Rahul Bajaj, chairman of Bajaj Auto says the Reserve Bank of India (RBI) rate hikes are impacting investment climate and consumer buying. The RBI raised key policy rate by 25 basis points in a bid to tame inflation. “Inflation remains a concern, says Bajaj adding “we need to take measures to avoid double-digit inflation.”
Bajaj says the auto industry has seen a slowdown. The two-wheeler space may see a low double-digit growth ahead, he says, which may affect the capex plans as they are linked to the demand for two-wheelers. "The production growth is at 16-18% so far," he informs.
Commenting on the high input costs, Bajaj says, it may be difficult to pass on higher cost to the consumers. "The pricing dynamics differ for various industries," he says
The outspoken industrialist is against the removal of DEPB for the auto industry. He also said the GST should not be delayed beyond April 2012.
Below is the verbatim transcript of Rahul Bajaj's intervie with CNBC-TV 18's Udayan Mukherjee and Mitali Mukherjee.
Q: What impact do you see these 10 successive interest rate hikes happening in curtailing growth and demand?
A: Nothing different from anyone else. This usual long term fight going on between growth and inflation and I think the governor of the Reserve Bank, Subbarao, has made it clear that they are going to fight inflation; that is their primary job. And even industry cant grow, the economy can’t do well, and neither can the poor be benefitted if inflation remains at 9-10% level. If it is not taken care of it may go to again double digits. So you have to fight inflation.
The question only as everybody is asking, and as industry associations and industrialists are saying, is it helping you? If its supply side situation, why don’t you take care of that. Don’t keep saying long term. And, otherwise growth is likely to suffer. I am not saying for one particular 25 bps, but this is I think the 11th increase in last 15 months and whether investment climate, consumers buying products on loans, how can it not affect them. The degree of effect, I don’t know, it'll take time to find out.
Q: Some concerns have already been raised about a few consumer sensitive sectors and how they may fair in terms of growth. How much damage do you think the economy will have to live with on growth?
A: You see these are questions which academic economists should answer, not businessmen. Those businessmen who answer it maybe they have a crystal ball; I don’t. So I don’t know what will happen tomorrow. All I know is, for my industry, auto industry has slowed down maybe little bit cars, but in the month of May it was only 8% growth. But otherwise, even auto industry as a whole and the two-wheeler industry - slowdown yes, but still double digit. And I think the year will end for two-wheelers, maybe for auto as a whole, but two-wheelers with low double digit growth rather than a high single digit.
The problem is for investment, its not just interest rates, that is one major issue. What about reforms, what about bad governance? What about all that is happening in the country right now? That is going to create a problem, but the good things could be - one, a good monsoon, possible not guaranteed. And also some commodity prices may plateau or slow down due to the problems in US and especially in Europe.
Q: How much of an impact will these rate increases will have on capex plans for company especially in the auto sector you think?
A: I have no idea, I don’t interact with industry on this basis, this is what the bankers are saying. They are worried about investment but credit growth is going to be 18-20%, according to bankers yesterday. Chanda Kochar and others have said that. And Bajaj Auto, capex is not major, but in Bajaj Auto, Bajaj holdings, Bajaj consumer finance, in all our group companies, we are not delaying any capex for any of these reasons.
If at all, our capital expenditure, especially Bajaj Auto's, is linked to how much we believe the demand for two wheelers grow, and to what extent can we increase our market share. Plus of course we are doing very well in exports. Our exports grew by 30% in the month of may and even our production growth was I think 16-18%.
Q: For sectors like auto, how much pricing power do manufacturers have, you would say at this point, where some of these hikes can be passed on to the consumer?
A: It would differ from industry to industry, but generally speaking, especially for the auto industry, I don’t think it can be passed on. If you have seen, I think some companies, even Maruti and Honda, they are reducing prices. Because two wheelers, buyers who buy on credit are very much there, but lower than in LCVs and passenger vehicles, so they are probably slightly more affected. And it will be very difficult in the auto industry, probably in any industry, to pass on any increases, not 25 bps, I am talking about, I am talking of what has happened in the last 15 months.
Q: The other problem for your sector has been the phasing out of the DEPB and getting back to the drawback scheme. How much of an impact do you see for companies in the auto sector?
A: I have written a detailed three-four page letter to the commerce minister Shri Anand Sharma, with copy to the finance minister and copy to the road & transport minister saying to remove DEPB because we suffer from so many taxes, domestic including octroi. Company like Bajaj Auto may not have too much import content in their motorcycles; there is some import content but not too much, but we suffer from too many other handicaps. In the absence of GST, lot of domestic taxes, where are we getting it?
So DEPB cannot be removed, should not be removed. They have postponed the removal to September 30th, I believe this year. They had initially promised till 2014 in the policy, now they say no, we gave u a year's notice. I don’t want to get into that debate. All I say is that Rs 6000 crore you are worried about, you are spending lakhs of crores otherwise. You don’t want exports, don’t want Indian industry to grow, do away with that. And I am saying it out of anger; out of disappointment.
But if you want I, I say it can be made WTO compliant; who says it should not be WTO compliant. America and Europe are doing so many things which are not WTO compliant. So let that government also make that as an excuse. Make my drawback proper. Not only linked to some imports. It has to be proper. And don’t worry about that Rs 6000 crore. You (govt) have many more thousands of crore to worry about.
So yes, I am absolutely against it; at least for all the auto industry. And it applies to all industries, but I can’t speak about all the industries. The removal of DEPB, first of all there must be enough notice, three moths is not enough. I can’t pass on that thing. The Chinese two wheelers will kill me, in Africa, Asia, Latin America. So you have to substitute it by something which is as good or almost as good.
Q: A lot of investors we speak to are quite frustrated as well – the lack of any policy impetus through this year. How hopeful are you that the government may take some strides on that regard?
A: I have already partly answered that question on black money and corruption; I don’t want to repeat it. But yes, due to these reasons, while the government maintains that they will continue with reforms, everybody has reservations. Partly because the relationship between the government and the opposition parties, almost all the opposition parties, except those that are supporting the government and the leading opposition parties, the BJP. I can’t understand, in a mature country like us, why can’t the ruling party and the main opposition party behave in a serious mature fashion in the interest of India? No reform measures will be passed because they don’t like each other and each is blaming the other. They say we are not consulted. Government says something else.
This is, according to me, highly irresponsible, I am sorry to say this. Who am I, I am not a politician, but yes I am a citizen of India and I feel this is going to come in the way of reforms. GST is a great example. The sovereignty of states, I see that. They don’t like the centre, especially those in the opposition in the states. But some on, it is already delayed. We want GST implemented with effect from 1st April 2012; together with DTC which I believe is coming. There the government is not dependent on the states. So for heavens, BJP ruled states, some legitimate reasons. It’s been going on for years under the finance minister of Bengal. I don’t know who the new chairman of the empowered group of ministers will be; the finance minister, but let this be done. Things like this are coming in the way, financial sector reforms etc, but I am mainly concerned as far as reform measures are concerned, if I have to pick one, infrastructure, land acquisition, environment, everything is an issue, but GST should not be further delayed beyond April 2012.
source-Moneycontrol
Steven
Management trainee-fundamental analyst
DENIP Consultants Pvt Ltd
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