Automotive Mission Plan 2006-2016- Some Salient Points

The Ministry of Heavy Industry of India has come out with its ‘Automotive Mission Plan’ 2006-2016. India intends to emerge as the destination of choice in the world for design and manufacture of automobiles and auto components with output reaching a level of US$ 145 billion accounting for more than 10% of the GDP and providing additional employment to 25 million people by 2016. While going through the document, I felt like sharing the salient features of the industry in which I have kept my interest alive till date.

India is emerging as one of the world’s fastest growing passenger car markets and second largest two-wheeler manufacturer. It is home for the largest motorcycle manufacturer and fifth largest commercial vehicle manufacturer. The industry is producing about 13 lakhs passenger vehicles, 4 lakhs commercial vehicles, 76 lakhs two wheelers and about 3 lakhs tractors. The automobile industry has achieved a turn over of US $ 28 billion and the auto component industry has reached a turn over of US $ 10 billion. The Indian tyre industry has registered a turn over of almost US $ 3 billion.

The Indian Automotive Industry after de-licensing in July 1991 has grown at a spectacular rate on an average of 17% for last few years. The industry has now attained a turnover of Rs. 1,65,000 crores (34 billion USD, assuming 1$ = Rs. 46) and an investment of Rs. 50,000 crores. Over of Rs. 35,000 crores of investment is in pipeline. The industry is employing 13.1 million people, directly and indirectly. It contributes 17% of the indirect taxes. The export in automotive sector has grown on an average CAGR of 30% per year for the last five years. The export earnings from this sector are 4.08 billion USD out of which the share of auto component sector is 1.8 billion USD during the year 2005-06.

The production of passenger and commercial vehicles crossed the figure of 1.5 million in the year 2005-06, but India’s share is only about 2.37% of world production of 66.46 million passenger and commercial vehicles. Indian automotive export constitutes only about 0.3% of global trade.

The Auto Industry has grown in clusters of interconnected companies, linked by commonalities and complementarities in and around Manesar in North, Pune in West, Chennai in South, Jamshedpur-Kolkata in East and Indore in Central India.

China’s production has trebled from 15.82 lakh units in 1997 to 46 lakh in 2005. India’s production has doubled going up from 7.72 lakh units in 1997 to 15.76 lakh in 2005. The 12 global majors with over 2 million units per year production capacity account for 53.02 million of vehicle produced in 2005, which is 80% of the total production of 66.46 million.

The total size of the Indian component industry is close to USD 14 billion out of which USD 9.6 billion is the domestic OEM market, USD 2.6 billion is the domestic aftermarket and
USD 1.8 billion is the direct exports of components. More than 60% of the exports of autocomponents are to Europe and USA. More than 70% of the exports go to the OEMs and Tier I suppliers and only 30% to the global aftermarket
.
Today, the Indian auto component sector has over 500 organised players and about 5000 unorganised sector players. The organised sector reached a turnover of over USD 10 billion in 2005-06. Demand from OEMs account for 54% of sales, replacement market accounts for 30%, while exports account for over 16% at about USD 1.8 billion.

It is expected that the world production of Auto-Components would reach USD 1.7 Trillion by 2015. About USD 700 billion worth of auto-components shall be sourced out from low cost countries (LCCs) by 2016. If India targets to get a 10% share of this potential, it would mean USD 70 billion, nearly five times current total size of the industry in India.

Compared to domestic sales, vehicle exports have grown at the rate of 39% CAGR over the last five years, led by exports of passenger cars at 57% and two wheeler exports at 35%. Last year however, overall exports registered a growth of around 28%. In value terms exports crossed USD 2 billion.

The projected size in 2016 of the Indian automotive industry varies between USD 122 billion and USD 159 billion including USD 35 billion exports. The industry then would have a contribution of 10-11% to India’s GDP by 2016, that is, double the current contribution. This would mean a domestic vehicle market of USD 82 billion to USD 119 billion by 2016, USD 12 billion exports of vehicles and tractors, USD 20-25 billion component exports and more than USD 5 billion after market of components. Another USD 2 – 2.5 billion in engineering services outsourcing opportunity is expected to develop. The total size of the auto component industry in India is expected to become USD 40-45 billion by 2016.

India is going to be an attractive “Manufacturing Destination”. The output estimated would require incremental investment of USD 35-40 billion (Rs 160,000 -180,000 crores) by 2016.

It is estimated that, on a conservative basis, 5.3, 13.3, 0.5 and 3.9 units of direct and indirect employment are generated per unit of car, CV, 2-wheeler and 3-wheeler produced respectively. Based on this assumption, India would have an additional employment generation of 25 million by the automobile industry by 2016.

In a Global Competitiveness Survey of 104 countries India ranked only 55th. In terms of macroeconomic environment, public institutions and technology, India ranked 52, 53 and 63 respectively. On location attractiveness for manufacturing, India ranked 43 while other regional countries like China, Singapore and Hong Kong ranked 39, 11 and 6 respectively.

A cost comparison study between Indian and Chinese automotive manufacturing companies to identify factors and their magnitude that impact auto manufacturing in India vis-à-vis auto manufacturing in China reveals that the cost of manufacture of a passenger vehicle in China is 23% lower than in India with the principal difference owing to higher taxes and their cascading impact in India. Higher labour productivity and lower infrastructural costs makes China more competitive. The study also revealed that since design and engineering capabilities in India have not been as strong there would be a disadvantage of 30% higher costs for products manufactured in India.

Indian automotive industry must work hard to create the differential strengths with its competition. It has an opportunity with presence of a very strong and innovative IT sector. A synergy between the two can certainly bring out the differentiating features that can be India’s unique strength. Will that happen? Another potential areas of strength might be the product and process engineering design, research, and training skill that India can cash on. Can our IITs and other numerous institutes of excellence will come out of its cocoon of older mindsets and face the challenge to take the country ahead.
————————————————–
Growth @ 9.2%, best in 18 years
Sensex hits record high
The key to great quality management
“Quality is a Life Time Mission”</a

This entry was posted in economy, industry, management, manufacturing. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s