Business In India Is Done In Spite Of The Government

In the Indian manufacturing sector, the automotive industry is abuzz with action right now, both positive and negative. Despite the golden growth story painted a few years back, many players continue to widen their losses. These scenarios though aren't just a direct result of fluctuating market dynamics. Government policies and archaic laws also have an important role to play in the challenges being posed today. To understand the true potential of the market, we spoke to Jayant Davar, Co-Chairman & Managing Director, Sandhar Technologies Limited.

Jayant Davar is the Founder, Co-Chairman and Managing Director of Sandhar Technologies Limited. He started the company in 1985 and has orchestrated its growth into a Rs 1,500 cr organisation with 27 plants and 6,000 employees. A mechanical engineer and alumni of Harvard Business School, Davar, owing to his vast experience and multiple expertise, wears many hats at the same time, beyond that of Sandhar.

He is presently the Chairman of the Confederation of Indian Industry, Northern Region and the Automotive Skill Development Council (ASDC). He was a founding member for the ASDC and is a Governing Council Member of the National Testing and R&D Infrastructure Project (NATRiP). He is a past President of the Automotive Component Manufacturers Association (ACMA). Outside India, Davar is also part of the advisory committee of Fraunhofer, Germany.

ATR _ Going by its performance in recent times, does the Indian auto industry story still hold true?

JAYANT DAVAR _ I'm personally a strong believer in the macro economic scenario of India and am quite bullish about it. If we can move the car penetration ratio in the country from about 10-11 cars per 1,000 people today to about 100 cars per 1,000 people in the next 15 years or so, India would be the largest consumer and manufacturer in the global automotive industry.

Secondly, India is still a low-cost manufacturing country with many positives. About 25 % of the car output from the country is exported. While some might argue that this number primarily comprises of small cars, it must be noted that small cars in developed markets represent low-carbon footprint and fossil fuel conservation. The difference between them and the small cars here are the features added to the vehicles being exported to meet standards in those markets. The fact that it's still being done by the local industry, highlights our capability as an industry.

So why is the present scenario gloomy?

I believe this is an aberration and a negative sentiment of the industry since lots of factors have come together at a certain time. I don't think this scenario will last beyond a point. In the area of heavy commercial vehicles, this one is a regular cyclic dip, which takes place every five to eight years. Usually, these dips take about two to three years to fade out and we seem to have bottomed out. Cars and motorcycles though aren't cyclical and this is where I see an aberration. At about 13 mn motorcycles per year, we're still growing over a large base. With things such as high inflation and slow-growing income levels, the overall sentiment in the middle-class is negative and hence largely responsible for the slowdown in vehicle sales.

A recent report suggested that despite the slowdown, the profitability of Indian automotive suppliers and their overall health is still strong.

If you consider companies with revenues up to ' 500 cr – which comprises over 90 % of the industry – the present scenario throws up a lot of challenges. Apart from the double-digit inflation, we probably have the highest interest rates in the world and unemployment/ non-employability, partially due to the lack of the education to match the industry expectations. In addition, we have one of the most expensive power rates in the world and still the availability, consistency and quality of power is not among the best. Then there's the uneven playing field for these players in terms of government policies.

Let's talk about productivity since we claim to offer low-cost manpower and yet our productivity is just about 1/30th of that in the US and 1/22nd of Japan. We were at 1:2 ratio with China earlier, but are now at 1/8th of their productivity. And these are just some of the challenges that the companies in India face. Put into perspective, the archaic tax laws and the situation becomes even more challenging. Twenty eight states cannot reach upon a mutual decision on the GST because of political scenarios, reflecting the overall business environment. Such is the scenario that the Indian entrepreneur is not doing business today because of the government, but in spite of the government.

Despite this, we've done a lot to progress as an industry, from a point where there was no automotive component industry in the country till a few decades back. I believe that more than 95 % of the nearly 700 ACMA members are ISO certified. Also, outside Japan, India has the largest number of Deming prize winners. Given that our industry is used to doing with less, we do come up with some innovative ways. Are they the world's best? Maybe not. Are they effective? Definitely! We should start seeing some uptick after the general elections next year.

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The quality of products notwithstanding, there is concern about the quality of manpower available and the lack of investment in R&D. What is the road ahead?

