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Chairman's Speech 2001

Tuesday, July 24, 2001

Ladies and Gentlemen,
On behalf of my colleagues and on my own behalf, I would like to extend a warm welcome to you to this Fifty-second Annual General Meeting of your Company. The Report of the Directors and the Audited Accounts for the year ended March 31, 2001 have been with you for some time and with your permission, I will take them as read.
Review of operations
When I addressed you at the last AGM in May last year,business confidence was high and industrial growth of 8% was in prospect.However, a series of natural calamities, compounded by reduced expenditure by the Government coupled with a significant decline in agricultural production eroded the 'feel good' factor and has led to the ongoing economic slowdown. For only the second time in the last six years, GDP growth fell below 6%.
The commercial vehicle industry, where the level of economic activity amplified by sentiments determines demand, took the brunt of this slowdown. Further, the implementation of uniform sales tax structure throughout the country and the diesel price hike increased the acquisition and operating costs of vehicles. Total Industry Volume of medium and heavy commercial vehicle industry segment of the domestic civilian market, where your Company predominantly operates, suffered a negative growth of 19%. Your Company, however, outperformed industry with a negative growth of about 4%, with a consequent improvement in market share to 38.1%. This translates into a 10% improvement in four years ¿ a reassuring testimony to the product strengths and customer orientation of your Company.
Focus on non-cyclical sectors such as passenger transportation and defence supplies helped your Company weather the demand contraction to a great extent. The drop in domestic vehicles volume was compensated by improved contribution from our operations in exports,engines and spares sales.
As a result, your Company, with a marginal increase in turnover, improved its profit after tax from Rs 785 million to Rs 917 million through a shift in product-mix and the cumulative benefits of improvement in internal efficiencies.
Following the smooth transition of all the three engine platforms to Bharat Stage I emission norms and in anticipation of the Bharat Stage II norms for passenger vehicles, your Company has completed the development work and is in readiness to meet the prospective norms.During the year, the Company commenced supply of Light Recovery Vehicles to the Army. Two more products, namely High Mobility Vehicle and Truck Fire Fighting, have been specially developed, and are at various stages of induction in the Army.
Outlook for 2001-02
The economy is yet to pick up growth momentum. Yet, in the last one month, there is some growing optimism about the current year - monsoon, so far favourable, promises the prospects of an increase in agricultural production. I had, on earlier occasions, emphasised the need to refuel growth in agricultural production which lost steam after the success of Green Revolution for over two decades. This imperative still holds good. Even the predicted growth in agricultural output in the current year is nothing dramatic when viewed in the context of negative growth in four out of the last six years. Nevertheless, industrial production should get a fillip on the back of improved rural demand. I believe the overall positive effect will be felt only with a time lag.
The improvements in economic indices including a 6% growth in GDP portend a moderate recovery year for the commercial vehicle industry. It is pertinent that deferment of purchases in the last four years have more or less liquidated the excess capacity in the goods transportation sector. Nearly half the trucks on Indian roads are of ten year vintage or more. We are likely to see the resultant replacement demand that has built up, to express itself in a 5% to 7% improvement in volumes during the current year.
What can immediately inject the necessary vitality to the anaemic economy is Government action in line with its pronounced resolve to step up public expenditure. Clearly, Government is banking on improved revenue realisation later during the year. At the same time, Government's ability to spur economic activity by resuming its role as the single largest spender will be severely hampered by the dithering on the second phase of liberalisation including its disinvestment plan. The lack of consensus on disinvestment has become clearly audible in the Indian policy. A transparent and acceptable process model for this crucial activity is yet to be put in place.
Vehicular emissions and air quality
I have, in the past, drawn your attention to technological and other measures that can minimise atmospheric pollution from vehicular sources. Starting from 1992, when the first ever emission regulations were introduced in India, much progress has been made, thanks to the initiative and cooperation of legislature, judiciary, automotive and fuel industries, user groups and the public. In the Bharat Stage I norms set last year, the limit for gaseous emissions from a commercial vehicle is nearly three times tighter than the 1992 standard. The current norms also set a cap on particulate emissions for the first time. The commercial vehicle industry managed to implement the product upgradations,especially through appropriate engine technology, and introduced the product in a price sensitive market by absorbing a good part of the additional cost.
