In an interview with Business Line, Shekar Viswanathan, Vice-Chairman and Whole-time Director, Toyota Kirloskar Motors, talks about the lifting of curbs on bigger diesel vehicles, the impact of GST on the auto industry and why Toyota may not be too keen on entering the compact utility vehicle or the small car segment. Excerpts:

It is usually said that India is an emerging market where car penetration is low and hence it provides a lot of opportunities for manufacturers. On the other hand, we are already having our hands full with infrastructure problems and pollution. Where is the balance?

It is a little off the mark to suggest that just because the US has a car penetration of perhaps 999 to a 1,000 people compared with 4 per 1000 in India, there is potential. I don’t think India will get to that level. A lot of them use a car to go from home to work and back. If there is public transport available, they may not use a car. If they want to go out with family in the weekends, they may use a taxi or other forms of transport. So the car-using population itself is not very pronounced in India. Having said that, the draft National Automotive Mission Plan put out by the Ministry of Heavy Industries is now talking about reaching 9 million vehicles by 2026. I think that is overstretched. Right now we are at 3.2 million vehicles in terms of production, of which 2.8 million is for domestic production. I think at best the 3.2 can go up to 5 million in the next 10 years. It is not for us to tell the government to improve the infrastructure. We will only say it from the point of view of the consumer and focus on their safety. On pollution, the aim of all automakers is to reduce pollution by doing certain things such as light weighting the vehicles and improving fuel efficiency.

Now that the Supreme Court has lifted the ban on sale of diesel vehicles over 2000 cc in Delhi, do automakers like you, who have been affected by the ban, feel vindicated?

We feel partially vindicated by this decision of the Supreme Court. There is a sense that based on the current availability of Euro 4 diesel, the best that auto makers can do under the circumstances is providing state-of-the art diesel engines. However, there is no recognition that auto makers are fully compliant with existing emission regulations and are not the real polluters. Therefore, imposition of cess of any kind should not be construed as a penalty for pollution. But if the cess is being imposed on car buyers to feed a general anti-pollution fund, then it is a separate matter for the government and the court to discuss.

Toyota recently brought out a petrol Innova to work around the ban. Now that the ban has been lifted, will the petrol Innova find enough takers ?

I want to clarify that we always had a petrol Innova and a diesel Innova. We never asked for a diesel subsidy. The government of the day decided to give diesel subsidy because diesel was popular. Having decided to go that route, the differential between prices of petrol and diesel became too wide. Naturally, people stopped buying the petrol Innova.

As a result, the petrol engine plant overseas from where we obtained our supplies started idling. Looking at the long-run dynamics here, we told our Toyota supplier network that we don’t want the petrol engines and that they can divert this capacity elsewhere. Unfortunately for us, this ban came and then we realised that we were left without a product. The Innova is our mainstay, our bread and butter product, so we decided to bring back the petrol Innova. Now, though the ban has been lifted, diesel prices have anyway gone up due to decontrol and the differential has narrowed. So there will always be takers for the petrol Innova.

Is a scrappage scheme a workable solution to control pollution?

What happened in Europe around 2008 was a cash for clunkers policy where it was essentially needed to revive industry. That was a one-time thing. But for India, if you want a scrappage policy with a view to controlling pollution, it can’t be a one-time scheme. It has to be continuous. The scrappage scheme is workable and that is the model we should be following. The governments of earlier days have used the auto industry as a resource gathering sector; so they charged 15-year road tax, lifetime tax, etc. Suppose the government had only charged for a short period, they can tell you to take the car off the road after that. Besides, there has to be a visual inspection and testing as to whether the engines are too old or too rusty and then a decision has to be made as to whether to scrap a car or not.

At the end of the day, a scheme must be worked out where all three players — the manufacturer, government and customer — pay a price. It is good for the industry because it will help us sell more cars; it is good for the consumer because it will help him have the latest technology and, of course, for the government as, though they may be giving up a little bit on the taxes in old cars, they will be earning on the new ones that are sold. That said, to bring down pollution significantly, other sources of pollution also need to be addressed. The vehicular pollution is small compared to other sources.

The last two years have seen compact utility vehicles taking the market by storm. Are you looking at a product in that segment?

Sitting here in India and working for Toyota Kirloskar Motors , I want to compete with vehicles like the Brezza and Duster. We have products that can compete both here and in the small-car segment. We have just recently completed the acquisition of Daihatsu.

At some point in time, we would think that it is possible that Daihatsu will enter India.

From a Toyota Motors perspective, right now the thinking is, do you want to introduce diesel and gasoline vehicles in a smaller CC range in a packed market or do you want to upgrade your technology for the Indian market? For example, do you want to graduate from diesel and gasoline to electric and hybrid vehicles?

We have a Toyota Vision Plan for 2050 where we envisage that gradually, over the next 30 years, we will de-emphasise the use of fossil fuels. Toyota would rather focus on hybrid, electric and eventually hydrogen-powered vehicles. Hence, at this point of time, to look at another set of vehicles for a period of 4-5 years doesn’t seem to be that attractive a proposition, particularly when the bulk of our engineering resources is focused in the Vision Plan.

How supportive is the environment in India for green vehicles?

The environment is very supportive. The government has suo moto come up with the National Electric Mobility Mission Plan (NEMMP).

The government understands that graduation to alternate technology cannot come overnight. They made reductions in excise duties and in import duties in parts relating to hybrid vehicles.

They are also giving incentives to the consumer as is done in other countries. India is an oil-deficient country. Therefore I believe that the sooner we move to alternate technology vehicles, the better for us. We will be cutting back on pollution and the drain of foreign exchange.

What are the current pain points for the auto industry that will get addressed under the GST?

The auto industry functions on a long supply chain. What they have said is, if vendor A or the tier 1 vendor defaults on taxes, then the OEM (auto manufacturer) is responsible. If the vendor to vendor A, say A1, defaults, then they make sure that A pays up. If both A and A1 default, the OEM becomes liable to pay the tax. In the past, the government has tried to go behind these people to collect the tax. But they don’t have the wherewithal. Now the guy who is interested in recurring sales to me will be interested in being current with his taxes because we will have a covenant now that if you don’t pay the taxes, we will stop doing business with you.

There will be problems initially, but over a period of time, these things will settle down.

That said, in some issues such as valuation rules for related party transactions, clarification is required. Besides, on the day GST comes into force, we (including our dealers) will be carrying a lot of stock in which excise duty has been paid. So that must get a credit under the GST regime. But by and large, it is a well-thought-out law. The key thing now is that we should go for April 1, 2017 implementation.

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