The Union Cabinet on Wednesday cleared the production-linked incentive (PLI) scheme for the automobile, auto component, and drone manufacturing. In an interview with CNBC-TV18, Rajiv Bajaj, MD of Bajaj Auto, shared his views on the above developments.
The Union Cabinet on Wednesday cleared the production-linked incentive (PLI) scheme for the automobile, auto component, and drone manufacturing. The total outlay of the scheme is Rs 25,938 crore and Rs 120 crore will be allocated for the drone PLI scheme. The initial outlay approved for the PLI scheme for vehicles and components makers was Rs 57,000 crore.
In an interview with CNBC-TV18, Rajiv Bajaj, MD of Bajaj Auto, shared his views on the above developments.
Below is the transcript of the interview
Q: The PLI scheme for the auto sector has been cleared. There was a bit of apprehension in the industry with regard to the ICE ecosystem being left out, we are still awaiting the fine print. But what would be your first reaction?
Bajaj: I haven't seen this announcement, you know, so I have to go only by what you are saying and if I have to react to that, I would say this, first of all, personally, I am not in favour of any such incentives or subsidies etc, because fundamentally, I don't think the future can be built on subsidies, it has to be built on competitiveness and sustainability. Secondly, you spoke of the possibility that the IC engine vehicles may be left out. Frankly, that doesn't bother me because Bajaj Auto has over the past 15 years, built itself into a position where half of what we make is exported, and we have not done it based on any incentives, we have just done it based on sound strategy.
In the markets that we compete in and the brands that we compete in, what would an additional incentive of and I don’t know how much that is 2-3-4-5 percent, do for us? Not much. What am I going to do - pass on a 5 percent price discount to the customer and grow my business? I don't think it works like that. So, actually, I am indifferent to the fact that IC engines may not be included. Of course, if we had got the incentive, that would be a bit of a bonanza for us. But that would be a very selfish way to look at it. So that is my comment as far as the possibility of IC engine vehicles being left out is concerned.
Now, as far as technology is concerned, my view is clearly that, the scheme that was being discussed with SIAM, and with industry was called PLI that is production-linked incentive. And my understanding is that it was supposed to help companies grow their exports and in the process, grow employment in India, and in the process make India kind of center of excellence for some things like say two-wheelers or small cars etc. Now, clearly, somewhere after a long discussion of over 18 months or so, suddenly, there has been a course correction there. Now, why this course correction that somebody in government only can answer.
My inference, reading between the lines is that thanks to all these arbitrary lockdowns that we have had over the past 18 months, the government finds itself in a position where it doesn't have the Rs 57,000 crore you are talking about, they only have Rs 26,000 crore, and now they are trying to cut their suit to the size of the cloth available with them. So that would be one.
Secondly, if I may say so, I have been part of this industry (two and three-wheelers) for the last 30 years and I would like to believe that in these 30 years, we have been part of many so-called advanced or future technologies - four-stroke engines, multi-cylinder engines, multi-valve engines, fuel injection, ABS braking, tubeless tyres, perimeter frames, LED lamps.
So it is not as if new technology has not come in. I find it very peculiar - so far, to bring in new technology into this industry, we never needed a crutch, if I may say so. So why do we suddenly need a 5 percent crutch or whatever it will be to build technology? Technology should be built on the back of sound strategy - brand strategy, product strategy.
Every time a new technology comes in, it actually takes you higher in terms of growth prospects and bottom line, etc. So suddenly, to me the notion that new technology will be nurtured on the back of SOPs, that doesn't add up in my mind.
Q: The government in its draft has said that the current share of global advanced automotive technologies is 18 percent, it may increase to 30 percent by 2030. Do you believe that this outlay of Rs 26,000 crore may be too little to have any significant impact on our electric vehicle ecosystem? The scheme in the components PLI promotes hydrogen fuel cell makers as well. So far is there no hydrogen fuel cell vehicle manufacturer in the country?
