By N. Balasubramanian and Dhiyanesh Ravichandran
Worth over $50 billion, the Indian auto component industry is one of the largest contributors to the country’s economy. The sector is a very good trendsetter for Make-in-India and is one that showcases India’s frugal engineering and manufacturing capabilities in the global arena. Though the current mood in the automotive market is not too upbeat, sales are expected to pick up in the second half of the current year, especially with BS-VI setting in from April next year.
We spoke to Mr. Ram Venkataramani, ACMA President, to get details on the auto component industry’s readiness for BS-VI, skill development, growing global stature of Indian suppliers and lots more.
Excerpts:
What is the current scenario in the auto industry and how do you see the remainder of FY20 panning out?
The vehicle sales numbers have been quite subdued since Q3 of last year. Generally, when there is a bit of uncertainty, consumers tend to hold their purchases; right now, elections and cash crunch have slowed down the industry. That said, the overall macro-economic trends continue to be positive and we look forward to a good FY20 for the industry.
How geared up, do you think, is our auto industry to handle the BS-VI transition?
BS-VI kicking-in from April 2020 will add to the pre-buy and the numbers that will come towards the second half of FY20.
Component makers and OEMs are putting in a lot of effort to meet the April deadline for BS-VI. Apart from the investments involved, a lot of focus and attention has gone into validation and testing of products to meet the new emission norms.
The changes in truck axle load norms last year came in as a sudden move from the Government. How did it impact the supply chain and what according to you would be the best way to bring in such regulatory changes?
The truck axle load norms changes in the mid of 2018 has put extra capacity on road, to the tune of 15 per cent; that could be one of the reasons why we have seen a downturn in truck sales. It would be very useful if we had a clear policy roadmap and if there is more stability in the policy and regulatory affairs; it will give us the time to prepare ourselves for changes that are likely to come in. The component industry is definitely capable of adapting to changes but having the time and clarity in the form of a roadmap for regulations including e-mobility will help us prepare and gear ourselves better for the future.
On the aftermarket side, with the OEMs getting more aggressive on pushing their genuine spares, how can the independent parts suppliers sustain their business and continue to grow?
We have two aspects in this context. One is the technology involved in the newer vehicles which calls for the OEMs to play a greater role, almost like an obligation for them to provide proper high-quality service. At such a level of sophistication, the independent dealers and mechanics might not be able to provide the required level of service.
The second factor is – we are in a cyclical industry, so the OEMs are hoping to offset the fluctuations in the market by participating more in the aftermarket.
As far as independent aftermarket suppliers are concerned, they have to be innovative in order to differentiate themselves from what the OEMs offer, outperform the spurious market and continue to grow. The aftermarket accounts for nearly 20 per cent of the total component industry turnover, which translates to about $9.2 billion; also, since the aftermarket tends to be more profitable than the OE business, it is obviously an interesting market for independent parts makers to explore and be part of.
What steps has ACMA taken to bring in more MSMEs into the main stream?
MSMEs are the lifeline of the supply chain; close to 70 per cent of the ACMA membership comes from MSMEs. There have been various policy initiatives recommended by ACMA that the Government has obliged. There’s an ‘Interest Subvention Scheme for MSMEs’ which has recently been introduced; it was recommended by ACMA for the benefit of MSMEs and the Government was kind enough to oblige. Similarly, corporate tax for MSMEs is at a lower rate than it is for larger industries.
What impact has GST had on the MSME sector?
Around 75 per cent of auto components fall under the 18 per cent GST rate, the rest come under 28 per cent GST. We have been requesting the Government to rationalize this and make it 18 per cent for all categories of components. The MSMEs who supply to the aftermarket at 28 per cent GST will become uncompetitive while it also encourages the use of imported and spurious parts.
Could you share some ACMA initiatives that focus on process upgradation, training and skill development?
At ACMA, one of the main focus areas has been to reduce the usage of spurious parts in the market. Alongside that, we have done a lot of skill development and educational programs to ensure the right parts are used.
Through ACMA Centre for Technology (ACT), we have programs to train our members and have helped upgrade over 1,000 manufacturing plants to a much higher level of skill. We have an initiative with United Nations Industrial Development Organization (UNIDO) India through which we have a cluster fund; over 250 MSMEs have been trained in the first phase and the program has been extended for another three years. Such initiatives are helping the MSMEs to improve their skill levels at very subsidized rates.
How is ACMA helping Indian suppliers tap more export opportunities?
Once we make the switch to BS-VI, the level of technology of our suppliers will be almost on par with others globally. Auto components which were worth $13.5 billion were exported in FY17-18 which represented a growth of almost 24 per cent over the previous year. What is important to note is the nature of these exports. A decade ago, a major chunk of our exports was for aftermarket needs with neutral branding. Now, more than 65 per cent of our exports are to OEMs, out of which about 34 per cent is to Europe and 25 per cent to North America which are sophisticated, mature markets; that gives an indication of the capability of our suppliers to be able to cater to global markets.
ACMA has come up with several initiatives to boost exports. We help Indian suppliers participate at international shows at subsidized rates. At domestic shows, the number of international participants is growing which indicates their increasing interest in working with Indian suppliers. ACMA organizes focused buyer-seller meets with International Purchasing Officers (IPOs) which further enhance the export opportunities for our component makers.