Simultaneously, through huge investments, the oil industry has effected significant improvements in fuel quality. India became one of the first developing countries to introduce lead-free petrol. In under four years, there has been a fourfold reduction in the sulphur content in diesel ¿ from 10,000 ppm to 2,500 ppm. In the National Capital, diesel has a sulphur content of just 500 ppm ¿ the same quality of fuel used in several developed countries including the USA and Japan. Sulphur in diesel is a major contributor to particulate emission.
While the collective effort that has gone into these achievements need to be lauded, have we achieved commensurate improvement in air quality?
Lessons from NCR
Given the lead role of the National Capital Region (NCR) in implementing a combination of measures to reduce vehicular pollution, it should serve as a test case offering valuable learnings for the rest of the country. Data shows that, in the Capital, starting 1999, in just two years, Sulphur dioxide in the atmosphere has come down to half. In the same period, Particulate Matter has fallen even more dramatically to one fourth. Clearly, the NCR has benefited from a series of measures implemented over the last two years including banning of vehicles that are over 15 years old, conversion of its bus fleet to CNG and improving, in stages, the quality of fuels and ensuring the quality at the point of final delivery. Clearly, automotive engine technology, fuel quality, focus on in-use vehicles and, above all, strict implementation have achieved results for the NCR.
The lessons are of great significance for the rest of the country. Even as we pursue costly technological solutions to a problem that affects all life forms and hence deserves the attention it gets, air quality deserves to benefit from all the other possible solutions and steps. In a holistic view, it becomes clear that there are two logical concurrent ways to reduce vehicular pollution - by reducing the vehicles on the road and by reducing emissions from all the vehicles on the road. One is purely quantitative and the other has a qualitative dimension. The priority is to pursue the cost-effective means of achieving these twin objectives.
1. Mass Vs privatetransportation
Even at the risk of repetition, let me say that the only people-friendly way to reduce the vehicle population on city roads is by a strengthening of the urban mass transportation systems.
The need for mobility increases with economic development. Parallelly, the urge to travel in comfort and dignity and in minimum time also increases, and with it the number of personal vehicles,leading to choked roads and choking air. The developed world found this henomenon a self-defeating cycle in the last century and found quality mass transportation to be the economical and eco-friendly answer. The ongoing and impending growth of our urban centres warrant that urban planning provides funds for rail and road infrastructure and vehicles, to create a synergistic public transport system that will be the preferred option for the millions of commuters in cities. What will set the tone and correct the distortions in the mix of vehicles is obviously a clear transport policy in line with the multi-modal transport solutions in the urban plans. Currently, for every new bus that hits Indian roads, some 170 private vehicles are added to the population. In the cities, this distortion is even more, indicating the vast scope to effect a reduction in the vehicle population while improving the quality of life.
2. Target in-use vehicles
So long as we do not target in-use vehicles, the objective of air quality improvement will evade us.
It is ironic but true that new vehicles complying with the latest stringent emission norms do not reduce atmospheric pollution,they only add to it! This is so because they do not replace the oldest of the current population of vehicles, but are incremental to them.Pertinently, unlike gains through engine technology, ecological gains through fuel quality improvements are more immediately and widely realised.
In any year, new vehicles added to the roads are only around a tenth of the in-use vehicles. Any serious effort at emission control should, therefore, focus on the existing population of vehicles ¿ majority of them of the pre-1996 vintage.
There are three ways we can deal with this problem: 1) by scrapping overaged vehicles; 2) by retrofitting new engines on middle-aged vehicles; and 3) by making the entire vehicle population environment-friendly through a strictly enforced maintenance regime. Given the features and habits of the national economy, scrapping is a sensitive option but has to be exercised in phases sooner rather than later. Retrofitting is eminently feasible and the level of fiscal incentive will determine the extent of its success. That takes us to the third option, viz., proper maintenance, applicable ¿ and beneficial ¿ to the entire vehicle population.
