country is an indicator of the overall health of the economy. If motor vehicle sales fall, as they are doing right now in the country, the overall economy seems weak. The Government has to take steps to revive the Indian automotive industry, yet ensure that the industry evolves with the times.
The decade of the 2000s was a golden one for the Indian automotive industry. Across segments from two-wheelers to heavy trucks, sales shot up. New products were launched at a fast pace and the growing prosperity of India’s middle class led to the creation of whole new segments. German luxury car manufacturers entered India and sales trebled in a year.
Down the value chain, the scooter market revived and the Tata Nano too was born. India’s love with the automobile culminated with a private developer creating a world-class Formula One circuit outside New Delhi. There were the occasional hiccups, but on the whole, until early last year, things looked exciting. Until the Indian economy started to press on the brakes.
There is still forward momentum but the Indian economy has moved from the fast lane to the slow lane. And that has taken a toll on the Indian automotive industry, sales have stalled for some manufacturers and for others have fallen off a cliff. And in the ultimate sign that things were not going that well, Bernie Ecclestone, the commercial rights holder for Formula One cancelled the 2014 Indian Grand Prix, moving it to early 2015, but gave no guarantees for races beyond that.
While the Formula One event is a commercial venture, although it could do with Government support, the need of the hour is to boost automotive sales in India. A growing automotive industry and a healthy one is a sign of a healthy economy. The collapse of the American automotive industry in the 1990s and early part of the 2000s led to the decimation of the ‘Motor City’ of Detroit, Michigan, so much so, that Detroit became the largest American city to declare bankruptcy recently.
There are several Indian areas, mainly Gurgaon-Manesar, Pune-Nashik and Chennai that depend on this industry as a life-force. A decline in the industry will impact these areas hard, because every direct employee of an auto company sustains close to 18 more jobs indirectly. From the truck drivers who deliver motorcycles, tractors and cars across the country to eateries and even people who rent out their houses to employees.
So what can be doneIJ
Indian vehicle buyers are already a highly taxed lot. Even cars manufactured in India cost nearly double that of similar models manufactured elsewhere, despite often coming with fewer features. Various, ill-thought out excise duties — for example the additional ‘Sports Utility Vehicle’ excise — played havoc with sales until manufacturers could come up with workarounds. The fact that manufacturers could develop workarounds is itself a sign that the additional excise was badly thought out.
There needs to be a complete re-evaluation of how cars and motorcycles are taxed. Yes, it is true that an increasing number of motor vehicles do put immense pressure on the already crumbling road infrastructure in several Indian cities. In addition, drivers often treat traffic rules as ‘optional’ which makes driving in India one of the riskiest propositions around. Increasing vehicular sales has also led to increased petroleum imports, putting additional pressure on the exchequer.
Currently, the Government taxes vehicles based on their size. Although hybrid and electric cars are given some duty benefits, these are not enough to reduce their prices and spur sales. Size and engine capacity are not the best criteria to tax vehicles. In India, it is a well-established fact that economical cars tend to do well in the market because consumers demand it. The Government should, like the Chinese regime has recently done, force automakers to make all their vehicles more fuel-efficient.
Of course, rising fuel prices might lead to consumer demand for improved efficiency, but with America moving whole-heartedly towards shale gas, it is likely that petroleum prices, despite increased demand from India and China, might fall in the near future and make manufacturers less inclined to develop high-efficiency engines. A mandatory, step-by-step procedure to just that will be met with reluctance by the industry, but be beneficial to them, the consumer and the environment in the long term.
Excise based on emissions, as has been adopted by the European Union, would be better than basic length and engine-size excise slabs. Some larger cars with bigger engines, which have an amount of hybrid technology added in them, might actually end up in a lower excise bracket. These norms, introduced in Europe, have been extremely successful and have led to manufacturers creating cleaner and more efficient cars.
Then there are electric cars. These were novelty vehicles until not very long ago: Impractical, small and with limited range. However, American carmaker Tesla Motors showed that electric vehicles could be practical and large, and while advances in battery technology still have to be made — the case of the exploding batteries on Boeing’s new 787 Dreamliner being a case in point — two recent vehicles from Germany show how far electric vehicles have come. The BMW i3 and the Mercedes-Benz’s electric version of its SlS roadster demonstrate that electric cars can be practical as well.
True, electricity itself at least in India is not as clean as we would like it to be, but an electric car is a start.
Cars using cleaner fuels ought to be given even higher incentives, possibly subsidies as well, at least for the first few years. For example, cars sold with factory-fitted natural gas kits should be offered lower excise rates. Despite the recent arguments over gas production, India ought to more than able to be self-sufficient in natural gas in the coming years. It would be in the Government’s interest to divert more transport towards natural gas usage.
And, as for reducing road congestion, there is a very simple solution. Stricter adherence to traffic norms. Getting a driving licence in India is currently a joke; driving tests are simplistic; and, while Indian drivers do know how to change gear, fake licences are rampant. There is no easy solution to this, but as licences increasingly come embedded with smart card chips, fines and punishments for bad driving should be increased to the extent that breaking road rules becomes unaffordable.
This, in addition to better public transportation, as is being done in New Delhi, should help in reducing road congestion. Of course, these are all just ideas, but the haphazard manner in which we have treated both the automotive industry and our roads has to change.