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India's auto industry revved up for success
Ashok Kumar | November 14, 2005
In the pre-liberalisation India, especially in the 'bad old times' as the 1970's have now come to be called, Indian auto consumers suffered the ignominy of being in a sellers market.
Sub-standard and outdated models were the order of the day and there was actually a huge waiting period of as much as a year at times after one booked a vehicle. Post-liberalisation, all that has changed, and how!
The recent past has witnessed a continuous influx of global auto majors into India. Many auto majors have established facilities, which have also been aided by the liberal Government policy. India crossed the million mark for autos last fiscal, which, in turn has set the domestic auto-ancillary industry on a roll.
Auto MNCs are also launching their latest models in India. The domestic auto industry has also come up with new and quality models. Consequently, the importance for precision auto components has been growing.
The increase in demand for auto components in India has also resulted in an increase in revenues and exports. Exports of auto components from India have witnessed a compounded annual growth rate of 19 per cent plus over the last six years.
Except for fiscal 2002, when the exports were down by 7.5 per cent, the Indian auto ancillary sector's export graph displays a steady northward incline. During the fiscal 2004, the industry achieved a milestone of $1 billion worth of exports.
India now ranks amongst the most preferred destinations for most of the major global OEM players. To buttress this point, detailed herein is an extract from the list of companies already outsourcing from India:
Hyundai: Exports base for small cars
Ford: Exporting CKDs of Ikon to South Africa and other countries
Skoda: Hub for export of cars to neighbouring countries
General Motors: Global purchasing team
Volvo: Global buying team
Delphi: International purchase office
Renault: Scouting for truck part suppliers
As a testimony of its growing quality standards many Indian companies have achieved various certifications:
The auto component sector is on a growth trajectory as is evident by the fact that auto components have been designated as a "Thrust Sector" by the Government of India under the EXIM Policy. The Indian Department of Commerce is now set to aggressively promote export of auto components through a specific sectoral strategy.
The size of the global auto component industry is $1.2 trillion with most of it located in high cost countries. Global purchases of components by international vehicle manufacturers are currently estimated to be $45 billion. However, the role of outsourcing is constantly increasing.
Furthermore, the problem of high rejection rates which plagued the domestic auto ancillary industry has been overcome. This is reflected in the number of overseas deals concluded by the domestic industry amidst stiff competition from other Asian countries. The government has extended various fiscal incentives and policy measures which too has helped the industry.
The road ahead
Critically, outsourcing of automobile components that have relatively high engineering and design content from suppliers in low cost countries like India, is rapidly gaining momentum. It is estimated that in the next 10 years the auto components industry will reach $33-40 billion.
Going by the current trends in the domestic automotive industry and as stated above, it is expected that the indigenous demand for auto components will also reach $13-15 billion in the next 10 years and about USD 20-25 billion would be exported. To meet the combined demand from domestic and international customers the industry will have to make significant incremental investment.
Hence, the Indian auto component industry is poised to achieve a prominent position in the global market and will in all probability be a major driver of growth and employment in the domestic economy.
Considering the recent figures, whereby domestic demand is increasing by about 15 per cent over the previous year and exports by over 25 per cent, the above estimates, while undoubtedly challenging, appear achievable.
To, conclude, the auto-components sector in India appears well revved up to speed on from here on the success-track.
Ashok Kumar heads Lotus Knowlwealth, Mumbai.