Auto sector slowdown impact: Did not renew contracts of temporary employees says Maruti Suzuki chairman RC Bhargava

  • With India’s auto sales declining for the ninth straight month in July, more automotive manufacturers are laying off workers and temporarily halting production to keep costs in check

  • Modi government's ambition of reaching $5 trillion economy in the next five years can get derailed if states don't realise their role in promoting manufacturing, RC Bhargava said

  • Bhargava said it is time for state governments to become partners in ensuring manufacturing industry grows and recognise the importance of its role in the overall automobile industry

Maruti Suzuki India Ltd Chairman RC Bhargava said on Tuesday the company had not renewed the contracts of 3,000 temporary employees, as the automaker battled rising inventory amid a slowdown in demand.

Safety norms and higher taxes have “added substantially” to the cost of cars, affecting their affordability, Bhargava told shareholders at the company’s annual general meeting on Tuesday.

With India’s auto sales declining for the ninth straight month in July, more automotive manufacturers are laying off workers and temporarily halting production to keep costs in check, Reuters reported on Saturday.

The company is on track to meet the country’s new emission norms, adding that the company will move towards manufacturing compressed natural gas (CNG) and hybrid cars.

Maruti plans to increase CNG vehicles by 50 percent this year, Bhargava said.

Govt needs to promote manufacturing

Modi government's ambition of reaching $5 trillion economy in the next five years can get derailed if states don't realise their role in promoting manufacturing, RC Bhargava said, according to the PTI report.

 Auto sector slowdown impact: Did not renew contracts of temporary employees says Maruti Suzuki chairman RC Bhargava

Chairman of Maruti Suzuki India RC Bhargava. Reuters

Bhargava said it is time for state governments to become partners in ensuring manufacturing industry grows and recognise the importance of its role in the overall automobile industry.

The automobile sector accounts for 49 percent of India's manufacturing gross domestic product (GDP).

"Automobile industry creates a lot of employment in states, but a slowdown or fall in sales conversely generates unemployment," he said, adding the sector creates a lot of revenue for states and "all of this is affected when the industry falls".

Elaborating on the significance of state governments' role, he said they have "much more to do with the cost of operating an industry".

"The taxation of the state governments is quite higher, petrol tax, for example, is much higher and the affordability of a car is very much determined by the state government", which in turn has much to gain or lose from how the industry grows, he said.

Urging states to become partners in India's growth story, Bhargava said, "Unless that contribution is made, it is very difficult for the country to achieve the 25 percent contribution of manufacturing or to reach $5 trillion target that the Prime Minister has set."

He further said, "...efforts of the central government can get derailed if some of the states don't recognise the important role they have to play in making this happen."

He cited the example of the steps taken by the centre last week to give an impetus to the economy and the auto industry in particular.

"The Finance Minister has communicated with the banking system and now we are seeing the reversal of that. One of the favourable things that has happened is that the financing costs (of automobiles) are coming down. We are grateful to the Finance Minister for making that happen," Bhargava said.

He further said the central government has rolled back the proposed increase in the registration cost of vehicles, "But I think it is necessary to understand the growth of manufacturing, the growth of the economy, is not entirely the responsibility of the central government," he said.

Bhargava further said, "The states governments have at least as much of a role, I believe, a larger role than the central government in ensuring that manufacturing and industrial growth and wealth creation takes place."

The impression one gets is that only the central government is responsible for the industry to grow or taking the auto industry out of this deep depression that it has fallen into, he lamented.

Bhargava cited the example of nine states where road taxes have been hiked thereby resulting to increase in vehicle costs by as much as Rs 97,000 which has "affected ability of customers" to buy new vehicles, leading to drop in sales.

Citing studies done by the company internally, he said the dip on sales were much sharper in these states compared to those which didn't increase the road taxes.

(With inputs from agencies)

Updated Date: Aug 27, 2019 14:20:08 IST