The Economic Conundrum

Indian Industry is going through an unprecedented crisis due to the Corona pandemic. While the economy has screeched to a standstill, expenses and overheads such as wages and payments have not stopped. With no income coming in, the Indian industry is finding it difficult to retain jobs and pay their bills. Rajdeep Sardesai interviews Rajiv Bajaj, MD of Bajaj Auto on India Today TV, about the ramifications of a prolonged lockdown on India’s industry, and the steps the government must take to help revive the economy

“I am not against the lockdown, but my plea and submission is that all lockdowns are not born equal. I don’t understand what the benchmark is for this lockdown when clearly India is not like Europe, the UK or the US”

As Indian Industry struggles with the lockdown, joining me is a very special guest, Rajiv Bajaj, MD of Bajaj Auto. Rajiv, do you believe this is the most challenging and difficult moment for Indian industry than liberalisation in 1991 or the global financial crisis of 2008?

Well Rajdeep, I joined Bajaj in 1990 and I can tell you that I have not seen a more difficult and uncertain period than this. In my view, what has been started by the coronavirus has now been compounded and taken forward by (as I see it) not so smart government action.

You have been quoted 10 days ago as saying ‘I continue to believe that the sweeping lockdown makes India weaker rather than stronger in fighting the pandemic’. Are you looking at this crisis purely from an economic point of view that the longer this goes on, the industry will find it very difficult to recover and revive?

No, absolutely not. In fact, I have gone on record and said that this is fundamentally and primarily a health crisis with economic implications and impact and my limited point has been that I am not against the lockdown, but my plea and submission is that all lockdowns are not born equal. I don’t understand what the benchmark is for this lockdown when clearly India is not like Europe, the UK or the US when it comes to its immunity, its temperature and its demography. And yet the lockdown in India has probably been more severe than any place in the world and if the you were to compare with the more comparable countries of the ASEAN region, there is no parallel with the way we personally, or our businesses have been locked up. I think this disproportionate response needs to be reviewed and recalibrated.

Pune, the country’s auto hub, is now a complete containment zone. Do you believe this is draconian? Do you believe that it needs to be gradually relaxed at least to allow businesses to start?

Not just Pune, I would say all of India. First of all, it is very clear when you talk to anybody in government that they don’t believe that the infections being reported are all there is to it. We know that testing has been inadequate. What we do know that the numbers are only going to rise in terms of infections the more we test. If we are looking at a near 0 day to be achieved before we begin to unblock the economy, I think that might be months away. As I keep saying, if the common flu keeps coming back after every year and claim 600,000 lives globally, obviously, this virus is going to come back in one form or another. We should expect that. So in this case, what should be the scenario for the country or for Pune? I think if I was to speak for Bajaj, plants like ours in Chakan near Pune or Walunj outside of Aurangabad, which are in the rural areas in industrial estates outside municipal limits, these should be allowed to start back up. On paper, that permission has been granted a couple of days back. But in practice, it is impossible because it is accompanied by draconian conditions and clauses, which no industry would like to subject itself to.

So you’re saying that the conditions are draconian even though in the last couple of days, there has been an attempt to relax some of the restrictions. Is it really draconian or is the industry crying foul?

We can all have our own opinion about this. I can tell you about our plant in Pantnagar in Uttarakhand. We had been able to open it up and access it and we are in the process of trying to get it ready to start. Over there, we are not subjected to these onerous conditions. Over here, for example, we are told that even if one person working in the plant was found to be infected with Covid-19, the plant would be shut down and seized for three months. As a manufacturer, we can only accept that we will take all due precautions and be twice as careful. If we find amiss, we will shut down for a day or two or however long it takes to correct it. We will be open to random inspections. We can be completely co-operative and do all this. But we cannot guarantee that there will not be a single case of corona. That is not possible. I heard today that a positive case was reported from Rashtrapati Bhavan. Does that mean you will shut down Rashtrapati Bhavan for three months?

“If the government thinks that these small organisations have the staying power to keep the people they have, to not cut jobs and keep paying them, they are living in a fool’s paradise. This is not the case at all”

What does the industry want? What do you think is the recipe for revival? Should the lockdown be lifted phase-wise and restrictions should be made less severe? Should you only isolate specific hotspots and other areas to resume economic activity? Should you allow the employable young to use public transport? What do you think is the recipe?

There are two sides to it. There is the economic side and the health one. Speaking of the economic one, I would say that I look at it as a simple 3x3 Matrix. On the one side, based on testing you have the Green, Yellow and Red zones and on the other, based on the age of the population, you have students (up to age 21) then those aged 21 to 65, and then those who are elderly and considered vulnerable (65 plus). The roadmap for an unlock should be simply this that at least in phase 1 to start with, everybody who is the middle group (Age 21 to 60) should be allowed to continue their normal daily routine, because all data seems to suggest that these people will only develop herd immunity which is for the better. These people will be largely asymptomatic and almost all of them will recover. Similarly, on the other axis, a large number of zones are Green. I would say everyone should be allowed to get on with their lives in these zones. I think this will solve the economic problem to the extent of 80- 90% because in our offices and our factories, we do not have people over 60 or under 20 by and large, so this should solve the issue overnight. There will be some loss of efficiency because of social distancing but that is acceptable. In this way, we can put ourselves in a very good position from a business and commerce point of view. I am not an epidemiologist by any stretch, so my limited point of view when it comes to health is that the goal cannot be to lock down or to unlock. In a health crisis, the goal has to be to develop herd immunity and what I would like to hear from those in the government is what their roadmap is vis a vis herd immunity because you are not going to be able to lock yourself up for 14, 28 or 49 days and hope that this virus will evaporate because it is not going to. We know that people are getting reinfected in other parts of the world, which is fine because this is how herd immunity develops.

