Politics to drive timing of Maruti factory plans

NEW DELHI Fri Jan 6, 2012 9:31pm IST

Chairman of Maruti Suzuki India R.C. Bhargava speaks during an interview for the Reuters India Investment Summit at his residence in Noida on the outskirts of New Delhi November 21, 2011. REUTERS/B Mathur/Files

Chairman of Maruti Suzuki India R.C. Bhargava speaks during an interview for the Reuters India Investment Summit at his residence in Noida on the outskirts of New Delhi November 21, 2011.

Credit: Reuters/B Mathur/Files



NEW DELHI (Reuters) - With India's economy hitting a rough patch and political gridlock stalling reforms, the country's largest carmaker will decide only after parliament's budget session in March on when to break ground on a new $1 billion manufacturing complex.

Maruti Suzuki (MRTI.NS) is in talks to buy two 500-acre tracts of land in Gujarat but is worried that slowing economic growth will crimp demand for cars -- even as global players crowd into the market and add capacity.

"What options do I have? I can't proceed on the basis that we are going to go back to 9 percent economic growth and 15 percent growth in the car market," R.C. Bhargava, the chairman of India's dominant carmaker, told Reuters.

India's economy is expected to struggle to grow by about 7 percent in the fiscal year that ends in March, and the outlook for the year beyond hinges in part on whether New Delhi pushes through reforms that have long been stalled by political gridlock.

Parliament will hold its budget session in March, after elections in a handful of states including Uttar Pradesh, India's most populous, which will be key to determining whether the ruling Congress can regain the political initiative.

Rising inflation and fuel prices combined with slowing economic growth have battered car sales, which an industry body expects to be flat in the current fiscal year after surging 30 percent in the year that ended in March 2011.

"Car sales really track the GDP growth. If you have a good GDP growth, you have good car sales," said Bhargava, adding that 7 percent economic growth translates to roughly 10 percent growth in auto sales in India.

He said the company has not yet made a decision on when to break ground in Gujarat, where it plans to build three plants in phases at a cost of 60 billion rupees that would increase production by around 2,700 vehicles per day.

"We'll probably do that after this year's budget and after we can make an assessment how the economy is going to grow and how the car market is likely to grow," he said.

Bhargava noted that numerous reforms remained shelved, including a goods and services tax GST.L, direct tax code, foreign direct investment in retail, banking and pension reform, and a massive nationwide identity card scheme.

"All of these are at the moment stuck. So what progress we have there -- that will also indicate whether the government and the opposition are keen on accelerating GDP growth or not," he said, adding that the government has little firepower to use fiscal stimulus to spur growth.

"They can't do much in the way of giving any tax cuts or stimulus," he said on the sidelines of the India Auto Expo.

Until about a year ago Maruti, which is 54.2 percent owned by Japan's Suzuki Motor (7269.T), sold every other car in India but its market share has been eroded by growing competition as local and foreign rivals, such as the Renault SA/Nissan Motor Co RENA.PS (7201.T) alliance, ramp up capacity.

While Maruti enjoys waiting lists as long as six months for its most popular model, the diesel version of the Swift hatchback, Bhargava said that if the industry's investment plans now on the drawing board all come to fruition, India faces a capacity glut.

"If they all come in, then I'm sure, nationally, total installed capacity could be 30-40 percent higher than demand," he said.

For the Expo minisite, click: here

(US$1 = 52.67)

(Additional reporting by Devidutta Tripathy; Editing by Aradhana Aravindan)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Shares Hit Record

Sensex, Nifty rise to second consecutive record high

Sensex surges 500 points on BOJ easing, L&T gains

The BSE Sensex and Nifty surged to record highs for a second consecutive session on Friday after Bank of Japan's surprise expansion of its massive stimulus programme raised hopes for additional foreign inflows, boosting blue-chips such as Larsen & Toubro.  Full Article 


Indian Economy

Indian Economy

India's fiscal deficit in H1 almost 83 pct of full-year target.  Full Article 

M&M Earnings

M&M Earnings

M&M Q2 net profit down 4 percent, hit by poor monsoon.  Full Article 

Ban on E-Cigs?

Ban on E-Cigs?

Govt considers ban on e-cigarettes, sale of single smokes.  Full Article 



Silver futures in India hit four-year low on global cues.  Full Article 

BOJ Policy

BOJ Policy

BOJ shocks markets with surprise easing as inflation slows.  Full Article 

Shadow Banking

Shadow Banking

China's shadow banking sector growing rapidly, third largest in world - FSB.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage