As the lockdown is being eased across the country, in tune with Prime Minister Narendra Modi’s direction of ‘Jaan Bhi, Jahaan Bhi’, the auto components industry is slowly humming back to operations, adhering to new rules of maintaining social distancing and ensuring people’s safety. With plummeting vehicle sales in the backdrop, and the industry being compelled to make fresh investments to meet the new safety and emission norms, the last year has been a rather difficult one for the automotive industry in India. The situation has been further compounded by the outbreak of the Covid-19 pandemic and the ensuing lockdown.
It is estimated that the components sector faced a production loss of ₹1,000-1,200 crore during the lockdown. The vehicle industry recorded zero sales during the same period, and that had a resonating effect across the entire value chain. The tier-2 and tier-3 companies, which form the bulk of the auto components sector, have been severely impacted, with some even struggling to stay solvent.
While the latter half of May went by in preparation to resume operations and with muted sales in the vehicle industry, the capacity utilisation in the component industry was a meagre 8-10 per cent. However, as the industry is gathering steam, by July, the capacity utilisation could reach 50 per cent and thereafter 80 per cent, of that in same period last year, as we near the festival season. There cannot be anything better that getting back on track for an industry that is a key driver of our national economy.
The opportunity
Prime Minister Modi has stressed on being ‘atmanirbhar’ and usage of products developed indigenously. This would eventually prove as a differentiator for Indian industry to be globally competitive as also for its sustainable growth. This holds true for the auto component industry as well.
As we increase our cadence towards ‘Make in India’ products, ‘deep localisation’ will become increasingly important for the auto component sector. The sector has played a significant role in creating economic value, investments and employment, however in the post-Covid world, as industry dynamics is rapidly changing, our value propositions, too, will have to undergo change.
Covid has taught us a lesson of not being overly dependent on any one geography for our imports, especially critical components. While with indigenisation and deep localisation a part of this challenge can be mitigated, as global automotive companies are thinking of ‘China plus one strategy’ to de-risk their supply chains, can supplying to the Indian OEMs and exporting out of India be attractive enough a proposition for such companies?
Can this be an opportunity for Indian auto component players to strike strategic alliances with such players, especially for access to technology, while offering them the advantage of their deep understanding of the domestic market. Seemingly yes, but this would need a significant amount of concerted effort by the industry and the government.
Way forward
Talking to our counterparts in other parts of the world reveals that profitability and assurance on speedy clearances are two of the top concerns on their minds while considering investing in India. We need to be mindful of the fact that even smaller countries such as Vietnam today offer a relatively attractive proposition compared to India.
While our OEM friends will have to support us in ensuring committed business opportunities, the auto component makers will have to effectively engage in an outreach programme to build trust and confidence in the potential investors, especially the smaller ones.
Exporting out of India will have to be made more competitive, especially as high logistics cost and incentives offered by key competing nations such as China make our products relatively expensive in the international market. The industry, at the same time, will have to commit to delivering consistent international quality products.
An out-of-box approach will need to be adopted to leverage our domestic market and, in turn, ask for export commitments in certain product categories. While the opportunities exist, the window is short as all our competing nations are fighting for a slice of the global $1.3 trillion automotive trade. The moot point is: Will ‘Atmanirbhar’ remain a slogan, or will the industry and the government work together to make it a reality? The ball is squarely in our court.
The writer is President, Automotive Components Manufacturers Association of India