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A shot in the arm for India's auto industry

By Nevin John & Swaraj Baggonkar in Mumbai
March 13, 2009 03:14 IST
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The slowdown-hit automobile industry is anticipating a bonanza, with the Indian defence forces planning to place immediate orders to buy vehicles to meet their requirements for two years.

 Sources said a suggestion to this effect came up during a meeting of the committee of secretaries, the government panel set up to discuss inter-ministerial issues headed by the cabinet secretary, late last month.

"If the government approves the plan, the auto sector is expected to get Rs 3,000 crore to Rs 4,000 crore worth of orders that will be spread over the next two quarters," the sources added.

This defence procurement plan is part of a larger strategy by the government to push demand. It had already moved in this direction in the interim Budget on February 16, by announcing plans to buy around 15,000 buses for 63 cities under the second phase of the Jawaharlal Nehru National Urban Renewal Mission scheme to boost the commercial vehicle market.

The states, which will actually buy the buses, have already issued tenders for bus purchases.

The slowdown has crippled sales of the automobile sector (see table). The Rs 1,00,000 crore automobile industry accounts for around 2 per cent of gross domestic product and directly employs 450,000 people. The automobile ancillary industry that services it is worth Rs 16,300 crore and employs 250,000 people.

The plan for big-bang defence purchases is likely to benefit not just automobile producers but also downstream ancillary units and steel manufacturers.

Mahindra and Mahindra (M&M), Ashok Leyland, Maruti Suzuki, Tata Motors and state-owned BEML (formerly Bharat Earth Movers Ltd) are the major vehicle suppliers for the three defence forces. The major domestic steel suppliers for the auto-makers are Tata Steel, JSW Steel, Ispat and Essar Steel.

A senior BEML executive said the company had developed and tested new vehicles for the defence forces.

"There has been an increase of about Rs 20,000 crore in defence outlay this year to Rs 1,41,703 crore and 2 to 3 per cent of it will be spent by the government on procurement of armoured and other defence-related vehicles," the executive added.

Last year, BEML bagged orders worth Rs 670 crore from the defence forces for defence vehicles. This year, the company is confident of bagging orders worth Rs 1,000 crore. 

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Nevin John & Swaraj Baggonkar in Mumbai
Source: source

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