India's goal of becoming the global small car hub could be hampered by labour issues, acute shortage of skilled workers and slow pace of expansion by auto component makers, according to market research firm JD Power.
In its report 'India Automotive 2020: The Next Giant from Asia', JD Power said the country's ambition to become a global small car production base confronts some serious manpower related obstacles such as lack of skilled labour force, high labour cost and workers' low efficiency and productivity.
"The risk of union-related labour problems is omnipresent in India, since many labour unions are affiliated with political parties. As a result, local politics frequently interferes with business operations," the report said.
According to the report, "unions use their influence to promote manual labour rather than automation in Indian plants" for creating more employment, resulting in longer production cycles, greater variability in quality and more cost outgo.
In labour market efficiency, India ranks 92nd among 139 nations in the World Economic Forum's Global Competitiveness Index 2010-11, it added.
Besides, the report pointed out that increasing labour cost "has put pressure on production costs and in some cases has led to labour problems".
The report highlighted labour unrests faced by various automakers in India such as Hyundai and General Motors.
As recently as last week, Maruti Suzuki India also witnessed a 13-day long strike at its Manesar plant. On the availability of qualified manpower, the report estimated that the Indian auto sector lacks as many as three lakh skilled workers.
"India has a huge employable population, but many are not fit enough
Commenting on the auto component sector, it said smaller suppliers need to be professionally managed and should have technologies to produce global-quality products.
"Most domestic automatic suppliers are relatively small companies started by individuals who risk their personal capital. These suppliers are frequently averse to risk-taking as one small mis-step might mean bankruptcy. Consequently, the components industry has been slow to invest in new capacity to meet growing demand," JD Power said.
As vehicles manufacturers grow in size and standards, suppliers should also expand accordingly. Otherwise, there is a chance of "jeopardising the growth potential", it added.
"I don't think domestic companies are scaling up. We are still thinking small. That's where the crunch is: people are afraid to put up big capacities," Tata Motors Vice-Chairman Ravi Kant said in the report.
Besides, the country lacks adequate infrastructure, including ports, roads and power generation capabilities, JD Power said, adding timely completion of various infrastructure projects are very critical for sustained development.
"We do not have sufficient power. The power that is supplied to us is 40 per cent of our requirement, and this is not reliable. Regardless of our power need and supply from the government, we have to generate our own power," Honda Siel Cars India Vice-President (Manufacturing) Praveen Paranjape said in the report.
It, however, said the Indian government recognises this problem and aims to invest USD 1 trillion during 12th Five Year Plan on infrastructure, up from USD 514 billion in the 11th Five Year Plan.
