India Must Equip Its Small Businesses To Fight In A Deglobalising World

Sometime during peak monsoon time last year I happened to drive past Bajaj Auto’s massive two-wheeler plant in Chakan near Pune. Drive may not be the right word since it was more of a long and slow crawl accompanied by frequent jolts up the spinal cord.

We also passed the Mahindra SUV plant close by. It struck me, once again, that these were world class factories producing world class goods, exporting to the world and yet, getting product out of the gate and on its way within India or overseas would be a much greater challenge for them than their counterparts in other parts of the world.

I was visiting a plastics original equipment manufacturer (OEM) that supplies various parts to Tata Motors, among others, not too far away either. They were supplying around Chakan as well. When I asked the founder how they managed with such terrible roads he shrugged as if to say ‘what can we do, we have to live with it’.

The founder of this plastics moulding company lives with it because he can still produce and sell with a reasonable margin.

But what if Trump’s tariffs were to change that?

India Isn’t Easy For SMEs

Doing business in India, particularly for smaller companies, can be tough and goes beyond navigating bad roads. Smaller OEMs face continuous challenges of cash flow and margins. Some of it cannot be helped in a competitive market.

But a lot of it is because of the physical environment they work in, including dealing with constant regulatory encounters. It is not like big companies don’t face regulatory scrutiny but they better manage them with dedicated teams.

It is of critical importance to ensure that smaller enterprises are better cared for. This could look like easy access to finance or just a light touch regulatory environment and an honour system that does not punish recklessly.

This is important because India’s smaller enterprises, in this context automotive and engineering, have shown remarkable resilience and adaptability, like in the case of the move to electric and hybrid.

Whenever I have met or interviewed CEOs of large automotive companies or even component makers, they have always highlighted the challenges of the firms that supply to them, even if their balance sheets were fine.

Protecting resilient, mostly faceless enterprises and encouraging them should be a key area of focus in the government’s industrial policymaking whether within a Union Budget to be presented tomorrow or outside of it.

Here is one reason.

India’s automotive exports continue to surprise. Latest figures show that Maruti Suzuki’s share of exports jumped again from around 23% in 2021, they were up to 41% in 2022 and have now, as of the last quarter, touched 49%, the figure that until recently represented its share of the domestic car market.

Export volumes were up 38% in the last quarter in contrast to the 8.7% growth in the domestic market, according to The Economic Times. And export revenue is now running at an annualised figure of Rs 26,000 crore or 17% of the company’s revenue.

Brokerages are now raising their export volume estimates for the coming years even as they point to the continued weakness in the domestic market. Maruti is of course not the only big exporter.

The domestic sales of Bajaj Auto, whose plant I passed incidentally, declined 9% year on year in the last quarter. But its exports were up 22% year on year thanks to Africa, Asia and Latin American markets.

Protection Against Tariffs

A growing export base is of course most welcome and creates a cushion for car makers, who represent more than 7% of India’s GDP, to keep the factories running. But it is not just the Bajaj Autos or Maruti Suzukis who have to do well.

Others do too.

The automobile industry is a good example that has created a reasonably strong ecosystem and thus a moat to produce at scale for the domestic and export markets. The ecosystem is the reason why India can produce quite competitively and global companies like Hyundai and Suzuki are able to export in large numbers from India.

Nourishing this ecosystem, whether in automotive or other industries, is equally critical.

Because even a small round of tariffs can change the game. Presently, it is the US we are worried about but remember we never expected it.

There is a sense that we take success or growth for granted and assume that we can ignore the potholed roads of Chakan or the cumbersome goods and service tax processes because the bottom line numbers are, actually make that were, looking good.

This is the time to roll up the sleeves further and start unclogging the pipes so that businesses small and large can become more competitive and productive and fight in a deglobalising world.

A potholed road that backs up trucks can make a bigger difference than we think.