Any increase in prices will impact demand: M&M

CNBC-TV18's Ronojoy Banerjee caught up with Pawan Goenka, MD of Mahindra and Mahindra (M&M) from the side-lines of the SIAM Annual Convention and asked him his views on the government's stance of wanting the auto industry to upgrade to European standards.

We are very delighted that the whole country and every automaker in India, the government of India all departments are focusing on electric vehicle usage. That is a solution in terms of eliminating use of petrol and diesel, he said.

Any increase in price always has a demand impact, he added.

Below is the verbatim transcript of Pawan Goenka's interview.

Q: What are your views on the government's stance of wanting the auto industry to upgrade to European standards?

A: I think there is nothing that the minister has said today, which is different than what had been said before and there is nothing that industry is opposed to anything that the minister has said today.

He has said that we need to catch up on regulations and be in line with the developed nations. We have always said that. If you look at the emission regulation that is coming in with BS-VI, that is Euro-VI, which is what Europe has.

He said safety regulations coming in from October 1, we are well prepared for it. That is not a problem. The only thing the industry has said all along is that whatever has to be done, we need to be told in advance and there should not be any tinkering that happens with that for variety of reasons and the minister also agrees with that. So I don’t think there is any sort of misalignment in what the minister has said today and what the industry has been wanting to do and is doing in terms of aggressively moving towards safer vehicles and cleaner vehicles.

I would say that some things the industry is even ahead for the government of India has asked for. For example, today we have launched a voluntary recall website where so far there is nothing that has come from the government of India and the industry has gone forward and said we are going to put it in place while the government of India is framing the rules for it.

We have done the same thing earlier when it came to emission warranty many years ago. When the industry came out ahead of any government regulation, it is the same thing with emission roadmap that we did many years ago. So I don’t see any misalignment.

Q: He has asked the industry to think beyond petrol and diesel. I think that is the big headline, of course Nitin Gadkari has mentioned other sources many times but this is the first time he said it very unambiguously that you need to now look at a future beyond petrol and diesel?

A: This is not a message that he is giving for the first time. Maybe first time in a large public forum but he has always been very passionate about this message. He has been saying that I would like to see the import of crude oil come down drastically because that is creating a balance of trade problem for India and the electric vehicle movement that now India is taking very seriously -- our company M&M has started electric vehicle work many years ago, little bit ahead of our time and now we are very delighted that the whole country – every automaker in India, the government of India, all departments are focusing on that and that is a solution in terms of eliminating use of petrol and diesel, 100 percent. I don’t believe that we will get to 100 percent electric vehicle in eight-ten years but we certainly are moving very aggressively in that direction as a nation.

Q: You talked about what one thing industry wants of course is to be told in advance so that you can prepare better. So the big uncertainty sword that is hanging is in two days’ time GST Council meets and of course they would be looking at whether they go ahead with it or not and increase the cess. How concerned are you because many of your vehicles will be impacted?

A: Any increase in prices always has a demand impact; there is no doubt about it. The GST Council will take into account the need for revenue that they have, take into account what they consider fair taxation, and take into account what impact it might have on the demand and therefore indirectly affecting taxes. The only sort of anxiety that we would have right now is what is the quantum of increase because 10 percent is the cap. The difference that existed before GST was at most 6 percent, and therefore I hope that the whole 10 percent cap is not used because – 24 percent and 30 percent, so, there was a 6 percent difference and that should be the maximum difference that should be imposed now between 15 percent cess and up to 6 percent more; that is one.

The second is how do you define luxury because the government is very clearly saying that they want to have higher cess on luxury. There is no clear definition of luxury and we would think they will not just sort of take the previous higher taxation and try and define luxury, because earlier the higher taxation was not based on luxury, it was based on some other criteria. Whatever the definition may be, I am not going to dictate or suggest any definition whether it is based on engine capacity, whether it is based on length, or whether it is based on price.

Q: There is a price, USD 40,000?

A: That is for the import. So that is up to the council to decide what is the right definition of luxury.

 Also watch accompanying video of Guenter Butschek, MD Tata Motors speaking at the conference.