New Delhi, Jan.11 As auto companies worldwide search for ways to cut costs to remain competitive, the domestic auto component industry is expecting huge business. It is now targeting a six-fold growth in exports by 2016, versus just a doubling of domestic sales.
“At the Auto Expo this year, many global automakers sent small teams just for sourcing purposes. With tighter budgets this time around, India is fast emerging as an ideal cost-competitive hub for auto components sourcing. This is why we expect a much larger growth in exports, compared with growth in domestic sales,” Mr Jayant Davar, President, Automotive Component Manufacturers Association of India (ACMA) told Business Line.
In 2009, the Indian auto component industry is expected to post a turnover of $20 billion, with exports of around $4 billion. According to Mr Davar, by 2016, the total turnover is expected to more than double to$45 billion, while exports should grow six times to $25 billion.
The reason why automakers are looking towards India for sourcing is because the Indian industry is far more cost-competitive and is also believed to be better in quality terms than competing countries such as China, according to industry experts. This is further buoyed by the fact that local demand is also growing, which makes more economical sense for manufacturers to set up large factories here to cater to both local and export demand.
Among major automakers, Hyundai uses India as an export base for the European markets while Maruti Suzuki has also been manufacturing the A-star for Nissan, branded as the Pixo in Europe.
Technology challenge
Mr Davar, however, said that the major problem with domestic auto component makers is that they cannot supply high-end equipment to the OEMs, although they can supply mechanical and plastic parts.
“Indian companies are not in a position to supply high-end technology. This is because they cater mostly to the local market, which is big on cheaper, simpler and smaller cars. There is a lack of R&D infrastructure, because companies are not used to it and because they don't have the basic data,” he said.
He added that specific institutes are needed for skill development of the workforce towards employment in the auto industry and also other manufacturing companies.
Competition from China
Mr Davar further said that the competition from China, which hugely subsidises its export industries, may prove to be a major challenge for the domestic industry.
“We have been telling the Government not to sign trade treaties with China. It hardly makes sense for us to import from there, as finished goods in China end up being cheaper than the actual raw material. The Chinese subsidies for their industry may prove to be a big threat for us,” he said.
He added that about 10 years ago, the trade of components between both countries was similar at around Rs 30 crore, but in 2009, Chinese exports are around Rs 2,000 crore, while the Indian exports are just around Rs 130 crore.
Mr Davar, however, added that the industry has no problem with bilateral free trade agreements (FTAs), as it believes in good competition as long as there is an even playing ground.
Source : Business Line