Last week, the Andhra Pradesh government set the wheels in motion to implement what has largely been seen as a protectionist and possibly anti-industry piece of legislation: 75 percent reservation for locals in the private sector. The passage of the Employment of Locals in Industries and Factories Bill in the AP Assembly means that all private establishments in the state will need to satisfy the government’s proposed 75-percent quota for locals in their respective enterprises.
In an exclusive interview, Ramachandra Naidu Galla, chairman of one of Andhra Pradesh’s biggest manufacturing industries, the Amara Raja Group, sat down with CNBC-TV18’s Jude Sannith, to discuss the legislation.
Galla feels the Andhra government could have merely issued an advisory and not made the state's proposed 75 percent reservation for locals, a law. The Amara Raja Group chairman also shared insights on the slowdown in the automobile sector, reports of a price war between Amaron and Exide, and how the company is preparing for an era of electric mobility.
Edited excerpts from the conversation: The Andhra Pradesh Assembly has passed the Employment of Locals in Industries and Factories Bill, which mandates that the private sector allows for 75 percent reservation for locals in workplaces. As a business house based in the state, how do you react to the law?
Politicians make manifestos to create hope, but soon after the election is over the question is: how are you going to implement your manifesto? I congratulate Chief Minister Jaganmohan Reddy for keeping his promises. It isn’t a bad idea to create more jobs, especially in India with 1.3 billion people. We need as many jobs as possible.
Many industry voices say that the problem with Andhra Pradesh’s 75 percent reservation law is that the definition of ‘local’ is still unclear — whether it refers to inhabitants of the state or those in the vicinity of a newly established factory. Do you think this grey area needs to be ironed out as soon as possible?
It’s very important to define the lower category when it comes to the definition of ‘local’. It still isn’t defined properly and it’s very important that the government clarifies so that there is no fear or negativity among industries that are already here, and for newer industries that will invest in the state. If ‘local’ means the radius of a plant, it (reservation) may or may not be possible. It’s very difficult to find skilled or unskilled workers around your plant, and this changes from industry to industry. Some industries need specialised experience and knowledge, and may not have a single person with these skills in this area. They may say “you could train the people you hire”, but you can’t buy experience in a shop. There is a long time that is needed to train people. The skills that a machine tool operator needs take a long time to master. The person at the next level could also take six or seven years to master these skills. Some people learn quickly and some don’t.
What is interesting to note, however, is that you at the Amara Raja Group have been well within this proposed quota for a while, now. At last count, you had nearly 91 percent of your factory employees from Andhra Pradesh…
While that is true, the Amara Raja Group can’t be taken as an example when making a law. We came here with a commitment to rural and local development, and initiated. We put in efforts to train local people. Today, 90 percent of our employees is from Andhra Pradesh and 75 percent is from Chittoor. More than 95 percent of our employees is a first-time employee in their respective families. We have even built our own skill-development centre, with classrooms, computer labs, science labs and workshops. This isn’t an investment because we are hoping people will join us. We are launching another training institute in the state, and a third one in Amaravati.
So, let’s settle this debate once and for all: are you saying if the definition of local is with relation to the entire state as opposed to the vicinity of a factory, the reservation law could be implemented better?
Even if you take a local panchayat, district or a state level, we can’t expect new industries and multi-national enterprises that are investing in the state, to investing in training people in special skills too. So, instead of mandating a reservation law, the state government could have issued an advisory, telling us “this is what we expect you to do”. The state government has to ensure jobs in the state, and that is fine. But at the same time, making it a compulsion is not a good idea. If an existing industry is already conforming to this quota, the government could also announce some incentives so as to encourage newer companies to benefit from these incentives.
Many states have been talking about bringing in reservation for locals in the private sector, especially in factories. The Andhra Pradesh government has gone about walking the talk. As an industrialist, do you feel this protectionist mindset on part of individual states sets an unhealthy precedent?
