Tariffs on passenger cars in India are higher than in many other developed markets like China, Japan and the US though they are on a par with the EU’s 20-25 percent base rate. Earlier this year, the Chinese government cut the tax for cars priced at under 300,000 yuan ($45,000) and with 2.0-liter or smaller engines from 10 percent to 5 percent of the price. That also supports Bhargava’s objection to imposing a uniform tax structure across all segments of vehicles, one reason why car penetration in India has stagnated at a low 30 cars per 1,000 population, as opposed to China’s 221 cars per 1,000 population. Of immediate concern to Maruti must be the deceleration in the demand for small cars, the very category it created in India and leveraged to reach its current 40 percent share of the market.
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There have been studies to show that the growth of the auto industry is one of the metaphors for a country's economic development, particularly since it leads to the creation of a "super industry" encompassing such other products as steel, iron, aluminium, plastic, glass, rubber and computer chips, all of which it consumes voraciously.
A Mckinsey study estimates that the manufacture of transport equipment accounts for 10 to 12 percent of the gross value added (GVA) within India’s manufacturing sector. The study calls automotive a bellwether sector and notes, "An ominous fall in commercial-vehicle (CV) sales foretold impending economic challenges in both 2012 and 2019, while a steep rise in passenger-vehicle (PV) and two-wheeler (2W) sales was a harbinger of good economic news in 2010." Two years ago, the Standing Committee on Industry chaired by Dr. K. Keshava Rao in its report on "Downturn in Automobile Sector – its impact and measures for revival’' noted that the sector's turnover of ₹8.2 lakh crore constituted 49 percent of India’s manufacturing GDP and 7.1 percent of overall GDP.
Clearly then, the chairman of the country’s leading automaker is justified in his ire at the high rate of taxes imposed on an industry that contributes so much to the Indian economy, including significantly 15 percent of the total GST collection.
But that last is where Bhargava’s well-intentioned advice comes up against a wall. The lower rates of taxes that he points to are all in countries with much higher per capita incomes. As income grows, so does car ownership. Till then though, don't expect any dramatic drop in taxes on a product whose lowest price point is higher than what an average family in India earns in a year and where a salary of ₹25,000 per month places you among the top 10 percent of the country’s wage earners as per the ‘State of Inequality in India’ report from the Indian arm of the Institute for Competitiveness.
Maruti, and Bhargava who’s contributed more than any other man to the success of the company he has served in various capacities, probably should do now something it hasn't done since it launched the original people's car in 1983 — creating an entirely new class of customers instead of mining the same set, it, and every other car maker, is chasing. Creta is the runaway success from Hyundai that has helped them dominate the mid-level SUV segment. Maruti didn’t have a product to rival it for a long time but now the new Grand Vitara is off to a promising start and the relaunched Brezza is also selling well. Yet, Maruti needs to do more. This is not to say it hasn’t done well to introduce other successful models — say Ciaz. Those successes stand. But fearful perhaps of cannibalizing its own sales and losing its predominant market share, Maruti has already ceded the electric vehicle space to newer entrants like Tata Motors and Mahindra & Mahindra. And while it occupies, and in most cases dominates, all the segments from entry level to midsize cars, it has completely failed in the premium segment with its one offering, the Kizashi, a complete flop when it was launched 10 years ago. So, an affordable EV or an affordable but high-end SUV or even a Made-in-India car to compete with the Mercs and BMWs, are opportunities waiting for India’s biggest car maker.
But perhaps, India’s market leader should use its understanding of the consumer built over 40 years of leadership by taking the leap through what management studies call a Blue Ocean strategy to create new demand from an uncontested market space. As defined by Professors Chan Kim and Renée Mauborgne who introduced the concepts of red and blue oceans in their 2005 best-seller ‘Blue Ocean Strategy’, this is based on the view that market boundaries and industry structure are not a given and can be reconstructed by the actions and beliefs of industry players.
Once before, an inspirational Indian business leader dared his company to try the impossible. The Nano was a product of Ratan Tata's audacity and perhaps even his chutzpah. Eventually the ₹1 lakh price tag was a bridge too far and the project collapsed. But that’s what pioneers are made of and fear of failure shouldn’t inhibit Maruti from working on a breakthrough product.
Elsewhere in Mint
In Opinion, Anurag Beher says covid memories tell us we can be better versions of usual selves. Aashi Gupta, Vani S. Kulkarni & Raghav Gaiha write on the link between religiosity and well-being. Rajiv Sabharwal says India will be best served by a multi-engine credit delivery system. Long Story narrates the hope and despair in covid-ridden China.
