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Updated: December 31, 2009 16:59 IST

Automotive industry headed in the right direction

D. Murali
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Rakesh Batra, Partner & National Director, Auto practice, Ernst & Young P Ltd
Rakesh Batra, Partner & National Director, Auto practice, Ernst & Young P Ltd

Indian automotive industry has established its importance at the global level, and now it needs to take the next leap forward, says Rakesh Batra, Partner & National Director, Auto practice, Ernst & Young P Ltd, during a year-end email interaction with Business Line.

Excerpts from the brief interview.

At the start of the century, or even mid-decade, what were the policy expectations to be fulfilled by the end of the first decade?

Post liberalisation, automotive sector has emerged as one of the sunrise sectors of the country. The Government of India wants to increase the competitiveness of the sector to enable it compete in the international arena.

To achieve this in a structured format, in 2006 it released the Automotive Mission Plan (AMP) 2016 with a vision to make Indian auto industry a destination of choice in the world for design and manufacture of automobiles and auto components with an output reaching to $145 billion accounting for more than 10 per cent of the GDP (gross domestic product) and providing additional employment to 25 million people by 2016.

There has been adequate support from the Government to achieve the desired targets. Excise duty on cars, for example, has been reduced significantly. From 32 per cent at the beginning of century, it now stands at 20 per cent and even lesser for smaller cars, at 8 per cent.

Hundred per cent FDI (foreign direct investment) is allowed, encouraging international players to enter the Indian markets. On the other hand, the Government has been cautious with the import duty, pegging it at more than 100 per cent, thereby protecting the domestic industry from dumping of imported goods.

At the close of 2009, where are we?

The automotive industry achieved a total turnover of $45 billion for FY09; and increasing this to $145 billion by 2016 looks a challenging task. At this level, the turnover of the industry is approximately 5 per cent of the country’s GDP and scaling this to 10 per cent will mean a lot more hard work and supernatural growth. Therefore, with reference to the targets set in the AMP, there is a lot of ground yet to be covered.

However, looking from another and a more relevant perspective, India is right at the centre of the global automotive industry canvas. Both as producer and as a customer base, India is being considered as one of the emerging destinations for international players.

Across segments, almost all major players have entered Indian markets and have established their operations in India. As a market, India is expected to contribute significantly to the global demand in medium term.

India has traditionally been a low-cost producer. Last few years have seen a significant improvement in the quality standards and the designing capability, as a result of which Indian players have become ideal partners for global players.

Therefore, as per what the Government intended to achieve via the AMP, the industry is headed in the right direction.

For 2010, what should be the agenda?

Year 2008 and early 2009 were years of great stress for the automotive sector. Not only did the volumes shrink, but also some of the short and medium term plans for capacity expansion got stalled. Therefore the first thing to be done is to re-start those investment plans.

As the industry scales domestically, lot more focus needs to be given to expand and grow in export markets. Distribution channels and dealer service quality will need to be made more effective as customer experience will be more in focus, given the number of competitors and products.

Emphasis on cost reduction and control, which gained significance during previous two years, needs to be maintained to ensure efficiency in operations.

***

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