D K Sharma writes about the Indian automotive sector with a specific focus on the current scenario, upcoming challenges, emerging trends, modern manufacturing techniques and long-term growth scenario.
The Indian automotive sector first opened up to foreign direct investment nearly two and a half decades ago and within this short span of time, has grown into one of the largest, worldwide. The automotive sector today accounts for more than 7.1 per cent of India’s gross domestic product (GDP) and contributes to nearly 22 per cent of the nation’s manufacturing GDP.
Owing to a growing middle class and young population coupled with their propensity to spend, the two-wheeler segment holds the lion’s share with 80 per cent market within the overall Indian automotive sector. In addition, the passenger vehicle (PV) segment has 14 per cent market share with India also being a prominent auto exporter.
The Indian automotive sector faces certain challenges such as the implementation of BS-VI norms. This is a significant step for automobile manufacturers as it increases pressure on OEMs to progress gradually for producing compliant vehicles. This demands higher investments in R&D and improvement of facilities. Additionally, petroleum companies will have to foot the approximately Rs 500 billion to Rs 800 billion bill towards shift of technology from BS-IV to BS-VI.
The government has already announced its plans to switch to electric vehicles by 2030. Without an iota of doubt, this is a welcome step towards a more sustainable future but also brings along its own challenges. The shift towards electrification will require huge investments – both in terms of effort and economic resources towards technologies and infrastructural amenities. There will also be a need for creating an entirely new network of vendors for putting in place the right supply chain.
The last few years have been challenging for the automotive sector. This was pronounced post demonetisation wherein the economic growth levels dipped thus reducing demand for such products. During this period, in order to hold on to their market-share and sell inventories, many OEMs reduced prices which in turn affected margins. It also had a cascading effect on vendors since OEMs pressurised them to reduce prices of components.
Another recent challenge facing the Indian automotive sector is the emergence of increasing protectionist measures being taken worldwide. These uncompetitive measures impose unnecessary barriers that thwart the free flow of trade between nations. In addition, these protectionist measures can also hinder India’s increasing automotive exports.
The automotive sector is transforming at an unbelievable pace and these changes will be mainly spurred by evolving technologies. In addition to the government’s planned electrification of the sector, the industry will witness a major move in technology driven areas such as shared mobility, connectivity and autonomous driving.
In terms of shared mobility, the emergence of app-based taxi and bus services are a welcome move since it will get more private vehicles off the city’s roads. Many private vehicle owners also share rides with the help of various communications apps thereby bringing down the number of vehicle through collective pooling.
It would also be pertinent to point out that most of the new-age vehicles are connected. It means that such vehicles use technology enabled tools not only to point out their location and guide them during their journey but also effectively communicate in times of emergencies. In fact, such high levels of connectivity and artificial intelligence also allows these vehicles to properly diagnose a faulty component and suggest remedial measures.
Another future emergence - autonomous driving would be dependent on the development of artificial intelligence technologies. Future vehicles would be smarter and aided by artificial intelligence enabling them to drive and navigate in a similar manner to humans or may be even better.
Modern manufacturing techniques
The automotive industry is increasingly embracing various modern manufacturing techniques such as Industry 4.0, advanced robotics, artificial intelligence, AR/VR, etc. These modern manufacturing techniques rely heavily on cutting-edge technologies and enhance production margins through various innovative initiatives.
Modern manufacturing techniques reduce unnecessary wastage, such as wastage of materials, capacity and manpower. With reduced costs, the quality of products produced using modern manufacturing techniques remain on par if not better than those produced using traditional techniques. From supply chain to actual manufacturing, technology has aided in increasing the production speed thereby increasing overall efficiency.
When compared globally, the Indian automotive industry enjoys many natural advantages such as lower operational and infrastructural costs, manpower resources that are cheaper and easily available. If these advantages could be further nurtured through technological innovation and adoption of modern manufacturing techniques, the results would be impressive.
The government has also taken steps to provide policy impetus aimed at spurring growth and encouraging automotive exports. But the ultimate responsibility has to be borne by the industry and they need to identify and recognise the areas of concern while taking immediate remedial action. When compared with the United States which has 797 cars for every 1,000 people, India has barely 32. The potential for exponential growth in the Indian automotive market therefore remains huge since the existing vehicle ownership base is extremely small.
The rising income levels nationwide will definitely spur demand for automotive products and components. In the near future, automotive products will move from being perceived as merely a luxury product to a mass market offering providing a further impetus to industry growth.
D K Sharma is the Executive Vice President and Business Head of Godrej Tooling, a leading tool room in the country. He is also the President of Tool and Gauge Manufacturers Association of India (TAGMA India).