Toyota and Harley: Does India have Problems on the Tax and Structural Demand Front?

thewire.in
4 min read
fairly difficult
While the pandemic obviously didn't help, there is also a sense that India is clearly becoming a less attractive market for global companies in its current economic phase, which may take time to structurally repair.
Is the much-touted Indian market of over a billion consumers still as attractive to foreign investors as one had taken for granted earlier? Broader demand for goods and services has been a dampener in India for quite some time now. Overall capacity utilisation in industry has slipped to around 65% as per the Reserve Bank of India (RBI) estimates. And this had happened much before COVID-19 arrived.

Post-COVID-19, of course, capacity utilisation fell dramatically from the existing level. So recovery to pre-COVID-19 levels actually means going back to sub-optimal capacity utilisation of last year. This shows a structural demand crisis which has existed for the last 7-10 years. Clearly, India is not creating enough new demand via fresh incomes from a larger segment of the consuming middle class. This crisis has been explained in detail by economists like Rathin Roy, former member of the Economic Advisory Council to the Prime Minister (PMEAC).

Does this have something to do with foreign companies expressing frustration with the stagnating Indian market, especially in the discretionary segments? Foreign companies have always found it difficult to navigate the Indian market. Most of them lose money in the initial years, hoping that critical volumes would build up later to compensate for initial losses.

Also read: Harley-Davidson Discontinues India Operations, Expects Fresh Restructuring Costs

Two recent statements cast a doubt over the attractiveness of the Indian market to global companies, especially in the luxury segment. Toyota Motor Corporation said it would not want to invest in expansion in India.

A fortnight later, the global leader in the manufacture of luxury bikes, Harley-Davidson, delivered a shock to the Modi government by announcing it was withdrawing from India and closing its manufacturing facility.

BBC News said Harley shutting down is "a blow for Indian Prime Minister Narendra Modi's efforts to lure or retain foreign investments."

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