Industry needs export incentives, lower cost of doing business: Pawan Goenka, M&M

I am not looking for anything big bang other than positive signals that the government is serious about moving the industrial side of the economy forward, Pawan Goenka, MD, Mahindra & Mahindra, said in an interview with ET Now, in Davos.

Edited excerpts:

Davos is a melting point for all sorts of opinions. Slowdown concerns are resurfacing in the world and some of it is also true for India. How are you viewing the Indian economic landscape?

The global backdrop is a concern because of trade tensions and some other macros. . But in India we do have several tailwinds as well. The reforms that have been put in place in the last two, three years are beginning to work now. They are getting streamlined and smoothly executed -- GST, bankruptcy code and even demonetisation. Most important, many industries are feeling the need to add capacities. For a long time, there has not been much investment capacity and that cycle will start now.

How many quarters before has the capacity utilisation gone up?

Yes, it has definitely gone up. Normally, we say once we get to 80% or so, then new capacity will get added. We are reaching that point in most industries and for most companies. We, for example, will be adding capacity in some of our plants. Many auto and tractor companies have announced that they will be adding capacity.

The cycle of investment is very important for growth. Add to that, the agri spend, the rural spend, elections, infrastructure and everything sort of adds up to something which unless there is some kind of natural calamity of very high order and some very wrong decisions are taken politically, should be on track.
Going into elections there is a lot of buzz about an agri relief package. How instrumental will this agri relief package be for businesses? Also, how do you balance this with the concerns?

Agri support has been there for many governments now for a long period of time. It is not something which is going to be there all of a sudden. It is an ongoing process. During an election year, there may be a little bit more of emphasis. What may be visible that will come out and that would definitely have an incremental impact on many businesses relating to agriculture.

We will definitely benefit from that. As you have pointed out, that will create a fiscal imbalance, something that one has to be concerned about and the government, I am sure, would not go overboard in ensuring that we get the right balance between supporting rural economy and maintaining fiscal balance.

But if the fiscal is breached on that count. will investors understand that?

They will understand to a point. If you go 0.2-0.3% beyond the limit, that is okay and everybody is expecting that. But if the government stops investment in infrastructure which is long term and if it all goes into revenue support for farmers, then there will be concern among investors and industry also.

How would you assess this term of the government? What are the big hits and the misses?

Well, there are many hits and some misses also. One of the biggest things that we perhaps do not realise is going up from what was 142 to 77 in the ease of doing business ranking. It is not a small achievement in a short period of three years and that shows that if there is a political will, India can achieve almost anything. And to go from 77 to 50 can happen if the same kind of focus continues.

The same thing can be said for GST. It was not an easy thing to do, yet we have managed to implement that. The bankruptcy norms is a very big hit. On demonetisation, the jury is out. A lot of people say it was ill timed, it did not get executed properly. So, I do not know how much impact it had. There was some impact for sure but a lot of it is beginning to wane.

Overall, even in trade, there has been a lot of sort of thrust on many bilateral issues. Overall, there are many hits that have happened in these five years.

Last quarter you revised the tractor guidance to the lower end of 12-14%. Given the buzz about an agri relief package, is the demand from farmers peaking out and could that guidance be re-revised?

No, I do not think so, not for this year because the tractor sales perhaps are not affected so much by agri packages or loan waivers because the farmers who get loan waivers are not the farmers who typically buy tractors.

Therefore, it is unlikely that this year we are going to be able to revise upwards from what we have said. This quarter is going to be a quarter of where we would probably be even compared to the last year because last year it was a good quarter.

2018 was also a year when you had some very key launches but unfortunately those launches coincided with an industry that was very weak. What are the headwinds coming in your direction and what are some of the things that is going to aid growth from here on?

Many of the headwinds that slowed down the auto industry are behind us now. In October, there were too many things going wrong; the crude prices were very high, exchange rate was very bad, commodity prices were going up very rapidly and there were some concerns on interest rate, though not very big and there were some regulatory changes that happened which increased the prices of vehicles.

All these things led to a very poor festive season and we have seen the impact of that in November and December. From this month onwards, we are starting fresh and therefore we should begin to see normal growth -- 8-10% -- in the industry starting this quarter.

How does 8-10% growth in the industry augur for the utility vehicle segment?

Right now, UVs and passenger cars are neck-and-neck. At this point, passenger cars are about 100 bps ahead. Six months ago UVs were 100 bps ahead. I would not say there will be a big difference between UVs and passenger cars this year.

You are a pioneer in electric vehicles. IEA and everybody believes that it is not going to be possible without subsidies and government initiative. What are your thoughts on that? Also is the ecosystem coming together?

Well we are standing in snow-covered Davos and we have to talk about electric vehicles because if I go around here, a lot is being talked about here about sustainable mobility, shared mobility, electric vehicles and I am happy that Mahindra took that path several years before it became fashionable to talk about it.
I would not say that I am happy with where we are as a country on electric vehicles. By now, with all the thrust given by state and central governments, we should have been further ahead but I am still encouraged to see that things are coming together, slowly but surely.

Are you on track for 500,000 and 2,000?

Not quite. Maybe we are midway. The big change that has happened in the last six months is focus on electric three-wheelers and in some sense, India will probably take a very different path than other countries and three- wheelers could become the big stay in electric vehicles in India.

Three items that are on your wish list for this Budget?

Well this being an interim budget I do not expect any big bang announcement.

The noise around it does not seem to be interim at all?

I do not know. First of all indirect taxes will not be the headline anymore and normally we used to look at indirect taxes. So, that is out. In direct taxes, I doubt that much tinkering will happen even if it is not interim budget. I doubt the government is going to make much changes there.

If there could be something that gives us an indication that India is serious about taking advantage of the current sort of trade tension that is going on and emerge as a leader in that by getting into very specific focused export-related incentive policies, that will help us to become more competitive in exports, that will help.

And a little bit on cost of doing business would also help. I am not looking for anything big bang but I am looking for positive signals that the government is serious about moving the industrial side of the economy forward.

You have given a new term. Instead of ease of doing business, one needs to start looking at cost of doing business.

That is very important while we have done very well in ease of doing business, if we have to raise manufacturing, cost of doing business is very important.