EDITED EXCERPTS FROM AN INTERVIEW
How long could the sector take to get out of the current sluggish phase?
It’s difficult to say. The passenger car industry is down to negative levels. For it to return to 15 percent growth, the economy needs to go back to 8-9 percent growth. Until growth is able to boost jobs and put more money in people’s pockets, it’s going to be hard to come back.
Does that mean the current year will remain a tight rope walk for business?
In 2013-14, we expect to remain at a 5 percent growth rate mark. That will not translate into any significant jump in automobile sales. And also the recent RBI rate cut… I don’t think reducing 25 bps makes any significant difference to car sales. Even if banks pass it on, there will be little impact on EMIs.
Will we see companies scaling down then?
What we will see is companies fighting it out to get hold of a larger share in the same market. Some may lose their market share and others may gain. Everybody will adjust expansion in light of the change in demand. But idle capacity, cost of depreciation and interest costs will still hurt companies.
The automobile sector is considered an important leg of India’s manufacturing story. What’s ailing the automobile sector besides fluctuating demand?
Manufacturing is almost stagnant. High transaction costs and delays make it difficult to take decisions. It doesn’t help that we are ranked a low 132nd among countries on the ease of doing business. Manufacturing needs to grow faster than GDP. We need to sort out procedural delays to create jobs in automobile and manufacturing.