Source: The Economic Times, Jul 27, 2016
New Delhi: Global auto component market is pegged to be around $1.75 trillion. However, Indian auto component industry revenue stands at just $40 billion, which is just 2.3 per cent of the total Indian GDP and contributes $11 billion of exports.
“It is expected the market size and exports will grow by fives times according to Automotive Mission Plan (AMP) 2026. This would require an investment of $25-30 billion. So we are not playing for today’s market, we are playing for 2026” said Arvind Balaji, President, ACMA.
Top auto component manufacturers have invested $50 billion in the R&D and 50 per cent of innovation in the automotive industry is done jointly with auto component players.According to industry leaders, the growth opportunities are tremendous and that is the reason everybody is looking at this market. However, any opportunity comes with challenges. The first and foremost challenge is to deliver a better quality and technology products to OEMs.
Also, industry sees a lag in scaling-up, new technology implementation and shifty government policies which are impacting the business. The reason that industry isn’t able to scale is that RBI guidelines don’t allow companies to borrow money to buy companies.
Due to this, consolidation is not taking place. However, the global players can borrow money at 3 or 4 per cent to that enables them to consolidate and expand.
Further explaining the challenges, Balaji added, “At one hand, the government is talking about ‘Make in India’ but on the other hand, inverted duty structure is making cost of raw materials higher in India than anywhere else. So, the government say ‘Make in India’ but does not have policies in place for smooth functioning. The government is ready to listen, so we are giving them recommendations. As we must have policies to promote manufacturing.”
At the same time, we are also recommending the government to encourage partners to invest in R&D. As government has removed some benefits in investing in R&D. Lastly, with new technology coming in, there is a huge danger if we don’t invest in increasing our capabilities. In next 10 years, we will end up borrowing technology through some FTA scheme. We are hopeful the government will respond.