* $1 bln new plant project on hold until budget-chairman
* Car sales growth seen flat in FY 12
* Slew of economic reforms shelved by govt
* New capacity could see 40 pct excess in India-chairman
By Tony Munroe and Henry Foy
NEW DELHI, Jan 6 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 is in talks to buy two 500-acre
tracts of land in the western state of 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
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 ($1.13 billion) 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), 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, 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
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
"If they all come in, then I'm sure, nationally, total
installed capacity could be 30-40 percent higher than demand,"
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(US$1 = 52.67)
(Additional reporting by Devidutta Tripathy; Editing by