Nirmala Sitharaman is 100% right: Maruti's Bhargava joins the millennial debate
The main issue to Bhargava's mind is of a structural kind — cars are not affordable for common buyer anymore.
What the finance minister said is 100% correct, Maruti Chairman RC Bhargava told the Mint newspaper in an interview. Instead of buying a car, today's young earners can simply book an Ola or an Uber and save their money for other gadgets that they like, said the top boss of India's long-time auto industry bellwether.
This is by far the most weighty endorsement of Sitharaman's observation — that the millennial consumer's reluctance to buy cars is one of the reasons for the industry's worst-ever phase — which had triggered a free-for-all among her backers, the media and various industry bigwigs.
In the interview, Bhargava dwelt upon the top reasons behind this auto slump, shedding light on the millennial thought process. According to him, youngsters want to buy the latest smartphones, go eatery-hopping with friends and generally have a good time; buying a car cuts into their ability to save for these things that they want.
The typical Indian youngster's salary anyway isn't high, so when they have to choose between buying their first car and having a good time, they generally go for the latter because they already have taxi aggregators to handle all their commuting needs, that too economically, he said.
Amid all this clamour for a GST cut on cars, Bhargava refused to tread the beaten track. He said that a GST cut would only help temporarily, and that over the longer term things would be back to square one.`
The main issue to Bhargava's mind is of a structural kind — cars are not affordable for the common buyer anymore.
Cars in India — where the per capita income is $2,200 — now have the same safety specifications as in Europe, where the per capita income stands around $40,000. Increase in quality and better safety/emission norms have made cars significantly costlier here, but incomes have not risen. How can Indians afford a car in such a situation, he asked.
India, the world's fourth biggest car market, has seen passenger vehicles sales hit rock bottom in the last one year on the back of rising prices, increasingly scarce loans and the general slump in demand. In August, passenger cars witnessed their steepest-on-record decline of 41%.
It was the first time in a decade that passenger vehicle sales fell continuously for the whole year. For the overall auto industry, the annual decline stood at 23.55%. Sales of commercial vehicles — a barometer of economic activity — dropped nearly 39%.
Companies are already taking a range of drastic measures to deal with the unsettling business environment. In September, India's second biggest commercial vehicle maker Ashok Leyland announced block closures across its facilities.
In early September, Bhargava's own company — by far India's biggest — announced two no-production days at its Haryana factories.
The dire situation has already forced losses of around 3,50,000 auto industry jobs, with the possibility of more job losses looming.
Auto industry contributes nearly half of India's total manufacturing GDP and accounts for about 37 million employees — both direct and indirect ones.
In the interview, Bhargava also analyses Modi government's $5 trillion GDP in five years target. For this dream to be fulfilled, he says, India needs to push manufacturing's contribution to GDP — which currently stands at about 15% — to about 25% by 2025. For that to happen, the demand for and affordability of locally manufactured products must also rise commensurately, but how will that materialise if customers can't buy products in the first place, like they are currently unable to buy cars owing to rising costs, he asks.