Auto parts sector sees PLI scheme driving it to global destinations

G Balachandar Chennai | Updated on December 09, 2020

Policy push will help it leverage MNCs’ ‘China Plus 1’ supply chain model

A new future beckons the Indian auto components industry.

Potential exists for the sector to not only grab a larger share of the world trade but also, in the process, make some homegrown brands globally recognised and respected.

Many favourable factors have set the stage for it. The global supply chain realignment, a drive to make India self-reliant, and the Centre’s Production-Linked Incentive (PLI) scheme have all supported this progress.

While the domestic auto parts industry has emerged as a strong export-led one with about a quarter of its production exported worldwide, its share in the $1.3-million global automotive trade is still a minuscule 1.3 per cent.

Increased enquiries

To start with, the realignment of the global supply chain is real and the Indian auto parts makers have started to feel its benefits.

They are seeing several enquiries and, in some cases, orders from buyers who were till recently sourcing from China.

A strong domestic market and a significant exposure to exports make the auto components sector ideally placed to grab a share of the China market. While China will remain the biggest and fast-growing market ($550 billion in size as against India’s $50-billion industry), the key message coming home to auto parts companies is the ‘China Plus 1’ model that global automotive players are embracing.

Several leading auto parts companies such as Sundram Fasteners, Wheels India and the Rane Group have started getting orders due to ‘China Plus 1’.

However, industry analysts reckon that India needs to get its act together to grab a greater share as countries such as Vietnam and Cambodia are viewed as being more attractive now.


Policy instability

An unstable policy regime in India is one of the major worries for investors. For instance, the axle load carrying capacity is suddenly hiked by 25 per cent.

Result: it sets the CV market back by two years. Then there is the sudden leap to BS-VI norms.

BS-VI migration

Unlike other nations, the auto industry here managed to migrate to BS-VI in a very short time. But localisation suffered and, today, BS-VI components are among significant imports.

“The policy and regulatory framework should be a well-agreed-upon road map and, once decided, it shouldn’t be tinkered with. Because, the cost of capital in India is one of the highest in the world and there should be visibility to make investments,” said an industry representative.

The industry has been localising aggressively. “Localisation always works in the interests of the industry as we are in a very price-sensitive market,” said Vinnie Mehta, Director General, Automotive Component Manufacturers Association of India (ACMA).

“Every 5-6 years, the amount of devaluation has been about 15 per cent on an average. So, imports are getting expensive, while localisation helps in keeping the prices steady for the customers; it also helps in continuous design improvements and innovation.”

Incentive to localise

The recently announced PLI scheme is expected to give a much-needed boost to the companies to localise faster. “What is heartening is the support we are getting from the government in all these developments,” said Mehta.

The Centre has earmarked about 40 per cent of the overall allocation under the PLI scheme to the auto sector.

The auto industry, a key contributor to the economy, has lauded the move and most players are awaiting the details.

“We are waiting for full details to see whether to make any structural changes like hiving off some thing as a special unit to seize the emerging opportunity. We will decide based on the final details of the PLI scheme,” said L Ganesh, Chairman, Rane Group.

Global aspirations

Indian auto parts makers see themselves as back-end boys. Their quality is recognised globally. What they lack is the aspiration to become big.

The conditions are ripe today for them to take the plunge. An Indian Bosch, Continental or ZF could be round the corner.

Published on December 09, 2020

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