Hope for clear roadmap, simpler tax structure for auto ind: SIAM

On Budget expectations this year, Dasari said the industry will push for simplex tax structures as there are multiple taxation slabs implemented as every step, which tends to be confusing.

Dasari does not support the idea of removing Research and Development exemptions, particularly at this time when the companies are expected to invest heavily on improving technology to adapt to the changing emission norms. 

He believes that the rural economy, which is struggling due to multiple factors including a weak monsoon, definitely needs some handholding. Below is the transcript of Vinod Dasari’s interview with Ronojoy Banerjee on CNBC-TV18.Q: Clearly, this affair is taking place under a lot of uncertainty for the auto sector especially in the context of emissions, in the context of the fact that the government has announced preponing the BS-VI norms by 2020. How important will this show be for the industry?A: We are all very excited about it. This is Asia’s largest auto show. There is going to be more new models than any time before, more participants than any time before. Last time we had 5.5 lakh visitors. This year we are expecting seven lakh visitors – that is as president of Society of Indian Automobile Manufactures (SIAM), but as the MD of Ashok Leyland, I am also very excited about showcasing some world class products that you will see on the February 3.Q: We have seen an uptick in domestic automobile sales in the recent past. Car volumes have grown for 14 straight months, even though January may not have been a great month as the numbers yesterday indicated. But, clearly, there is a general trend that most of the segments are growing, including the commercial vehicles sector which was of course, battered some years ago. In that case, would you say that the recovery process that we have seen is well on course now?A: Yes, I believe so. Passenger car and the other segments did not fall as much as the commercial vehicle segments. So, they fell a little and they came back and even their growth is about not as big as the commercial vehicle industry. As you know, the commercial vehicle industry goes through significant steeps and peaks. So, this has resulted in making it look like the heavy commercial vehicle is growing faster, but the recovery is well on its path. As the gross domestic product (GDP) improves, as the confidence level of people improves and many new models come out like we are seeing now and you will see a lot more at auto expo. I think there are a lot more exciting times ahead.Q: But as far as the commercial vehicle segment is concerned, while we have seen a big 20 percent plus growth month after month, but in terms of the cumulative volumes, it still lags behind what it was a few years ago. So, how long do you think it is going to take for volumes to reach the pre-crisis level?A: A very good question. First of all, the previous high for medium and heavy commercial vehicles was about 350,000 vehicles. This fell two years in a row and came down to 200,000. Then it grew by 15 percent, everybody though, wow, fantastic growth and I am sitting there thinking, wait, it only came up to 230,000. There is still a long way to go. So, even with a 20 percent growth this year which I had said at the beginning of the year, that we will see about 20 percent growth, plus or minus a few percent, we are still a long way to go from the 350,000. We will probably finish the year somewhere around 280,000, maybe slightly higher. But still, there is room to grow even before we reach the previous peak. Now, the previous peak was there four, five years ago and since then there is a lot more infrastructure happening, and the more infrastructure happens, the more GDP growth is there, I think we should go past the previous peak. So, as far as I am concerned, unless something tragic happens, barring any unforeseen circumstance, I feel very bullish about the commercial vehicle industry for the next few years._PAGEBREAK_Q: Let us focus a bit now on the big burning issue for the automobile sector, the government’s announcement of rolling out the BS-VI norms across the country by 2020 and thereby leapfrogging from BS-IV to BS-VI. The government has announced, but the industry is still sticking to its guns that the technological leap will not be feasible. How does then one break this deadlock between the government on the one hand and the industry on the other?A: I love the way you put it, that industry is sticking to its guns. What guns? We will meet whatever regulations are set by the government. India has adopted emission norms faster than any other country in the world. We have a history of doing that. We have been making BS-VI vehicles since 2010. If the fuel is not available, the auto industry is not the one at fault. So, commercial vehicle industry will achieve BS-VI in 2017. Now, world over, in Europe if you remember, it went from Euro-VI to Euro-V in five years and Euro-V to Euro-VI in six years. In India, we have been asked now to say from 2017, from Euro-IV, go to Euro-VI in 2020. We will do that. We will fight for it, we will take that as a challenge, as a technical challenge and try our best. But, let me also say that if the fuel is not available, as promised by the government, these vehicles will stop. It is not simply going to be like, okay, I have got a BS-IV and a BS-III transition period which lasted for several years.Q: While we know the industry’s argument, the Delphi and Bosch, the big technology providers have also said that pushing it to 2020 will be a tall ask for them to upgrade technologically. But, can auto companies also work with them to ensure, in some way that we can, that the automobiles, the cars, the bikes that will be launched are BS-VI compliant by 2020.A: It is not just Delphi or Bosch who will do this kind of investment. Much of the work is not outside, much of the