Indian Automotive Industry on a High Growth Trajectory

Mahindra Scorpio - Mhawk 2.2 ltr

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PIB Features
With inputs from M/o Heavy Industries & Public Enterprises

New Delhi, Dec 19, 2011 (Washington Bangla Radio / PIB India) We have come a long way since the Automotive Industry in India was delicensed.  Today, this sector is one of the shining examples of what can be achieved in a relatively short span of time with the right kind of support of the Government, combined with the entrepreneurial skills and managerial talent that the Industry has to offer.  Today India is the seventh largest vehicle manufacturer, second largest two wheeler manufacturer and the fifth largest commercial vehicle manufacturer  in the world.  The past ten years have witnessed a six fold increase in the industry turnover and the automotive exports growing by almost twenty times.

The Government and the automotive industry had jointly set a road map, a vision, for the future of the Indian auto industry in the shape of the Automotive Mission Plan (AMP) 2006-16.  During the period of downturn from 2007-09, there were many people who believed that it would be extremely difficult to meet the AMP targets.  However, the spectacular rebound and growth witnessed by the industry during the last two – three years has belied these apprehensions.  During 2010-11, the Indian automotive industry registered a total turnover of USD 73 billion, with exports worth USD 11 billion.  Of this, the turnover by the auto component sector stood at USD 30 billion, with exports valued at USD 5 billion.  The moderation of growth in the recent past is a transient phenomenon.  The coming years shall continue to witness high levels of growth for the Indian automotive industry owing to the fact that most of the primary demand drivers like level of vehicle penetration, growth of the economy, the demographic profile of the  country, increasing wages and salaries coupled with the huge investments being made by the government in the infrastructure sector are all very favourable.  It has been projected that the Indian auto component  industry has the potential reach a turnover level of USD 66.4 billion by 2016 and USD 113 billion by 2020.  This translates to a fourfold increase over a period of ten years.

One area of concern is the ever increasing trade deficit in auto components. The import of auto components during 2010-11 was at USD 10 billion which meant that imported components constituted 1/3rd of the total auto component turnover of the country.  In 2010-11, India was a net importer of auto components worth USD 5 billion and this deficit has been on the increase since the past 4-5 years.  Some of the reasons for the continued sharp increase in imports include capacity constraints of domestic manufacturers, price competitiveness of the imported products, lack of design capabilities with domestic industry etc.  This is not a desirable situation as a significantly large portion of value addition and job creation is captured in auto component manufacturing.

The focus of the government is to ensure inclusive and equitable growth which would necessitate large employment generation for the vast numbers of youth, especially from the rural and semi urban areas, who are joining the work force.  Since the job creation potential from agriculture and services sectors can only go so far, the vast number of new jobs will need to come from the manufacturing sector.  It is therefore not surprising that one of the focus areas for the government is to spur manufacturing in the country so that this sector can contribute at least 25% to the national GDP from the present level of 14%. For this to happen, the automotive industry which today contributes 22% of the manufacturing GDP, will need to play a major role.  Therefore, one of the primary objectives for the government is to ensure that the huge future market potential that exists in this sector is met by the indigenous industry and not by way of imports.  Clearly, this is an area where the government would like to work more closely with the industry to reverse the trend.

The impressive numbers for the possible future size of the Indian auto component industry represents high potential; however, huge challenges will need to be overcome if the Indian auto component industry is to realize this potential.  In order to realize the 2020 vision, the Indian auto component industry will need to build and optimize their capacities, focus on continuous improvement, absorb advance technologies, adopt latest manufacturing processes, build R&D competencies, inculcate and promote organization culture of innovation.  In addition, it will need to continually strive to improve quality, cost and delivery standards to global benchmarks.  Further, as the industry move towards an era of shortened product life cycles and faster roll out of newer models and variants, it will be imperative for the Indian auto component industry to graduate from the present “build to design” capabilities to developing “product design, testing and validation” capabilities.    Also availability of capital at reasonable costs, availability of skilled manpower, stable long term government policies, protection of the interests of the domestic auto industry in the various bilateral  free trade negotiations are some of the most critical areas where government support is essential.

The Automotive Industry in India shall continue to grow at a very fast pace in the foreseeable future.  This confidence is based on strong sector fundamentals which include extremely low current levels of vehicle penetration in the country, projected high rate of GDP growth for the Indian economy, huge investments being made by the Government in infrastructure along with a very large upwardly mobile middle class population with aspirations for better living standards.  These factors will ensure that the demand for personal mobility in India will continue to remain very high.  Recent studies project the size of the Indian passenger vehicle segment annually to be close to 9 million units and the two wheeler production to be close to 30 million units by 2020.

The Indian Automobile Industry has traditionally enjoyed the advantage of cost competitiveness mainly on account of the low cost of skilled labour available in India.  This, however, cannot be the sole paradigm for sustainable competitive advantage for the Indian automobile manufacturers in the long term. This is especially so in the wake of rising competition form other low cost countries, especially in the Asia-Pacific Region.  Sustainable competitive advantage for the Indian Automobile Industry can only come through enhanced investments for scaling up the entire supply chain, adopting newer, cleaner and more efficient manufacturing technologies and processes along with greater commitment to research and developmental activities.  In addition, w are faced with a acute shortage of skilled manpower to meet the ever growing requirements of the industry, both in terms of quality and quantity.   Further, the development of a strong and vibrant corporate culture facilitating innovation is also essential for effectively responding to ever changing competitive paradigms.

The most important challenge before us would emanate from the need to mitigate the adverse impact of transportation on the environment and the need to lessen the dependence on fossil fuels.  Sustainable mobility is therefore the “Mantra” of the resent and the future for this Industry.  In order to work towards achieving the objective of sustainable transportation, we will have to redouble our commitment for automotive research and development, adoption of latest vehicles technologies, especially those that relate to advance and efficient internal combustion engines, hybrid and electric fuel technologies, including electric mobility.

The Government has always been keen to support the Automotive Industry and is committed for building and strengthening its partnership with the private sector.  The Government has a key role to play in creating an enabling and conducive environment, catalyzing research and development activities supporting the adoption of new technologies and initiatives.

Continuous effort from both the Government and the automotive industry will be the key to unlocking the full potential of the sector.

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