Bajaj: I would like to break it up into two parts. As far as specific technologies at the component level, I enumerated a dozen technologies just now, I don't think that these technologies have needed any crutch in the past 30 years, and I don't think by providing a small SOP or a subsidy, this will get turbocharged, at least my experience does not suggest that.
Now coming to the second part, about electric vehicles
. So let me say this and I am talking about electric two-wheelers right now - already there is a GST difference of 5 percent versus 28 percent for the electric two-wheelers.
Typically, an average 100-125 cc scooter, a motorcycle costs almost a Rs 1 lakh and that GST concession itself is about Rs 20,000 a vehicle. A product like our Chetak, the benefits is already about Rs 45,000 per vehicle. Plus, at state level, there are announcements of subsidies ranging between Rs 10,000 to 30,000.
So, what I am trying to say is that today, to help the word electric vehicle compete, including our own Chetak scooter, there is already a subsidy of Rs 100,000 per vehicle in one form or the other. So, let us say tomorrow forget 20 million vehicles a year, which is the size of the two and three-wheeler industry pre-COVID forget that, even if a million two-wheelers were to become electric and the subsidy has to continue like this at Rs one lakh per vehicle, we are talking of a subsidy of Rs 10,000 crores a year just for a million vehicles. If that becomes 5 million, you're talking of Rs 50,000 crores a year.
Last year, we were all suddenly denied our Merchandise Exports from India Scheme (MEIS) benefit of export overnight and arbitrarily in the month of June, we are still not being paid those dues etc. Apparently, because the government was broke and could not do that - the government did not have Rs 20,000-Rs 30,000 crore to give to the entire auto industry and the exporter community.
And here I am supposed to imagine that the government has enough money to give Rs 10,000 or Rs 50,000 crore only for two-wheelers, forget three-wheelers, car and everything else. I think, if we plan our business and make our investments in our factories and with our suppliers and dealers based on such schemes, then we are going to take a huge risk. Because as the volumes grow, I don't see any evidence that costs are suddenly going to crash and if that doesn't happen, and the government slowly or suddenly withdraws the benefits, then what do you do at that stage?
Q: This is very important point Mr. Bajaj and this is something that other industry veterans are also saying that perhaps Rs 26,000 crore will have little impact on the ground. There have also been concerns about why CNG was left out why IC engine was left out as well. Are you also waiting to see the fine print as to how the allocations will take place, how they will increase incrementally over the years? We hear that it will be on the basis of determined sales value of a company and it will further be judged on whether the company achieves 10% incremental sales over the next five years?
Bajaj: Sure, anybody that wishes to avail of these benefits would have to look at these conditions. It is quite correct to put some of these conditions in but you without knowing or understanding what they are, it is difficult for me to comment. But I would still like to reiterate a larger point that even if the conditions are not onerous, even if the incentives are attractive, we have to ask ourselves and maybe this is the old school way of thinking but our way of thinking is that our businesses run on the basis of cash flow and not cash burn.
So, we have to be very sure that we have a sound business proposition based on a solid strategy with or without incentives, then that incentive can be a topping up cherry on the cake is okay. But if the fundamental business is to stand on incentives, whether from GST or some state, then I don't think this is in the broader sense of sustainability, a very sustainable approach to building the future.
Q: Also one specific point that I came across in the scheme that the base year will be 2019-20. The scheme will be applicable from next fiscal for a five year period. Would you as an industry veteran be fine with having the base year as 2019-20?
Bajaj: Ideally, I am of the view that a base year should be an average of the last three years or five years because there are peaks and valleys for various reasons that are entirely out of control of not just the individual company but the industry as a whole. Obviously, COVID is the most remarkable example of that, but there are so many other reasons like forex, container issues, semiconductor shortage, etc. why things fluctuate. So, ideally one should not have the base which is only of a particular year. Having said that, I don't think that is the biggest issue because we are talking of the next 10 years and 20 years, etc. So I don't think that is the biggest issue to be concerned about.