Bajaj Auto remains cautious in aftermath of COVID-19 second wave

Bajaj Auto’s executive director on how he expects the next few months to pan out.

Published On Jul 11, 2021 07:00:00 AM

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Bajaj Auto remains cautious in aftermath of COVID-19 second wave

The executive director of Bajaj Auto, Rakesh Sharma, says that despite the waning second wave, there is still a “big question mark hanging over demand”.

There is no guarantee of a repeat of the strong rebound seen after the first wave
Disposable incomes have reduced and people are more cautious about discretionary spending
The vaccination programme provides hope of restoring demand

With daily COVID-19 infections dropping in number and the buoyancy back in two-wheeler sales in India, there is every reason to believe that the worst is over. Yet, from Rakesh Sharma’s point of view, the issue that needs greater introspection is the “big question mark hanging over demand”. According to the executive director of Bajaj Auto, the catastrophic fallout of the second wave needs to be examined in greater detail.

He says that the current situation is unlike last year, when companies were “positively surprised by the alacrity with which demand had returned and the rebound was swift and firm”. Last year’s astonishing bounce back “took us off guard in end-June and July”, with the supply chain responding in equal measure to the huge demand.

“Whether it was pent up or a tilt towards personal mobility or the rural economy returning stronger . . . a combination of these factors, along with people keen to get on with their lives fuelled demand,” adds Sharma. This time around, however, he says it is important to “carefully observe the consequence of the second wave being far more significant in its impact”. As a result, there is “definitely a dichotomy” developing in the economy.

Premium sector unscathed, commuters badly impacted

Sharma readily concedes that he is not an economist, but he puts forth his models of a premium economy “where all of us live”, and a large mass economy where “a company like ours sells most of its products”. These typically include the entry-level commuter motorcycle, which is the best bet for the self-employed and the lower income group /lower middle class.

Members of the premium economy have weathered this pandemic better and emerged financially secure and relatively unscathed. Members of the mass economy, on the other hand, have been financially hit more severely, with contracting incomes, job losses and their “savings battered by the medical burden” inflicted by the second wave.

With talks of a third wave now doing the rounds, this group is seeking more protection for the elderly and young. “Disposable incomes have reduced, and people are more cautious, which means that they will think twice about discretionary spending,” says Sharma. It remains to be seen if this “contraction and caution” in the mass economy will “gobble up” the premium economy.

Wait-and-watch strategy

“The story will unfold in a few months, and we need to wait and see,” says the Bajaj Auto ED. Despite all his points so far, he also looks at the brighter side of things. “What we need to constantly remember is the tenacity and resilience of the human spirit. We cannot discount that, and the impact of this spirit was seen in last year’s comeback,” he says.

Fortunately, India’s is a young economy with demographics on its side. The moment there is a feeling of safety and security, people will want to get on with their lives. “We cannot discount that impact and fortunately the vaccination programme is also underway,” continues Sharma.

The advancement of this drive is “absolutely vital to create both, a physical and psychological impact” on people and this will play a big role in resurrecting demand. Yet, he does concede that everything will not be back to normal as soon as the second wave begins to weaken, especially when a third is likely to follow suit soon.

“It would be naive to assume that there will be a big bounce-back overnight, but all is not lost either, thanks to vaccines. While one needs to factor in negatives for sure, there are some emerging positives also,” says Sharma. With all the uncertainty on the horizon, it is extremely difficult to do “any crystal ball gazing” but important to “keep our eyes and ears close to the ground”.

The good news is that people better understand COVID-19– not only the disease but the scenarios it creates. Greater awareness has also resulted in more dialogue which in turn has kept the “wheels of the supply chain” moving. To sum up, when compared to 2020, the script is completely different, and the supply chain comesthrough with “flying colours”.

As Sharma says, the preparedness of the supply chain is “much better and should be able to cope with increasing demand” when it hopefully returns by the end of the third quarter.