work is inside the companies, those who make their own engines. So, like I was saying earlier that in Europe, from Euro-IV to Euro-V, it took five years and from Euro-V to Euro-VI, it took six to seven years. In India, we are going from Euro-IV to Euro-VI in three years, from 2017 to 2020. And to have 2020, to have Euro-VI vehicles, you need to have the fuel available one year in advance for trials. Otherwise, how would you try these vehicles?So, it is a tremendous technological challenge. We will work on it. I cannot guarantee that there will be technology that will be developed so fast. Some companies may, some companies may not. Those who cannot develop the technology will obviously have to shut factories. And to simply say that we will pick up the technology from Europe and cut and paste it here, sorry, it does not work. That technology which is there in Europe is not simply transportable to India because we have a different driving cycle.Q: While we know that the auto industry recently met with the government but do you feel that somewhere the government should have consulted the auto industry before announcing 2020 deadline for BS-VI?A: No, the government had been asking us for quite some time. If you remember originally it was BS-V 2020 and BS-VI 2025. So between BS-IV and BS-VI we had about 10 years or so. We proactively offered we will cut it down to half. We will go to BS-V in 2019 and 2023 we will go to BS-VI because there is a difference in technology between BS-V and BS-VI. Then we found out there is no fuel available in 2019. So, even if you had the technology - we are already exporting. Even Ashok Leyland we are exporting Euro-V vehicle. We are capable. So, we can do that if the fuel is available. But in India there is no fuel available till 2020 but then to assume that Euro-V and Euro-VI technologies are same just because fuel is available that to me is wrong. And auto industry is saying please just give us one road map rather than constantly changing the goal post and once I meet that thing nobody should then suddenly wake up and say form tomorrow these vehicles are banned, those vehicles are banned. Those vehicles which are banned in Delhi are meeting the norms set by the government. So, why should somebody else ban them then?Q: While we are talking about a 2020 deadline the amicus curiae and the case Harish Salve has in fact asked the industry to bring forward the dates to 2018. Your comments on that?A: Let us do Euro-VI from tomorrow, why 2018? Is the fuel available. Who are we kidding. We glibly talk about on these platforms about bring Euro-VI fast. We should do it next year, we should do it two years later. I am sorry. This is getting to be a joke.People should understand that Euro-VI vehicle if you put Euro-IV fuel in it, it can actually stop and in the worst case cause a fire. Nowhere in the world it works like this. And that Rs 28,000-30,000 crore is for oil companies to invest, it is not the auto companies. Auto companies have to invest on top of it to develop this technology.Whatever is happening in Delhi I don't want to comment on who said what, but I find it quite amusing that if you want to stop pollution you should stop the most polluting vehicles. Instead of shutting down vehicles which are old you are shutting down vehicles which meet today's regulations which is BS-IV.In Delhi IIT-Kanpur did a study and it showed that 20 percent of the pollution is coming from road transport. Within that overall picture of road transport 15 percent was coming from cars which then is three percent. Out of that one percent is actually diesel vehicles. So, you ban the least polluting vehicles and expect things to improve. So, what will an average person do? He will buy an older vehicle, drive the older vehicle. So, it is counter intuitive to me because if you shut down the least polluting vehicle he will drive a more polluting vehicle and thereby hurt pollution even more.I feel the data the way it was presented to the Supreme Court was probably inappropriate. It was mentioned somewhere I read that 8 million cars are there in Delhi. That is wrong, there is 5.5 million two wheelers, then there are cars and so on. So, it is to a point where everybody is offering opinion, everybody is saying different things without being properly informed. All I say from the auto industry is please tell us a roadmap. Tell me when you want to have Euro-V, tell me when you want to have Euro-VI. I have put down saying these are the constraints. Now you don't want to listen to that, you want to say by this date you must have it by all means let us have it. One requirement, one and only requirement, have the fuel available. Without the fuel you can't do anything.Q: But then would you say that if the OMCs can guarantee availability of fuel by 2020 then will the industry be ready?A: We will accept, no problem. I am saying to you, today the technology doesn't exist to bring it in three years. If some companies cannot beat the 2020 deadline well they will shut down. That is as simple as that. It is a question of survival. So, let them invest and come back.Q: What you are saying is important. You are saying that if 2020 deadline continues and is not changed then some companies may actually have to shut shop then?A: There will be some people who just simply won't have technology available. If this deadline is pushed to I am sure industry will work very hard. India's automotive companies are one of the best in the world in times of innovation and they say necessity is the mother of invention. So, maybe Indian engineers will come up with something very unique and we can pull it off in three years, who knows. But today if you ask me I don't think the technology exists that can come back in three years. So, I can't guarantee that all companies in India will be successful in meeting this and those who can't will have to shut shop. It is as simple as that._PAGEBREAK_

