[Freemanlist2] India on cusp of breaking out, says Suzuki chief - TAKAFUMI HOTTA

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January 14, 2015 5:51 am JST
Modi at the helm
India on cusp of breaking out, says Suzuki chief
TAKAFUMI HOTTA, Nikkei staff writer
Osamu Suzuki
MUMBAI -- Enormous changes are about to take place in India as Prime Minister Narendra Modi spearheads economic reforms and promotes manufacturing in the country, according to the head of Japan's Suzuki Motor.
     Osamu Suzuki, the automaker's chairman and president, spoke with The Nikkei while in India for a conference aimed at attracting investment to the state of Gujarat. Officials from more than 2,000 companies from around the world attended the three-day Vibrant Gujarat Summit, which ended Tuesday.
     The carmaker is building a plant in Gujarat. Slated to come onstream in 2017, it will churn out vehicles for the European and African markets. Panasonic and Hitachi Construction Machinery are among the Japanese companies following a similar game plan, establishing a presence in India as a base to tap into markets further to the west. Modi aims to take advantage of this trend to turn India into a manufacturing giant.
     "India's manufacturing sector has great potential," said Suzuki. "For Japanese companies, India is a gateway to the Middle East, Africa and Europe. This meshes with Prime Minister Modi's 'Make in India' initiative."
     Modi has been on Suzuki's radar since his stint as chief minister of Gujarat, when he eliminated power outages by improving the efficiency of power generation and transmission. Noting Modi's recognition that electricity is essential for cultivating industry, Suzuki characterized him as "undoubtedly a businessman." The Japanese corporate leader sees India's manufacturing sector as a driving force once such issues as power supply are addressed, given the nation's large market, ample labor force and favorable geographic location.
     Suzuki Motor has been called the most successful foreign business in India, now dominating the passenger-car market after entering the country more than 30 years ago. Modi's economic reforms would make it easier for foreign companies to operate in India, resulting in more competition for Suzuki Motor.
     "Maruti Suzuki India holds a share of almost 45% in the new-car market, where 17 automakers compete fiercely," said Suzuki, referring to Suzuki Motor's Indian subsidiary. "You can say that Maruti Suzuki is facing a critical situation."
     Pointing out that General Motors is the leader in the U.S. market but holds a share of less than 20%, Suzuki said there is an 80% chance that Maruti Suzuki's market share in India will drop below 20% in 10 years.
     To strengthen its position, Suzuki Motor plans to debut small commercial trucks in the South Asian nation this year to tap into strong potential demand in farming villages.
     Last May, Modi's Bharatiya Janata Party won a majority of seats in the lower house of parliament, the first time that a single party claimed a majority in 30 years. Modi drew massive support due to his pro-business stance. India has had a planned economy since gaining independence in 1947. And despite deregulation starting in 1991, businesses remain plagued with inefficiency.
     "India has two big parties -- the Indian National Congress and the BJP -- but in recent years neither side has been able to take a majority on its own, which resulted in coalition governments with smaller parties," said Suzuki. "The people of India probably felt the limitations [of this framework] as the economy increasingly globalized."
     "Prime Minister Modi needs to produce results by tapping the energy of the people seeking change," said Suzuki.
     Suzuki likens the situation in India now to the Meiji Restoration in Japan in the late 19th century, which marked the end of feudal society and consolidated the political system. India is a diverse nation, with more than 20 major languages and a mix of cultures. While the previous government was in power, deregulation measures sometimes stalled due to opposition from states. The government was weakened by regional parties leaving the ruling coalition.
     "State governments and regional parties are strong, and they have hampered the central government's ability to carry out policies at times," said Suzuki. "But India needs to unite under the national flag if it aims to become a major global player. India looks as though it is heading toward centralization of power."
     Given a mandate to exert strong leadership, Modi has an opportunity to press ahead with centralizing power. The Modi government aims to introduce a goods and services tax, which integrates national and regional taxes, across the country in 2016. This is expected to become a bellwether of the centralization drive.
     At the summit in Gujarat, several domestic and foreign companies announced plans to invest in the state. Reliance Industries Chairman Mukesh Ambani said that the Indian company will invest 1 trillion rupees ($16 billion) over the next 12 to 18 months. Another domestic company, Adani Enterprises, will join hands with SunEdison of the U.S. to build a large solar power plant at a cost of $4 billion. Japan's Toyota Tsusho and Toray signed memorandums of understanding to strengthen operations with the state government or affiliated entities.
     The first Vibrant Gujarat Summit was held in 2003, organized by Modi when he was Gujarat's chief minister. For the seventh conference, such dignitaries as U.S. Secretary of State John Kerry and U.N. Secretary-General Ban Ki-moon were on hand for the opening ceremony on Sunday. Gujarat, which attracted investment and supported industries under Modi, has become a model for other states to follow.
     Suzuki Motor has been one of the biggest investors in Gujarat, with capital spending for its new plant estimated at 40 billion rupees. Suzuki is on friendly terms with Modi. Back when he was head of Gujarat, Modi visited Suzuki Motor's headquarters in Hamamatsu in 2012.
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