Slow economy drives caution in decisions, says Wheels India MD

“If the trade war goes on for longer — it will be premature to assume that it will go on for longer, but if it does — then companies will have to take a strategic call on investments, sooner than later.”

Wheels India recently announced its annual results. In the media conference, its Managing Director Srivats Ram was candid and said that the second half of the last financial year was in deep contrast to the previous six months. As he sees it, the economy has certainly slowed down. But he is also optimistic that the new government’s policy announcements will spur investments by the September timeframe. Excerpts from an interview:

How will the trade war between China and the U.S. play out on India?

It depends on how long the trade war goes on in an unresolved mode. That will determine whether it becomes strategic or opportunistic. The difference is … opportunistic is where companies look at it purely as a purchasing decision (to buy from an Indian manufacturer) … and they just change the mix to give more to another country in the short-term.

Strategic view would be that when one of the manufacturing bases is in China and if the trade war looks like it is going to be prolonged, whether the U.S. companies would look at another country to make it an alternative manufacturing base.

Once the investment happens in a new country, then chances that it is short-term are lesser. It becomes more strategic because they have made an investment in a new country, changing the base from one to another. So, if the trade war goes on for a longer period, the chances are that they could look at this decision strategically and not opportunistically. While India is not the only choice, the country could well benefit from it in the manufacturing sector given that we have some scale.

Opportunism is a purchasing decision, investment is a strategic decision. Customers were waiting till now for election results in India. If the trade war goes on for longer — it will be premature to assume that it will go on for longer, but if it does — then companies will have to take a strategic call on investments, sooner than later. When that happens, it becomes more sustainable and gives us the confidence that it is going to be long-term. At Wheels India, we have tried our best to not bite where companies are opportunistic and have come to us with a big budget. We have tended to look at our capacity and see if the opportunity is coming within the capacity we have. If companies have come to us with a short-term view of ‘do the investment for us’, we have tended not to take that up. They are just buying and not spending money.

Companies that have operations in China are finding it difficult to operate there given the trade war issues. Also, costs too have increased and, hence, it is not as attractive as earlier. India certainly has an opportunity. “Make in U.S.” is not an option. Skill availability is an issue. The developed world is struggling for skill availability. If we can position ourselves well, we can benefit from any long-term strategic investments that the U.S. companies look to make in India.

What trends do you find here in terms of skills in the manufacturing sector?

In manufacturing, people who are genuinely skilled and contribute to the organisation demand what is due to them. And most times, they get it. However, the real issue in Indian manufacturing is that a majority of them do not have a capability [that makes them] specialists. There is this issue in India of everyone being a generalist. The Indian system has historically promoted generalists as against specialists. There is a shortage of specialists in our country.

You have been talking in recent times about the interesting case of migration of workers to manufacturing units…

Yes, there is this new trend of a lot of immigrant movement of skilled people at all levels. Migration of people for jobs to places such as Chennai has been substantial. We have had people from different parts of the country such as Bihar, Jharkhand and the North East working with us, even contrary to what I would have thought and expected. They are literally like immigrants. They are willing to really slog. They focus on their job, and are really good at what they do.

The productivity is really higher with them. Even at the managerial level, there are a lot of people from remote States in India working here in Tamil Nadu, and it is becoming more integrated in the manufacturing space.

They are not necessarily seeking permanence. If they are paid well, they stick. Else, they will move away to another company. In a way, that is democratisation of capitalism on an individual basis. People who have skill should be able to decide where they work and for how much they work.

Is this also entrepreneurship in some sense?

I really admire the individualistic mindset and the entrepreneurship views of these skilled people amongst the New Gen. I recall a few years ago, a young man came up to me and spoke to me in Tamil while I was in a queue in a restaurant in Japan. He was originally from Bihar and had worked in Chennai for sometime, later went to Dubai and was then in Japan offering services in a restaurant. I was literally stunned listening to his story. That’s the young generation for you. Generally, we talk only about those entrepreneurs starting new firms and industries. But there are a lot of those youngsters who are doing this kind of skilled services, taking the initiative, travelling across the world and offering services in their area of skill. That too is entrepreneurial in some sense, and we find more and more of such confident people.

Earlier, the thinking was one had to stay in a firm for a decade. Now, the new gen thinks that it is okay to quit earlier and move jobs. They are even willing to take a break from a job if they are not happy in the current set up. Such is their confidence.

What about the failures?

Yes, one has to accept failures in entrepreneurship. While it is necessary part of capitalism and entrepreneurship to have failures, it is important to allow failures and accept failures and allow them to move on, come back and succeed. They can still become a success when they try again as an entrepreneur. You should not hold it against people because they are a failure. In India, social perception of people around a failure is large. Our culture does not accept failure easily. It is an area for improvement for us as a country.

Is this a good time in the market place for acquisitions? Are you looking at any acquisitions?

As a general trend, yes, this may be a time for consolidation in the market as there may be a few businesses that have turned south and are under stress. But for Wheels India, we are not looking at acquisitions at the current point of time. As we have invested significantly in the recent past, acquiring a new company is not on the horizon. We are looking at consolidating what we have.

What is your view on making investments in the current scenario?

Typically, when the economy grows fast like it did at the beginning of last year, it gives you confidence to make capacity additions. When the economy slows down like it has now, it makes you more guarded in making investments. That said, certain investments may take a longer period of time and companies may be open to making such long-term investments and may start the investment process now. There are investments that you make as an immediate reaction to the market scenario but there are also those that you make strategically.

One also has to bear in mind the technological and regulatory changes that are likely to take place — for example the emission norms changes and safety-related regulations. So, there is a technological and regulatory angle that can lead companies to make investments which are out of the pure volume growth-based investments. We generally tend to think of investments from a growth angle alone but there are these kinds of investments as well that companies make, regardless of the volume.

What, according to you, have been the reasons for the slowdown?

While you may not believe this as a reason for slowdown in CV and cars, the challenges in the financial services space last year did lead to a conservative approach and impact the lending cycle that had a cascading effect on the availability of funds in the manufacturing sector. When financial institutions took a hit, they reduced their exposure to other financial institutions who lend to the manufacturing sector. So, the amount of cash going to other financial institutions reduced.

As a result, when the money became tighter, these financial institutions began imposing newer and stricter norms for lending. It was a typical Indian reaction to risk — that of increasing regulation. By amending regulation, a step was added in the lending process. Regulation and conservatism led to a certain amount of contraction and slowness in the system. Now, this is the new normal.

When I did the budgeting a few months back, I thought I was being very pessimistic. But when I look at it now, it seems like I was quite optimistic. No one is sticking their neck out. It is a fact that economy has slowed down. Everyone has recognised that. Sentiment has undergone a change. At the same time, one cannot say that this will continue forever. With the new government coming to power and policy announcements, new impetus will help the economy grow and can change the sentiment very quickly.

By August-September, investments should start kicking in again.

What is your view on the issue of oil price volatility oil industry issue?

There seems to be a slowdown in the global economy, and, consequently, a reduction in the demand for fuel. Because of this, prices of oil will be relatively sobre. The U.S. has made itself relatively secure. From a country that was very dependent on the Middle East for oil, they have became a fuel-neutral trader because they had a view on energy security. It is time for India too worked on energy security.

Source: Read Full Article