Industry mulls deep localisation to reduce dependency on China

Amid political tensions between India and China, and the ongoing sentiment towards boycotting Chinese products, deep localisation is the only way forward

Jun 22, 2020 SHWETA BHANOT MEHROTRA No Comments
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MUMBAI :

The ongoing standoff between India and China and the subsequent sentiment towards boycotting Chinese products is expected to provide further fillip to Prime Minister’s Narendra Modi’s campaign for an #Atmanirbhar, (Self-reliant) India. Joining the bandwagon is the Indian automobile components industry – a significant importer of Chinese products, it is now looking at strategies to reduce its dependency by localizing products. 

According to Automotive Component Manufacturers Association of India (ACMA), in 2018-19, India imported auto components worth USD 17.6 billion, of which 27% i.e. USD 4.75 billion worth of value were sourced from China. “There is no denying that we need to be Atmanirbhar,” says Vinnie Mehta, Director General, Automotive Component Manufacturers Association of India (ACMA) adding that the auto industry in India has already started to de-risk itself and is working on deep-localisation. “The recent stand-off between India and China will only hasten the process,” he says.  

However, Mehta highlights the fact that the industry should avoid any knee-jerk reactions as it is still recovering from post-lockdown impact, which has affected the entire value chain. “Post the lockdowns, our value chains, have been severely disrupted and are in disarray, we are gradually piecing them together. Any further disruptions would only be detrimental to the interest of industry and the economy,” says Mehta. Therefore, according to the industry experts, the industry should first focus on addressing the operational issues, which arose due to the lockdowns. Once that it is achieved, being Atmanirbhar should be the next priority, in order to avoid similar crisis in future. 

There are three major reasons for the imports of auto components from China by India. These include lack of technological competence in the country, for instance auto electronics, BS-VI components etc. Secondly, the limited manufacturing capacity to meet the demand spurs. Lastly, the price competitiveness which is very distinct in case of aftermarket products due to lack of any mandated standards for products sold in the aftermarket and customer’s willingness to compromise on quality. 

 Of the total global trade of auto components, which is worth USD 1.3 trillion, the Indian auto component industry’s share is only 1.3%. “We should aspire for at least 5% of the global trade share in the next five years, however for this, government support will be critical,” says Mehta. 

Reiterating the same sentiment, a Pune-based component maker, who did not wish to be named, said that the COVID-19 pandemic has held up a mirror to the industry in terms of areas where we are lagging behind as well as highlighted areas where we need to strengthen ourselves further.  “It is time to reflect on them and prepare for tomorrow.”

Not just the component makers, but leading automakers have also voiced their sentiment towards reducing dependability on China. “How to promote ‘Make in India’?  Like they say, charity begins at home,” tweeted Pawan Goenka, Managing Director, Mahindra & Mahindra (M&M), on Saturday evening. Through his tweet, he called for “all Automotive OEMs and Tier I suppliers (to) pledge to reduce component and tooling imports by half in three yrs. That (it) will be 75,000 cars more manufacturing value addition.” 

On investments from China, Mehta says that it enables job creation and technology absorption, however he quickly adds that “we should not be serving our domestic market on a platter, and we should ensure that investments lead to creation of Indian IPs (Intellectual Properties) as also exports.”

Indicating that the industry and the Government should together define a roadmap and deliver accordingly, Mehta says that “this (Atmanirbhar Bharat) cannot be built singularly by either the industry or the government.” “While the industry will have to deliver technologically relevant and globally price competitive products with consistent quality, the Government should ensure ease-of-doing business in its true sense.” He highlighted that with 9-11% borrowing rate, India has one of highest costs of capital adding that the additional energy cost of 10-12% is a further deterrent which affects industry’s global competiveness. The industry and the government will need to commit to each other to be Atmanirbhar,” explains Mehta. 

The COVID-19 pandemic and the associated lockdowns, has already made economies and industries look inwards and minimise their reliance-on imports. And it would not be wrong to say that  Atmanirbhar Bharat  through deep localisation would be the answer to all questions. 

 

 

 


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