to the practice wherein different components of the vehicles are manufactured
within the country where the vehicle is meant to be sold. 100 per cent localisation
within the automotive sector would be an aspirational dream in tandem with the ‘Make
in India’ vision of PM Modi.
The Indian automotive
industry has gained its momentum since early January 2021 and the Indian auto
components industry is expected to reach US $ 200 billion in revenue by 2026.
The spine of the industry is the suppliers of auto components and accessories
which is also an exclusive part of the auto industry. But India’s auto
component manufacturing sector is yet to achieve its true potential. And this
is not because of challenges in the technology but the cost of production remains
the main area of concern.
While the whole
nation is focusing on becoming ‘Atmanirbhar’, it is an opportunity for many
sectors and contretemps for a few. The government has urged the Indian auto
components manufacturers to increase localization to 100 percent and provide a
push to local manufacturers to bolster the domestic supply chain and strengthen
the automotive industry from its core.
Many Indian auto
component industries aim to cut dependency on imports but it is easier said
than done. It can be strenuous for the sector as 30 per cent of the industry is
still dependent on imports from other parts of the world, mainly China. While
the dependency of the auto manufacturing sector on import is approximately 70
per cent but some companies are supporting 75-95 per cent localisation. The
auto sector is one of the key drivers of the Indian economy and a top
contributor amongst the manufacturing sector. Localisation will be the way
forward if we want to safeguard ourselves from fluctuating exchange rates which
directly impact the final model /product cost.
from across the nation have sought government support for localisation of
electronic components, especially semiconductors, which is currently facing a
global shortage; stating it would need high investment. The factors making the
differences are unavailability of resources, skilled labour availability, and
technology, high cost of production, and government policies of indirect taxes
such as custom and excise duties. To encourage localisation cent per cent, the
government and auto components companies should work together on a road map for
self-reliance for more localisation of auto components.
Given the current
scenario, most of the auto manufacturing companies have shown their interest in
adapting the government’s 100 per cent localisation movement but seeks
government support in terms of infrastructure deficit, talent crunch, industry
scale-up policies, access to world-class technology and practices, remaining
cost-competitive and availability of cost-effective capital. The industry is
facing challenges from rapid change in technology in this segment which calls
for more funds for investments in research and development. As regards to the
trade policy, the challenges mainly faced by Indian manufacturers are slowing
down of investment in the OEM auto sector, duty on imported auto parts, and the
sharp rise in imports mainly from ASEAN countries.
manufacturing industry plays one of the pivotal roles in contributing 7.1 per
cent to India’s Gross Domestic Product (GDP). The entrepreneurial community
from the Auto component fraternity has wished for crucial interventions from
the government on taxes, scrappage policy, import-substitution, capacity
installation, and R&D.
(About the author: The article is written by Manav Kapur,
Executive Director at SteelBird International.)