R C Bhargava, chairman, Maruti is conversation with Sumit Chaturvedi, Senior Business Editor, ET Now, discuss the dynamics of India’s auto industry, as the country’s biggest automaker shifts into new gears with the advent of electric cars, starting from the first Maruti car that gave birth to a billion dreams.
Sumit: Let’s begin by talking about Maruti Suzuki, which is not just a household name in India, it is the epitome of manufacturing success of the country. First, I would like you to throw some light on how a small car Maruti gave birth to a billion dreams, how it all started?
Bhargava: I think most people are aware of the history of Maruti, though I would imagine some of the younger generation now may have forgotten how Maruti came into existence. The decision to manufacture cars in the public sector was taken at a time when socialism and socialistic planning was at a height and private cars were not a product which was encouraged by anyone. The reason Maruti got actually created was because Sanjay Gandhi, who was planning to make a small car, hadn’t succeeded for a decade, unfortunately died in an air crash and Prime Minister, Mrs. Gandhi decided that his ambition to make a small car should not be allowed to die with him even though cars were not part of the socialist planning system. And that’s why she and the government decided to create a public sector company to manufacture cars against all policies at that time. And then Suzuki became the partner.
Sumit: So, India is now world’s third largest car market, third largest car market. The majority of the cars in India are still being made by you and challenges are not new for you, challenges you have always witnessed. What according to you is the next wave of challenge that you are ready to stand or ready to face?
Bhargava: India is now the biggest growing market in the world. There is no other country in the world of any size which has the potential of growth in the car market, which India has, whether it is the United States, whether it’s Europe, whether it’s Japan, whether it’s China. All these countries have now become saturated in terms of their ability to absorb more cars. Their production is a replacement kind of situation. India is the only country which has still a lot of distance to go before the market becomes saturated.
Sumit: Let’s shift focus to manufacturing sector, a large part of it is contributed by you. You are what Make in India stands for! 20% of overall GDP is contributed by the manufacturing sector, but according to you what is happening now in the manufacturing sector?
Bhargava: As the Prime Minister pointed out in 2014, if we are to solve our problems or poverty, if we are to create enough employment for the large numbers of young people who are joining the workforce and if we are going to have greater equity in our society, all of this would only be possible if our manufacturing sector grows faster and we reach at least 25% of GDP through the manufacturing sector.
To get to this point, the centre over the last 9-10 years now has been making a series of reforms and improvements in the environment. The ease of doing business as you know, used to be somewhere 140-150 at one time. We have come down to 62. A lot of tax reforms have happened. GST has come, tax rates have come down. More than a thousand old acts have been abolished and this whole series of reforms have happened – all designed to make it easier to do business in India, easier to be more competitive in manufacturing.
Unfortunately, the results are not yet apparent. Manufacturing growth continues and the reason I think is that the bulk of the interaction of manufacturers, entrepreneurs is with the state government and in state governments, the bureaucracy, the entire administration is still not changed in the states in the way the central government has changed. There are lots of delays, time is not a factor which is valued highly by most people in the states and the attitude of administration is very much similar to what it used to be in the license and control days that the job of the bureaucracy, the job of the civil servant is to control rather than facilitate. That change has not happened.
I think along with that, the entrepreneurs also are largely maintaining a mindset and practices which were developed during the license and control ‘Raj’ because in those days, private sector was not in a position to grow or in any way innovate because the license laid down every condition of their functioning. We are all aware of the growth of black money in the country. We are all aware of what black money growth meant in terms of ostentatious consumption. Now if you look around, I doubt if any one of us here will be able to say that ostentatious consumption has gone down in India. If at all it has happened, it has happened in the opposite direction that people now like to show how much they can spend on a grandchild’s birthday or some such event and the race is that, oh, that guy spent 20 crores. So as long as the system continues where entrepreneurs, businessmen are more concerned about showing off their personal wealth and generating personal incomes and are not so much focused on growing their companies, I’m afraid the growth rates will not go up.
But just give the example of Maruti. Maruti grew at a time when all the conditions were unfavourable. Whatever Mr. Modi has done to make easier to do business now, were not there in that time. Many of the other facilities today were not available then. Like, communications and computers which were not around in the 80s and 90s.
We started exporting cars in 1990, a few years after we started. We could still do that. Today with all the ease which is available in this country, why our entrepreneurs not able to grow faster?