It must be noted that the emission standards credited to each vehicle reflect its condition at the manufacturing stage. Inadequate maintenance and lax inspection widen the gap between the potential benefits of technology and what is actually achieved. It is in this context that the Society of Indian Automobile Manufacturers (SIAM) has advocated a system of inspection and maintenance of in-use vehicles.
Ensuring roadworthiness
Based on comparable examples elsewhere in the world, it is estimated that six major cities in India can be served fully by 160 vehicle inspection centres that will certify the roadworthiness of vehicles. Along with vehicular pollution, road safety is emerging as a major concern due to the high accident rate in this country. The twin causes of ecology and safety will gain immensely by mandating periodic fitness certification of personal vehicles once in two years and for commercial vehicles every year. For the inspection culture to take roots, it is important to integrate the inspection system with vehiclee-registration and insurance, by making inspection certification a prerequisite for insurance and completion of both these as a precondition for re-registration.
These centres have to be user-friendly and should therefore have adequate infrastructure to minimise waiting and ensure fast turnaround. These inspection centres should be independent of manufacturers and their service franchisees. At the same time, I am sure that the industry will not lag behind in helping create a well-trained manpower for these centres. Industry will also have to shoulder the responsibility of expanding and upgrading their franchisee workshops to be able to undertake technically competent repairs that can pass stringent scrutiny. This is in conformity with industry's attitude of taking responsibility for its products beyond sales. Given the economic benefits from periodic vehicle inspection, manufacturers and industry associations will do well to make the customers aware of its advantages.
Company initiatives
In the spirit of taking responsibility for its products beyond the point of sale, your Company will offer emission warranty for its vehicles conforming to Bharat Stage II emission standard. The warranty will cover emission performance of the vehicle for the first year or 80,000 kms whichever is earlier. Your Company also offers to its customers an Annual Maintenance Contract. While taking the burden of vehicle servicing off the customer, this is also an opportunity for the Company and its franchisees to add and derive value throughout the lifecycle of the vehicle.
You would have noticed from the latest Annual Report that a concern for environment influences all our operations: in the proactive developmental work in alternate fuels and other technology areas which has given us a technological edge in the evolving market place; in the eco-sensitive manufacturing environment which has won us the ISO14000 certification; and in our relations withur business associates including our customers whom we support with easy to reach after-sales support, awareness on the socio-economic benefits of taking care of the vehicle and through scientific training at our Namakkal Driver Training Centre and elsewhere.
Mr M J Subbaiah, who was a Nominee Director of ICICI, ceased to be a Director from July 2000 consequent to his leaving the services of ICICI. Mr S K Mukerji, Nominee Director of LIC of India stepped down from the Board on completion of two terms. Mr J Joseph resigned from the Board in March 2001, after an association with the Company of over two decades. Mr R Sorce resigned from the Board in March 2001 after an association of over a decade. I would like to place on record our appreciation for the advice and valuable contributions to the Company's growth by these colleagues on the Board, during their association with the Company.
Mr G Boschetti, Mr P K Choksey and I retire by rotation,and being eligible, are being proposed for re-appointment as directors. Mr Kshirsagar is also being proposed for appointment as director.
I would like to express our thanks to the Central and State Governments, the Banks, Financial Institutions and various quasi-government and private agencies for their continued support to the Company and its operations. My special thanks to our customers and the road transport community, dealers and vendors for helping the Company to turn in a good performance.
I am grateful to our shareholders for their continued trust in the management of the Company. A special word of appreciation for the guidance and technological support from our principal shareholders,the Hinduja Group and IVECO, acting through LRLIH Limited.
I would like to acknowledge the dedication and commitment of all the employees of the Company led by their Managing Director, which has helped us weather the vicissitudes of our operating environment. Our grateful thanks to all of them.
Yours Sincerely,
Mr. R . J. Shahaney
Chairman, Ashok Leyland Limited