Every industry and business is one about the idea, but then everything is about the people, making employability extremely important. We are bogged down by certain aspects, one being us surrounded by decadence. The industry is surrounded by a decaying labour law environment. We still live with archaic labour laws of pre-independence era, and I don't see any major reforms coming through in the near future. It's not just the industry but the labour unions too want a change. As a result of this situation, we haven't been able to develop a learning mechanism for the blue collar worker.

About five years ago, the government opened up the Industrial Training Institutes (ITIs) for participation from the corporate sector, allowing the industry to run courses for a particular application in need. Facilities at ITIs were modernised, but the faculty remained the same. The government then suggested formation of management committees, represented by the government, ITIs and the industry. Then came the question about curriculum, and any changes therein weren't possible. While adding new things were allowed, changes to the existing curriculum were not possible. It took the industry four to five years to understand that if people are taught decade-old methods of forming steel, it is of no good today.

Do you think the government is aware of this disconnect?

Yes, the government is aware of this disconnect and hence the National Skill Development Council (NSDC) was set up. The target for NSDC is to train about 150 mn people over the next 10 years, which is a huge number. I'm presently the President of the Automotive Skills Development Council (ASDC), which is already more than two years old and till date only 200 to 300 people have been trained. Given the industry's requirement of about five million, achieving the set targets is going to be a challenging task.

We've seen that many of our established targets haven't been met in the past. Take the Automotive Mission Plan for instance, which hasn't moved much.

Yes, and why just the Automotive Mission Plan? Let's talk about the manufacturing policies, the newer versions of which aimed at taking the contribution of the manufacturing output in India's GDP from about 16 % to 25 %. This number, however, instead of going up has gone down to about 15 % and then there are talks of generating employment for over 100 mn people. The automotive industry, in fact, has been laying-off people in the past three years. The government needs to understand that manufacturing is the biggest employment generator and that no country has become an economic success without a large role from manufacturing.

What's your take on the National Electric Mobility Mission Plan (NEMMP) and the roughly seven million vehicles targeted within the plan?

I don't think that's going to happen as it's a number that has been calculated on the basis of population, performances from other parts of the worlds and some other factors. In the Indian scenario, such plans can succeed only if there's a revolutionary breakthrough in the battery space. We do not have any focussed R&D in this space in India and we continue to use batteries developed in countries such as Germany or the US and manufactured in China and then assemble the vehicle and sell it. I would've liked to see India come up on the hydrogen platform but we're not doing much in this area.

What is your view about the upcoming technologies and their adoption?

All of us know that cars today can be made in carbon-fibre and doing so will directly enhance the fuel-efficiency of conventional cars, and increase the range and performance of EVs. So why aren't we using it? People say carbon-fibre is expensive but in reality it's much cheaper than steel. It's the process of manufacturing it, which makes it expensive because we're not doing it on a commercial scale. Now, why aren't we doing that? Because the monopoly of the steel producers around the world will not let you do it. Simply using carbon-fibre instead of steel could lessen the fossil-fuel requirement by more than 50 %!

How has Sandhar's performance been during these challenging times?

Since inception, we were used to growing at about 25 % to 30 %. However, that has shrunk to single digit growth over the last two years or so, but we continue to grow nonetheless. This year we're about seven per cent up from the same period last year but our profitability is higher and in the double-digits. Although, we're more cautious about investments, the areas of product development and employee training aren't witnessing any brakes. For our automotive business, we'll close the fiscal year at about Rs 1,500 cr, about seven per cent up from last year.

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What are your plans for business diversification in the years to come?

Presently, the automotive business accounts for about 97 % of our total revenues. In the coming years, I'd like to see that number come down to about 60 %, while about 20 % will be derived from the ancillaries such as appliances, etc. The remaining 20 % would come from the aerospace sector. Within these industries, we would like to have certain business of high-value, which would be based on electronics or microprocessor based products.

What is your approach towards R&D?

R&D cannot happen overnight, and this is an area we're focusing on extensively. A key point is collaborative operation, wherein we need to work collaboratively with all stakeholders of a particular product or system and not just the OEM. This in our opinion is the right approach for the India market and our focus will always be on manufacturing products for the local market rather than importing them or exporting them.

Interview: Deepangshu Dev Sarmah/Arpit Mahendra

Photo: Arpit Mahendra/Sandhar