Sumit: After Covid, we were adopting this one (China) plus one policy. We were hopeful that companies will come to India looking at India as an alternate base for manufacturing. You think it’s on track?
Bhargava: See companies are moving out of China. That’s a fact. I think there’s a great awareness amongst a lot of companies all over the world that the need to de-risk their supply chains and total dependence on one country is not a good idea, but they don’t think that the only option they have is India. If you look at what’s happening, a lot of the people who are moving out of China have gone to Vietnam. Now, it’s something which we should think about. Why is it that people are preferring to go to Vietnam and not come to India? Still, are things not happening in India the way they should have? And that’s where I think the whole atmosphere of management and the kind of assistance and time which is taken is something which we need to look at.
Things are changing. It’s not that nobody’s coming into India.You look at what Apple is doing and other companies are doing. Foxconn has come in here. It’s not happening on a large enough scale. Manufacturing growth in India is still about 5% a year. We need to get up to 12% a year. That’s the kind of change which is needed.
Sumit: Moving forward and shifting focus to future challenges, Reinventing Maruti. Now government is more focused on safety. Technology is changing every week, month, year. What about these future challenges? How is Maruti Suzuki planning tackle those challenges?
Bhargava: Safety is something which we cannot compromise on and especially if you look at the numbers. India in 2021 had over 153,000 deaths from road accidents. It has been going up. It has been going up despite all the new regulations which have come in to make vehicles safer. We had no regulations till 2010, almost till 2000. 2010 we got into BS 4. We therefore have to continue to do what the government is doing, more and more standards to prevent deaths happening. But at the same time, we cannot get safety on the roads unless a number of other things happen. The process of teaching people how to drive and testing people before they get licenses.
It’s very, very easy to get a license. There is no real testing of the knowledge of the driver on how to drive or what are the safety regulations. After that there is a question of enforcing the laws relating to driving and safety. There again, I think people who should know better, people who drive in very expensive swanky cars, even they are not very conscious about the need for observing what are well accepted standards of driving. Again, we are one of the few countries in the world which does not have a mandatory fitness certification for cars.
A lot of accidents happen on the road because of a failure or one or the other safety system of a car. We do have a system for safety certification of commercial vehicles, but like a driving license, it’s very easy to get a certification of fitness for a commercial vehicle. Also, without the vehicle actually being tested for fitness. And unfortunately, that is going to remain until the state governments again decide that they are going to give greater priority to safety.
The two-wheeler segment, which we talked about a little while ago with summary contributes to about 60% of the fuel consumption in the country. It carries more people on two-wheelers that carried per commuting than in cars. There’s no safety system there at all. The maximum number of road deaths I mentioned 153,000. The last figure that I know of, over 60% of those consist of two-wheeler drivers and pedestrians.
Sumit: These are the long-term challenges, but in short-term challenge, is demand slow-down a fear and challenge. It is happening in two-wheeler sectors, especially in scooters. But in the car market in the near-term challenge demand slow down. Is it a concern today?
Bhargava: Demand for cars has been, over the last 10-12 years, being going up and down. If I look at the car demand from 2010 onwards, from 2010 till about 2014, the market was absolutely stagnant. That happened at a time when we had the effect of the 2008 financial crisis and the government policy, which made the difference between petrol and diesel much larger than it used to be. It’s come back to normal again. Then we had four or five years of reasonable growth, something like 7-8% growth.
Then BS 6 came along. The first year of BS 6, the car market dropped by 18%. The moment that year was ending, COVID came along and so we had two years of no growth because of Covid. Along with Covid we had then the shortage of semiconductors, which again retarded production. The result was that the first year, that’s ’22 and ‘23, the year which had just ended was the first year when production and sales of cars in India actually crossed the level of ’18 and ‘19. So again, four years of lost sale. Now for the future, consider the expensive nature of all the changes which we are talking about, which most companies will have to comply with. The result of that is the projections of growth for the next 8-10 years is still about 5% a year. And that is assuming that again, no unexpected event happens in India or outside India, which will have an impact on the growth of cars.
Sumit: We know that Indian government is discouraging now production of the diesel engines and diesel cars. You took this call in 2019 when you said you will be stopping diesel car production in phases. But on behalf of industry, would it be easy for the industry to shift from diesel manufacturing capabilities?
