The Hindu Business Line : States must promote SEZ-like ‘Auto Parks’

Chennai, Aug. 6 The auto components sector offers tremendous opportunity at both the domestic and export levels and State Governments should create a good environment to tap the available potential, says Mr Abdul Majeed, Principal Consultant, PricewaterhouseCoopers.

Speaking to Business Line on what initiatives Governments can work on to attract investment in the auto components sector, he said that the States can start with setting up dedicated “Auto Parks” on the lines of SEZs and offer world-class infrastructure as well as tax incentives.

Consolidation vital

“The auto components industry is currently fragmented. States must help consolidation in the industry to have India-centric Tier-1 suppliers,” he added.

According to Mr Majeed, there is a pressing need for auto component clusters to leverage and share certain common functions such as HR, legal compliances and accounting.

Besides, the Governments can reduce duties so that cost competitiveness is improved and the transaction cost of exports is lowered.

He also called for improved availability of finance at competitive rates, “especially for small players. We also need technical institutes to offer quality education to supply people with the necessary skill sets.”

OE investment

Some States enjoy an unfair advantage due to the fact that the auto components industry is usually located near the OES (original equipment supplier) manufacturing facility.

“Therefore, States such as Tamil Nadu (Chennai), Haryana (Gurgaon) and Maharashtra, where many OES have their operations, have an edge. In order to attract auto component investments, State Governments should first attract OE investment and the component players will follow.”

Stating that venture capital and private equity (PE) firms are leveraging the opportunity offered by the industry — PE investments rose from $148 million in 2005 to $332 million in 2006 — he said that highly fragmented nature of the industry acts as a magnet for these funds.

Role of technology

On the role of technology in the industry, he said: “Technology is playing a major role in the automotive industry and going forward, this may increase. Fab factories will bet on auto components in future, given the opportunities (growing domestic market and sourcing of quality components at low cost from India) and the cost and technology arbitrage that India can offer.”

Going beyond cost advantages, India has a huge advantage compared to other developing countries “since we have the required intellectual capital and world-class IT industry, which will certainly help in the OES and Tier-I suppliers to outsource design and research initiatives to India.”

He added that many companies have already set up design and research centres in India. “The key players are General Motors, Ford, Honda, Suzuki, Valeo, Caterpillar, Visteon and Delphi. This trend will only continue.”

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