Q: We are less than four weeks away from the Union Budget. What are your expectations and take us through the Budget wish list as far as the auto sector is concerned.

A: Two or three things that we said was, do not have so many different slabs. Reduce the number of slabs otherwise, if you make the vehicle with this, with this, it is different, with this, this, this, it is different. It is very confusing. And then, from the time the vehicle is made, to the time a vehicle goes to a customer, there are multiple levels of taxes. Merge them, if possible reduce it because there is inefficiency. If it is not possible to reduce given the government’s requirements for funds, at least make it easier to do business.

The last thing which was my personal pet-peeve, was that there was something very minor called a national calamity and contingency duty of 0.25 percent or something. I requested that if you cannot take this off, at least merge it with excise duty or something like that, because the only two other industries that are charged with this is alcohol and tobacco. I am sorry, I take a little bit of an offence, that for an industry that generates 30 million jobs and one third of the manufacturing GDP and more than 10 percent of the country’s research and development (R&D) is clubbed with alcohol and tobacco. So, I said please just change this away.

Q: How does the industry look upon the recommendation that was made which said that the R&D benefits should be halved in line with the government’s announcement to bring down corporate tax rate to 25 percent from 30 percent in the next five years?

A: I would say that in fact, the representations that we had made, if the government actually reduces the R&D benefits, to me that would be wrong. In fact, at a period when we will do the highest amount of investments in R&D to generate this, meet all of these regulations, in fact, what the industry has asked for is please give us an accelerated depreciation or an accelerated way of benefit for all this R&D that we will have to do. If the benefit of R&D is reduced, personally I think that will be wrong.Q: Final world, on the rural sector we know that over 200 districts have reported drought and the impact of that is becoming clear in terms of tepid motorcycle volumes and declining tractor volumes. How hopeful are you that the government will announce a special package to revive demand in the rural sector?A: Three segments that get picked up by the rural is motorcycle as you said, second is the tractor and the third is a lot of these light commercial vehicles (LCV) which go off from the city into rural demand, sometimes come from the rural to city to bring vegetables and commodities from the villages. If something can be done for the rural forget what it will do to the auto industry. I would be very happy for anything done to boost the rural economy as there is a lot of people in our rural areas who could benefit from it and I know that they are under tremendous stress because of very unforeseen monsoon, sometimes good, sometimes bad. So, any support that the government can give to our farmers and those folks who are living in the rural areas that would be very much appreciated. Of course it will have a collateral benefit to the auto companies but that is a secondary benefit in my mind.