Mr. Shekar Viswanathan, Vice Chairman & Whole-time Director, Toyota Kirloskar Motor Ltd

Dimensions Team: Sir, you said that a country should not be allowed to default because it hampers the country’s credibility. We have the example of countries like Iceland who actually allowed their banks to default and their currency to fall, but could take advantage of it through higher exports and were subsequently able to repay their debts in three years. How does this actually work? Can countries like Greece replicate this model and make it work for them?

Mr. Shekar Viswanathan: The period of time that it takes for you to come out of the difficulty of defaulting is much longer. Second, once you default, your cost of credit goes up. They say “Since he’s defaulted once, he may default again. Therefore I will charge him a higher rate of interest.” Even though things may look good in the immediate term, you end up paying a higher rate of interest. Whereas a person who has never defaulted, come what may he will find the money to be safe. That’s why, if you notice, some of the better business houses’ cost of funds is always low; that itself gives them an advantage over competition. The same thing is true for countries as well.

Dimensions Team: Toyota is known for quality and the various initiatives taken by it towards quality; and they say quality is free. But we generally see that companies charge more for quality. How has Toyota been able to achieve the concept of free quality?

Mr. Shekar Viswanathan: Our slogan is “Safety first, Quality must.” There is always a market for cheap goods, but there will also be demand for the best; and Toyota has historically produced quality goods and we have been able to reap the benefits of that because we have become synonymous with quality. In subsequent years, many other goods have also followed us. We are now finding it difficult to push up on quality. But that’s bound to happen with competition; so we have to look at some other paradigm on which to sell. Of course, today in India, we are selling on the canon of safety, where all our cars come equipped with airbags, and not everybody can boast of that type of line-up. Of course, you’ll soon find that every car in India will come equipped with airbags, but you have to make a choice over here. There are some taxi operators who say “Why do we need airbags? If you remove them, you can reduce the cost of the car by 50,000 rupees.” So what is the choice you have to make? You have to make a choice between safety and cost. So we always say, let it be more expensive, but safety first, and quality must.

Dimensions Team: Sir, there is a news item in the Business Line that appeared on the 29th of October. You’ve mentioned that there should be a single tax- rate for all cars in India, irrespective of their size. Could you please elaborate on this?

Mr. Shekar Viswanathan: Currently, the government of India is taxing cars based on the length of the vehicle. Less than 4 meters, you get charged at 12%. If it is more than 4 meters, it goes to 24%. Now, the length of a car is no relation to the fuel efficiency or the emission levels. My contention is that it should be indexed to the emission level or the fuel efficiency. Of course, the heavier the car, the more fuel inefficient it is, but that’s a broad rule of thumb. You can have a better efficiency engine, you can have better catalytic converters which will result in lesser emission. Ultimately at the end of the day, one must make it less polluting. So tax rates must be fixed based on this parameter, not based on length because some babu fixed this and said it’s because, it’s easier to drive smaller cars.

Dimensions Team: Sir, China is a constant threat for global economy. With the Prime Minister proposing Make in India, will China’s present condition be of any effect to this Make in India initiative?

Mr. Shekar Viswanathan: Of course it will affect it. They are also competing. They want their people to be employed, they want their goods and services to be sold all over the world, just the way we want Make In India to help us export. So depending on who is more efficient, the winner would be born. Now, are we going to be able to beat them in all sectors of the economy? No. Are they going to be able to beat us in all sectors of the economy? No. The real answer is we don’t know which sector. So we have to encourage every sector whether it be cars, or steel, or aluminium, or any other thing.

Dimensions Team: Sir, in extension to his question, what significant chances do you see in the automobile industry with regard to Make in India?

Mr. Shekar Viswanathan: First of all, I think the government must reduce the incidence of tax on vehicles. Today, for a big sized vehicle, for every hundred rupees that the consumer pays the manufacturer, he pays 70 rupees in addition to the government. This makes it expensive. The manufacturer is never directly affected from the pricing point of view. But the government can get more if tax is brought down since there will be more people willing to buy a car and use it. So that would make their annual intake of taxes much higher. This is the point we have been trying to make for some time now. Of course, it’s not a perfect equation. There is a tipping point below which it’s not that if they say zero tax, more and more cars will be sold; or if they say, “We’ll only reduce it by a little bit say 150 to 140”. That might also not make any difference. I believe that the point is they should halve all taxes for Make in India to succeed.

Dimensions Team: In your lecture, you said that credibility needs to be held high for any country. Coming to the case of India, what was the turn in Indian perspective when Manmohan Singh was the Finance minister?

Mr. Shekar Viswanathan: I think, in that point in time, everybody knew that nobody is going to give us money if we don’t repay our debts or do things that would attract foreign currency. That’s why we had this portfolio investment scheme. We allowed foreigners to come and invest in our stock market. There are a lot of good companies in India. The TATAs, the Birlas, Reliance, etc. So they decided to allow foreign investment to happen. They also proved that we can always export our gold and get foreign currency. They abolished licencing of a number of industries, except in defence and a few other such sectors. Then they allowed foreign currency holdings to go up to 49% in some sectors, and up to 100% in other sectors. For instance, in automobiles, they said 100% they can own. So Hyundai owns 100%.

Dimensions Team: Interest rates are important to auto-sector. I mean recently we heard of talks that the government was trying to take away this right from the RBI to set interest rates, and even industry has at times spoken about this interest rate issue. So what do you think? Should the right be with the RBI? Or should the government have some say in setting interest rates?

Mr. Shekar Viswanathan: Government has no business with regard to setting interest rates. That’s the function of the Reserve Bank of India. The RBI is charged with the responsibility for conducting monetary policy in the country. The government is only another player in that monetary market where they borrow or they lend in the money market in the long term capital markets. Every time the government issues a bond, they are actually taking away money from the market. So they have no right to influence interest rates at all. Businessmen will keep demanding of the government “Please tell RBI”, but that is not the government’s job, it’s the RBI’s job.

Dimensions Team: With the intervention of GST, what major benefit would the automobile industry get?

Mr. Shekar Viswanathan: We will see an overall reduction in taxes. What is currently not getting subsumed is adding to the cost of the vehicle. That vehicle cost will come down, and that is definitely good for the consumer and for the economy.

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