Defying Deglobalisation

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Good morning. In today’s edition — how can India ensure its small businesses thrive in times of deglobalisation? safety may not be on top of the agenda for India’s electric two-wheeler makers; and what the budget could do for industrial real estate. 

THE TAKE

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.

DECODE THE NEWS

India’s EV Two-Wheeler Segment Has A Safety Crisis On Its Hands

With over 1 million electric two-wheelers sold in India in 2024, the sector is booming. But beneath this growth lies a pressing concern—safety. Fire incidents reported across brands like Ola Electric, Okinawa, PureEV and many others, have exposed critical flaws in battery quality control, thermal management, and regulatory enforcement. In response, the government introduced AIS-156 and AIS-038 norms, but gaps in implementation persist.

While the selection of battery chemistries may be only one of the problems, weak Battery Management Systems (BMS), poor quality control, and inadequate thermal management have made EVs vulnerable to overheating and fire hazards. Many manufacturers, in a rush to meet soaring demand, may have prioritized production speed over rigorous testing, making safety an afterthought, experts that The Core spoke with pointed out. 

Regulators are now attempting to tighten the net. But without consistent enforcement of Automotive Industry Standards (AIS norms), regular post-production checks, and better consumer awareness, these risks will remain. Without stronger compliance checks, India’s EV sector may struggle to build long-term consumer confidence.

CORE NUMBER

Rs 79,398-crore

This is the special loan amount given to the Indian Railways that it requested to be converted into a grant. But the finance ministry rejected this, instead granting a two-year moratorium. The loan, issued in 2020-21 to cover disruptions caused by the Covid-19 pandemic and pension liabilities, must still incur Rs 1,358 crore in interest for 2024-26. Initially sought to offset revenue losses and a Rs 28,398 crore pension deficit, the loan carried repayment terms tied to performance metrics that the Railways struggled to meet. Pre-budget talks led to the moratorium, as the Centre braces for stretched finances in 2025-26.   

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FROM THE PERIPHERY

—💸 The rise of "social media debt" among young Indians is becoming a worrying trend, with platforms like Instagram accused of fueling reckless consumer spending through aspirational lifestyles. A Mint report on Thursday highlighted how many consumers are taking buy-now-pay-later loans or relying on credit cards to maintain an illusion of affluence online—funding luxury purchases, vacations, and concerts beyond their financial means. This comes as financial regulators crack down on unregulated financial advice. Recently, the Securities and Exchange Board of India (SEBI) barred influencers from disguising financial advisory under the guise of education, as reported by Moneycontrol. With credit card balances soaring to Rs 2.7 trillion in June 2024, some reports suggest that delinquencies are rising among young users. 

—🤖 India’s IT Minister Ashwini Vaishnaw announced that the government has empanelled 18,693 graphics processing units (GPUs), including 12,896 Nvidia H100s and 1,480 Nvidia H200s, to power the country’s generative AI ambitions. While he touted this as a significant leap, questions remain about the sudden scale-up. The government had previously approved Rs 10,372 crore for its AI mission in March 2024, with Rs 5,000 crore allocated for GPU procurement. However, India’s AI infrastructure still lags behind global leaders like the U.S. and China, raising questions about whether this hardware push will translate into competitive indigenous AI models or remain an underutilised investment.

—🏅 Toyota Motor retained its crown as the world’s top-selling automaker for the fifth straight year in 2024, selling 10.8 million vehicles despite a 3.7% drop in group sales. The decline stemmed from a slump in Japan, impacted by governance issues at Daihatsu. Parent-only sales, including Toyota and Lexus, dipped 1.4% to 10.2 million, driven by a double-digit decline in Japan and a 6.9% dip in China amid price wars. However, hybrid demand in the U.S. pushed hybrids to 40.8% of sales, while EVs accounted for just 1.4%. Rival Volkswagen trailed with 9 million sales.

—🌾 After some parts of India faced a very warm January, the weather forecast shows that India will see warm temperatures in February as well, and this could affect its wheat crop. Reuters reported that maximum temperatures are likely to be 5 degrees Celsius above average, putting crops at risk. This is bad news for India, the world's second-biggest wheat producer, as it was hoping for a better harvest in 2025, after low crop yields since 2022. India was forced to ban wheat exports in 2022 because of poor yields.

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