No industry wants to have people from far away to come and work in its plants. Local employment is more advantageous, it also avoids the burden of other expenses. So, if a state believes it has the best talent, no industry is going to go away (to hire new talent). I can’t say if this (reservation) is a good precedent or not, but my advice is to make it more of an advisory than mandatory. Making it mandatory could scare some investors. Everyone could then begin looking at their own states. When evaluating potential investments in a certain state, every investor thinks of ease of doing business, returns, long-term gains, market reach and access to suppliers. But labour is also extremely important. That is why unfavourable labour laws and industrial policies could potentially lead to unfavourable investment decisions as far as a state is concerned. So, the principle is good but it may not exactly be friendly for a state’s business environment.
Moving away from reservation politics: it’s been a tough time for India’s automobile industry. The slowdown has not only impacted automobile manufacturers, but also battery manufacturers. Has this caused you at Amaron to fall back on the after-sales market?
The strength of an economy lies in its automobile industry, and this is the case around the world. But these economic cycles are very common, and this downturn is merely temporary. The fact is: the slowdown in the auto industry is impacting the battery industry as far as OEM accounts are concerned. While after-sales market is a separate story, we want to please OEMs and work with them in terms of technical development. However, we have begun laying focus on after-sales market and export verticals, today. We can’t expect automobile sales to be better this year but the after-sales market is still very stable. The after-market sales will grow in line with what OEM market growth rates were like, two years ago. This trend has shown stability and continuity.
What we have been reading about though, is that two big players in the automobile battery space — Amaron and Exide — have been engaged in intense competition when it comes to prices. Do you see an all-out price war breaking out between the two of you?
I don’t think there will be a price war anytime. Both companies are very mature, and don’t target business based on price wars. This strategy only leads to short-term gains — like stocks in a department store that go on discount. When you look at mature companies, we always look long-term. However, having said that, customers are intelligent and we cannot think about exploiting them. The moment they realise that your price is more for the same battery, you are going to lose out. So, in the pursuit of competition, we attempt to stabilise prices and keep them in control — and not to overwrite a competitor’s prices. If my competitor brings prices down, I start waking up and ask myself what mistakes I’m making. So, without calculating and analysing how to compete, we can’t foolishly begin cutting prices.
Even as we speak, you are currently setting up a lithium ion battery-assembly plant. Do you think the transition to electric mobility will be on expected lines, for automobile and battery manufacturers, alike?
India cannot afford to sleep anymore (when it comes to electric mobility). To promote electric mobility, the government needs to be active and provide benefits instead of expecting industry to take initiative. We are confident of our order book, in the lithium ion battery-assembly business. In-house manufacturing of these batteries is going to take some time. From raw material to cell-making, capital investments are too high. Even companies that have already made their foray in cell-making, based in America and Europe, have made huge investments and built massive capacities. Now, if we were to invest this kind of money, plant capacities are still going to be meagerly used because these volumes haven’t made their presence felt in India. While we are buying lithium ion cells and integrating them with the battery, all other components are locally made. We have already begun supplying these batteries to two-wheelers and three-wheelers. We are currently working in R&D to develop electric batteries of 750 volts.
While we are located in Andhra Pradesh, we are located in every nook and corner of the country. When we began expanding and evaluating costs, we realised that the market is one. So, it didn’t matter where set up our plants. When Chinese products are spread across the world, there is no reason why we can’t make our products in Andhra Pradesh at reach every corner of the country. If you’re suggesting this is the case because we have been supported by the Andhra Pradesh government, the answer is no. We haven’t expected any support from anybody. Our intention was to set up shop here, and run our business from this state. We will remain an Andhra-based manufacturing company, but not because we’ve received support from this government.
For years, you’ve been seen as an Andhra-based company. Your major plants, for instance, are located in Tirupati and Chittoor. Do you have plans of expanding outside this geography by way of your manufacturing footprint?