Bhargava: See, the government is not saying do not manufacture diesel. Government is saying that we have to achieve our carbon neutrality norms and the safe norms as you know are being enforced in the country. Diesel cars are very, very difficult in terms of their technology in meeting the safe norms which are already there and which are coming. The costs become exorbitantly high. The reason Maruti and some other companies have given up diesel production is because of the cost factor. If you want to comply with the norms which exist for carbon neutrality, you will not be able to sell the car at a price which anybody will buy.
Sumit: You were late entrants in electric, you have announced that now you’ll be coming with six models in next few years. What about the overall electric car journey?
Bhargava: Actually, it is not quite correct that we were late. I think if you remember, we were the first to say that we are converting the Wagon R into an electric Wagon R. That conversion work actually took place, but then we found that the cost of the electric car was so high that it would not be a viable proposition and that is why we gave up and said that now let us look at developing a bigger model of a car because the lower car segment of the cars was not such that could be converted to electric and still remain affordable for customers. The market for bigger cars is now becoming reasonably sized. I think by the time we come into the market with electric cars, there would be the possibility of reasonable volumes being sold.
We are coming with six models because by the time we are talking of these electric vehicles until 2030, the domestic market will be somewhere close to 6.5 to 7 million cars. Now if we are to keep 45 to 50% of that market, you can’t do it by having one or two models. You need to have a large number of models to get the kind of volumes that you want to have. And 6 models, we feel, is the minimum which we require. Even with six models by 2030, only about 15 to 20% of our sales will be electric vehicles.
Sumit: And are the hybrid cars and CNG cars going to fill up the vacuum created by diesel vehicles?
Bhargava: The hybrid cars, if you look at their carbon footprint, and if you look at the electricity, which is generated today in India by burning coal, actually the carbon footprint of the hybrid car today with 75% electric energy coming from coal is better than the carbon footprint of an electric car because remember, while the electric car is clean where it operates, it is using electricity which is generated by burning coal. It’s not a clean car.
A hybrid car does not require that electricity, generates its own from the momentum of the car. And that position will hold till such time as about almost 50% of our energy comes from green energy sources. Then they will come on par. So, a hybrid car is going to remain very much a part of the transition to clean energy. CNG is a better product than petrol and for smaller cars and cheaper cars where electric cars become very expensive and there are other issues why electric cars are not suitable for people who don’t have parking places, who don’t have nowhere to charge the car. CNG is a better option because if you use petrol, you have the highest carbon footprint. If you use CNG, you come down much lower. So, remember it is not zero or a hundred. We have to go through a transition process to reach zero, but that will take a much longer term. We have till 2070 and we have to find other technologies because we cannot generate electricity 100% from clean sources. Green hydrogen, high fuel sales is one option. Biogas is another option. These are some totally clean options. Ethanol is another option. These are all hundred percent renewable clean sources. We have to maybe move towards these rather than electric cars in the longer term.
Sumit: When you partnered with Toyota though the Suzuki and Toyota Global Partnership, it’s in India also Maruti and Toyota, the Rebadging happening. Are you open to more partnerships, do you think industry-wide, these partnerships should benefit more and more companies and players?
Bhargava: The partnership is between Suzuki, Japan and Toyota, Japan. There’s no partnership in India between Toyota and Suzuki or Maruti. If Suzuki has a partnership with Toyota, I don’t think there’s need for any partnership with anybody else because Toyota is the number one in the world and it has access and the capability of developing any kind of technology which any other company has.
Sumit: How do you plan to achieve the targets in sustainability and carbon neutrality?
Bhargava: As I mentioned, we are looking at a mix of fuel technologies in India to get to zero carbon neutrality, and this will include EVs, it will include hybrids, it includes ethanol, includes CNG, includes CBG. I personally see a big future for compressed biogas in India. Use of animal waste is carbon negative. Similarly, this whole problem of burning of the paddy husk could be ably reduced if not eliminated, if that same paddy husk was used to generate biogas. Actually, the best fuel for biogas is paddy husk. There are logistical issues involved, but I think that we should make the effort to give biogas high priority.
Ravindra Chandra Bhargava is the former C.E.O and current chairman of Maruti Suzuki, the largest automobile manufacturer in India, having joined the company after serving twenty-five years as an Indian Administrative Service officer. He is a recipient of the prestigious Padma Bhushan.