Starting Off the New Year with a Cautious Optimism Nikunj Sanghi, President Dear friends, Hope, you had a blast on the New Year eve. While ringing in the New Year, everyone, including us in auto retail, has a wish list and hopes for a fulfilling year ahead. I am sure, you would have given a warm send off to the year 2010, which was, by and large, fulfilling and rewarding for the Indian business as a whole. The comeback was all the more gratifying after experiencing slowdown hiccups for about 13 months starting from latter half of 2008. We, in auto retail, hope that the growth momentum of the year 2010 would continue in the year 2011 as well. Our optimism is not unfounded. Though a host of challenges witnessed last year remain the bugbear of Indian economy, including automotive sector, and new challenges are emerging on the horizon, which can put a damper on our optimism, macroeconomic fundamentals are still strong enough to make us bullish on growth. The Indian economy grew by 8.9% in the first two quarters of the FY2011 and the agriculture sector rebounded after a dismal performance in the previous year to clock 4.4% growth riding on the good monsoons coverage. The same way, industry and services sector have been performing fairly well in the current year. Industrial production is on course to achieve an expected average of 8.4% this fiscal year, volatility in growth numbers notwithstanding. All this bodes well for the Indian auto market. The Government has forecast around 8.75% growth this year and is targeting 9%-plus growth for the 12th Plan starting April 2012. India's speedy recovery from the global economic recession and its unlimited potential are the toast of the world. While the Indian economic scenario looks bright, there are dark clouds that are lurking on the horizon. Various analysts and economists have highlighted risks to the Indian growth story with threats emanating from persistently high inflation, dangerously high deficit levels, and soaring prices across the commodities universe. Add to these a Government mired with various controversies, scams and corruption charges, which will deter any Government to come up with bold reform measures. All this is happening at a time economic prospects in developed economies led by the US are looking rosier, portending lower foreign investment flows into Indian markets. To my mind, unrelenting high inflation is the most serious threat-one that will ensure that there is no let-up in the monetary tightening underway since last year. The Reserve Bank of India has raised interest rates six times in 2010, but these measures are yet to seriously dent inflation. The Damocles sword of further monetary tightening by the apex bank is always hanging on our head. There has been a sustained increase in prices since last year, both in food and non-food items. Headline inflation as measured by the wholesale price index (WPI) stood at 7.48% in November, driven largely by food inflation. Although headline WPI inflation has eased from 11% last April, the year-on-year reading is largely an illusion and cannot be equated with a decline in prices. Rising commodity prices across the world is another area of serious concern. A global recovery can further lead to firmness in commodity prices, creating more problems for India. Petroleum, steel, rubber and copper prices have been rising unabated in the international markets for some time now, which can render all projections and plans go haywire. The government can do its bit to counter these headwinds by stepping on the reform pedal to shield growth. While there are potential threats and party spoilers, the good thing is that the Indian business and consumers, alike, are abuzz with confidence. The idea of highlighting these challenges is not to frighten anyone but to caution that we have to be on our guards and be prepared to weather these challenges. I am sanguine that the year 2011 would end up on a happy note with Indian auto industry scaling new heights and conquering new frontiers. My optimism stems from the fact that we have weathered many a storm in the past and have resilience to do it again. The sales figures for the month of December 2010 that is normally a sluggish month for auto market are fairly good to inspire confidence and buoyant sentiment. Various Indian and international analysts and experts, who have been churning out the growth story of Indian auto industry with unfailing regularity continue to paint a rosier picture of the industry. Recent study by Booz & Co. reveals that the India would be the 4th largest auto market after China, US and Japan, in 3 years. Such revelations are really music to our ears and cheering for all of us. Coming to the activities of FADA since my previous message, as you are aware, we successfully conducted recently a Regional Convention of Automobile Dealers at Jaipur in Rajasthan. This was closely followed by an equally successful 2-day residential programme on the topic: Generation Next at Aamby Valley, Lonavala, near Mumbai. The programme was meant for owners of the family-owned dealerships as well as their spouses & children. The idea of conducting such programmes is to groom and prepare the leadership within the family for smooth succession and for the organizational responsibility within FADA. FADA is going to conduct a series of such programmes across the country. The importance of regional meetings cannot be overemphasized. While FADA's biennial Auto Summit brings forth and discusses the issues of national importance, regional meetings enables automobile dealers to vent their aspirations and concerns at the regional or State level. The regional Summit at Jaipur was a huge success inasmuch as it served its purpose of bringing my fellow dealers and authorities in Rajasthan together at a common platform. The Regional Convention also went a long way in promoting fellow feelings and understanding among the automobile dealers in the State. The overwhelming participation and lively deliberations at the Regional Convention in Rajasthan has encouraged us to organize more such regional meets at regular intervals. Driven by the success of regional convention at Jaipur, we are proposing to organize a regional summit at Bhopal some time in March/April 2011, for which the preparations have already been put in motion. I am expecting the same enthusiastic response and participation as seen in Jaipur. Let me assure you, these regional conventions will not be one-off meets or mere extravagant shows. More such meets are planned for the future. Another major activity underway is the Automotive Dealership Excellence Awards (ADEA 2010). We have received a large number of nominations for 13 awards at stake, which are being screened and validated for the jury comprising eminent personalities to adjudge. The awards ceremony is planned to be held on February 26, 2011 at Mumbai. The dealer satisfaction study being conducted by J D Power Asia Pacific, in association with FADA, is also progressing well. Its major findings and highlights will be shared with you as and when J D Power comes up with its report. Look forward to your views and suggestions. With best wishes, Yours sincerely, Nikunj Sanghi