Are you saying that specific sectors in the industry are suffering (like the auto sector) or do you believe this is across sectors and the losses created by this crisis are of an unimaginable magnitude?

I think it is by and large everyone’s problem. The degree may vary. I have friends in discreet manufacturing, in the processing industry, in the steel business, in banking, finance and everyone is affected. Similarly, I have my own dealers and suppliers, most of which are small enterprises. Their turnover is in tens of crores and their employees are in dozens. They are all affected. If the government thinks that these small organisations have the staying power to keep the people they have, to not cut jobs and keep paying them, they are living in a fool’s paradise. This is not the case at all.

Do you believe that layoffs and salary cuts are inevitable?

They are not just inevitable, they are already happening. At least across my supply chain, I am aware that they have happened and I sympathise with that because I can’t see how these organisations can remain afloat if they do not take these measures. These are not the only measures they are taking. They are cutting back on all costs. As far as Bajaj is concerned, we are fortunately a large company which is profitable and debt free and we have cash on our books. So thus far we have not had to resort to job cuts and assuming that this does not go on in this manner for too long, I am hopeful that we will never have to resort to job cuts. On the other hand, in terms of salary cuts, it is something that we are reviewing. Because we are not big enough not to even consider it. Fortunately, in our case, our employees, right from the bottom up, have come forward and volunteered for a wage cut as long as the lockdown continues. While we have not decided yet how much that will be and when we will put it into effect, if this continues for much longer we will have no choice but to do that while we cut down on all other costs as well.

The PM has appealed to the industry to not go for wage cuts, but the reality seems to be very different on the ground. Why is the industry not pushing this reality before the government? Why are more people not speaking out the way you are?

I don’t think people need to state the obvious. When you see pictures of all these migrants walking home, where are these migrants coming from? They are coming from little restaurants that we like to eat at, the little shops that we visit, the small dealerships and retailers, from the tier III and tier II suppliers. This is there for everyone to see unless one is blind to it. On the other hand, let us consider the information we are receiving from other countries. Let me give the example of Austria, where we have our company KTM. Even today, I spoke with my counterpart there, who told me how supportive his government has been. The fact is that they are being reimbursed 85% of the wages of their employees, despite their employees being very much more expensive as compared to ours. Small shops and restaurants have already opened up there, the bigger ones are opening in a few days’ time. Look at also the information coming out of Canada or the US, or places as far as Indonesia and Kenya. There is so much support, either directly to the people or to the industry. But there is no support here at all.

“MSMEs need very strong handholding. For industries like Bajaj Auto, I have gone on record to say that we are not looking for sops. We are not looking for someone to bail us out”

You believe the industry needs a major support package at the moment, especially MSMEs?

Definitely. MSMEs need very strong handholding. For industries like Bajaj Auto, I have gone on record to say that we are not looking for sops. We are not looking for someone to bail us out. We are strong enough to weather this storm on our own. What we need simply, is first please allow our dealerships to start. I am sure this is not a demand side problem at all. In fact, In Europe, the demand is stronger than ever, even stronger than before the crisis. Open up the dealerships. Open up the ports. Let the trucks ply. Move the goods. Help us restart the factories without putting the fear of God in us, and we will take care of ourselves. But yes, smaller companies definitely need help.

Looking ahead, there are those who are also saying that this could be an opportunity for India considering the fact that China is under the scanner and India could emerge as a manufacturing hub if we get our supply chains in order. Could there be an opportunity provided we get our policies right?

I don’t know Rajdeep. But I heard Bill Gates say once that with all these things, we overestimate what may happen in a year or what can be done in a year and we underestimate what may happen in 10 years. I don’t think, at least in the automotive world, that supply chains can be replaced overnight, in six months or a year. But yes, if for logical or emotional reasons, if people are disenchanted with China, there may be an opportunity. And let’s face it, irrespective of the crisis, I strongly believe, and I do this on the back of the fact that Bajaj Auto exports half of what it makes all over the world including to the US, Europe and Japan, that the cost-quality balance of engineering products coming out of India, is superior to that of China. This is the reason why KTM and Triumph have aligned with Bajaj. India is going to win on its own merit. India doesn’t need China to fail for India to succeed, but India does need the government to support it if India is to succeed.

You are speaking much like your father does. You believe we should be looking at homoeopathy and Ayurveda more seriously. Am I correct?

I am glad you asked me this because today is a historic day for Homoeopathy in India. Just today, the Ayush Secretary sent out a notification which says that Homoeopathy along with Ayurveda can be used as an additional treatment for the Coronavirus, both as a preventive and curative method. So far, it hadn’t been permitted. We had been struggling to get permission for it. I want to thank everyone at the Health Ministry, Niti Ayog and Ayush for making this possible.

At the end of the day, you want the government of India to lift the lockdown in a way that allows Industry to resume action. You believe what has been done so far is too little and too draconian, am I correct?

Yes. When I look at the impact of the virus in India, the worst is the measures that we have taken. I want someone in the government to stand up and tell me whether the actions that we have taken are in proportion with what the rest of the world is doing. And even today, people argue that Thailand and Singapore are also shut down. That is all very well, but my point remains that all lockdowns and all shutdowns are not the same. People are able to put on a mask and leave the apartment and walk out on the street and buy what they need there. Look at what is happening on our roads. Isn’t it not ironical, bizarre and completely weird that half the country doesn’t wear a helmet and the policeman doesn’t even look at you, and on the other hand, if a fellow goes out of his home at 6 AM to stretch his legs, he is being caned on the streets. If this is not disproportionate and draconian, then what is?