Auto industry to be the engine of “Make in India”

New Delhi, 8 February 2016

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  • India emerges as one of the world’s largest auto market with annual sales of 19.8 million vehicles in FY15
  • Passenger vehicle density expected to become 1.5 times by 2020
  • The auto component industry is expected to witness double-digit growth over the next decade

India has emerged as an important automotive market and offers huge growth potential due to low vehicle penetration and improving economic fundamentals, suggests the recent EY report titled, “Making India a world class automotive manufacturing hub”. The report was released at the CII International Conference on Modern Manufacturing Technologies for Automotive Sector “Making India a World Class Automotive Hub”.

Over the years, the Indian auto industry has emerged as one of the world’s largest, with annual sales of 19.8 million vehicles in FY15. It is also one of the fastest growing auto markets, with production of 23.4 million vehicles in FY15 and a leading position in several sub-segments.

Commenting on the findings of the report, Rakesh Batra, Partner & National Leader – automotive practice, EY India, said, The Indian automotive industry is witnessing testing
times. The market continues to experience volatility and we are waiting to see clear signals of revival in growth. With the government and the judiciary taking steps to make transport cleaner and safer, there is some degree of uncertainty for automakers, especially regarding the fuel mix and the necessary investments for technology upgrades. We believe that these are just short-term challenges as the long-term growth story for the automotive industry in India remains intact.

He further added that, “What we do need to emerge as a “world-class automotive manufacturing hub” is a concerted effort from the Government and the automotive industry to create an enabling ecosystem.”

Speaking at the event, Gaurav Batra, Associate Director, EY Knowledge shared the key enablers necessary for India to emerge as an automotive manufacturing destination, which are further discussed in detail in the EY CII study, released at the event.

EY report analyzes the factors that would take for India to become a world-class auto manufacturing hub -

1. Enabling regulatory environment:

  • A stable and supportive regulatory environment is critical to drive growth in the Indian automotive industry. Key automotive regulations to watch out for-
    1. Cleaner transport - Advancement of BS VI norms, Likely rollout of the “End of life” policy, FAME-India scheme
    2. Safer transport - Upcoming Road Transport and Safety bill, International safety standards from 2017
    3. Advanced mobility - Regulations for new mobility initiatives
  • The implementation of “Make in India” and initiatives to improve the ease of doing business will drive the Indian auto industry’s growth
    1. India’s rank in the World Bank’s Ease of Doing Business index has improved from 142 in 2015 to 130 in 2016
  • The “StartUp India” program and the likely rollout of GST would also help improve doing and establishing new businesses in the country
    1. Implications of GST for the auto sector – Reduction in logistics cost, lower tax burden on vehicles, greater transparency, reduction in cost of doing business
  • The impact of government initiatives is starting to show results with a significant growth in manufacturing investments
    1. FDI growth turns positive from 2014 - We have seen a sharp turnaround in FDI in 2014. After declining for two successive years, investment in India has bounced back with 32% growth to US$25b — significantly ahead of the 7% growth in FDI seen globally
    2. India emerges as the #1 FDI destination in 1H15 - With FDI capital inflows of US$30.8b during the first half of calendar year 2015, India has emerged as the number one FDI destination in the world

2. Developing talent and skills:

  • An abundant labor pool and low labor costs are helping India become an attractive manufacturing destination
    1. SIAM’s Automotive Mission Plan 2026 aims to propel the auto industry to become the engine of the “Make in India” initiative. The automotive sector is expected to create 15 million direct jobs by 2022
    2. Auto components segment contributes 50% to the sector’s direct employment
    3. Skill development of the large talent pool is seen as the most critical lever in delivering manufacturing excellence
    4. While the Government has introduced suitable policy measures, the industry too is also playing an active role in bridging the skill gap
    5. Besides augmenting skills, fostering healthy industrial relations are key to develop India’s manufacturing excellence - EY’s India Attractiveness Survey 2015 indicates that labor costs, labor skills and flexibility of labor laws are critical parameters for driving investment in India

3. Fast-tracking infrastructure development:

  • A strong focus on developing transport infrastructure is essential to develop India as a manufacturing hub
  • Government initiatives for infrastructure development
    1. Investment plans of US$150 billion in highways and shipping by 2019
    2. Investment plans of US$140 billion to modernizing railway
    3. Investment plans of US$27.1 billion for ports and shipping under 12th Five Year Plan
  • The Government and industry are collaborating to improve the transportation and logistics eco-system
  • The likely rollout of GST will result in a plethora of opportunities to re-engineer supply chains and optimize manufacturing costs in India

4. Incubating R&D and innovation:

  • According to EY’s India Attractiveness Survey 2015, India is on course to becoming one of the world’s three leading fast-growth economies and a preferred destination for manufacturing, as well as a regional hub for operations including R&D/innovation
  • The Government and industry need to drive a mindset change and create an R&D push at the grassroots level, enabling co-development of patents and IP
  • The Government has outlined ambitious targets for the manufacturing sector in India including a 25% share in GDP and creating 100 million new jobs by 2022. Developing an R&D and innovation eco-system is seen as a critical lever in delivering manufacturing excellence under the “Make in India” initiative
  • Automotive R&D drivers
    1. Global players investing in R&D to tap India’s engineering base and cost advantage
    2. Domestic players investing in R&D to compete at a global level
    3. Government support to drive R&D investments

5. Enhancing supply chain competitiveness:

  • The automotive supply chain, comprising more than 700 suppliers (organized sector), serves as the backbone of the industry and supports the operations of around 35 global and Indian OEMs
  • With increasing operational complexity, the industry needs to address several challenge
  • Greater industry-wide collaboration is needed to reinvent the value proposition of the automotive supply chain

 

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