<p>The Indian auto component sector –– one of country’s front ranking sun-rise industries –– is heading for trouble, with their counterparts in China and South East Asian countries posing formidable challenges not only in the international market but also on the domestic turf. <br /><br />In fact, the Indian auto component manufacturers, struggling to come out of the blues of ongoing global recession, are now increasingly getting hit by cheaper imports and growing competition from Chinese manufacturers.<br /><br />What is alarming is that unless the Indian auto component manufacturers gear themselves up on a war footing, they may find themselves in a tight corner to retain their dominant share in the domestic market. Auto experts feel that the way the share of imported auto components in the domestic market is rising, it will only be a matter of time when Indian manufacturers will lose ground to their overseas counterparts especially those from China and South East Asian countries.<br /><br />Echoing this is a study conducted by the Federation of Indian Commerce and Industry (Ficci), which forecasts that the share of imported auto components in Indian domestic market is set to increase from the current 31 per cent to over 42 per cent by 2013-14 if the current rate of growth in import continues. (see table)<br /><br />Trade agreements<br />The pertinent question that comes to mind is: Why are the Indian auto components manufacturers, who have been doing so well in recent years, facing threat from cheap imports? As the Ficci study explains, in view of customs duty reduction/elimination on several auto components under India-ASEAN and India-South Korea Free Trade Agreement (FTA) and forthcoming India-EU and India-Japan FTA the share of imports in domestic auto market is likely to be 50 per cent by 2013-14. Custom duty on auto parts like pistons, piston rings, bumpers, gear boxes, radiators etc, for example, would be zero by 2013 under India-ASEAN FTA. Similarly, custom duty on motorcycle parts, parts of engine, piston etc would also come down to five per cent level or zero under India-South Korea FTA. “This could affect our plans to achieve the targeted size of $40 billion-$45 billion of auto component industry by 2016 under the Automotive Mission Plan announced in 2006,” the study noted.<br /><br />India continues to be a net importer of auto components, despite being a favourable destination for small cars. India’s trade deficit in auto components has ballooned from $371 million in 2004-05 to $2.8 billion in 2008-09. While our auto parts imports increased by an annual average rate of 30 per cent during this period but our exports grew by 17 per cent (much below the imports) for the same period. <br /><br />Unfair advantage<br />In terms of size, the study observed that imports were almost one fourth the size of domestic production of auto components in 2004-05 and by 2008-09 this ratio increased to one third. In terms of sources of our auto-component imports, European Union continues to be the largest source of imports with a share of around 35 per cent to 37 per cent in our total auto component imports. <br /><br />Share of South Korea and China has increased in the last few years. While the share of China in our auto component imports increased 4.5 times from two per cent in 2004-05 to 9 per cent in 2008-09, that of South Korea increased from 15.4 to 17 per cent in the same period. <br /><br />Share of US and Japan has come down over a period. In 2004-05, Japan was the second largest source of our auto-components. Of late, imports from ASEAN countries have also shown rising trend. Giving an example, Ficci said that Thailand has emerged as the largest exporter of engines with 32 per cent share in India’s total imports of engines (Diesel/Semi Diesel). <br /><br />Thailand has in fact replaced South Korea which at one point of time was the largest exporter of engines to India. <br /><br />Chinese invasion<br />The study also reveals that imports of auto parts from China have been increasing at an alarming rate of 88 per cent per annum and with this growth rate share of China in our domestic auto component market would increase from current 2.7 to 15.6 per cent by 2012-13.<br /><br />The large scale participation by auto component manufacturers from China in the Auto Expo held January this year reflects the growing interest among the Chinese firms to strengthen their footing in India’s booming auto market. In fact, the Chinese auto component makers recorded the biggest presence among all foreign automotive players in the event. The Automotive Component Manufacturers Association of India (Acma) says import of auto components from China has registered a 97 per cent compounded annual growth rate over the past seven years. The reason why China is making inroads is simple: According to a report by research firm A T Kearney, the 12,000 odd auto parts companies in China are far more competitive than the 5,000 plus firms in India due to several factors, including lower expenses on wages, steel, power tariffs and taxes.<br /><br />Cost advantage<br />According to estimates, wage rates in China are 15 to 25 per cent lower than in India and the companies there get higher subsidy on power usage. Automotive Components Manufacturers Association (ACMA) has found that the difference between Indian and Chinese auto component companies’ factory-to-factory cost - taking into consideration the cost of transport, octroi, customs duty and others - is a huge 45 per cent in China’s favour. The Chinese auto components started flooding the Indian market after the government lowered the import duty from 15 per cent in 2005 to 12.5 per cent in 2006 and 2.5 per cent the following year.<br /><br />As Shriram Piston and Rings Managing Director and Chief Executive Officer Ashok Taneja said, “the fact is that Indian auto component manufacturers are going to face increasing competition from their counterparts from China and some of the South East Asian countries. We have to gear up to contain the heavy influx of components from China, as this could pose as a big threat in the not-too-distant future.”<br /><br />India is already the third biggest importer of cheap Chinese tyres, which not only cater to the replacement demand but are also bought by car manufacturers. <br />The demand recently shot up due to unavailability of adequate commercial vehicle tyres in the local market. Acma also privately acknowledges that most of the Chinese auto component products are about 40 per cent-50 per cent cheaper than India-made products having the same quality standards.<br /><br />The fear is also shared by Sona Group Chairman Suridner Kapur. He said, “competition is getting intensified day by day. The government has to step up infrastructural facilities for auto industry as a whole to global level. Besides we need highly skilled and dedicated workforce to improve our competitiveness. We have to tackle these problems very fast otherwise we may find difficulty in sustaining our dominant role in the global market.”<br /><br />Difficult future<br />Auto analysts say the overall business environment for the domestic auto component sector is going to witness rapid changes with India entering into FTAs with many countries. Therefore necessary policy initiatives will have to be taken to enable the auto component sector to meet the upcoming challenges in the global as well as domestic arena. <br /><br />In order to ensure orderly development of domestic auto-component industry in view of the growing challenges from various FTAs, the Ficci suggested that the government should create a conducive environment to attract investments in the sector and also expand the opportunities for domestic players. Industry experts feel that considering the importance of auto industry in country’s economy the government should provide fiscal incentives for promoting production of critical and high value added components.<br />DH News Service</p>
<p>The Indian auto component sector –– one of country’s front ranking sun-rise industries –– is heading for trouble, with their counterparts in China and South East Asian countries posing formidable challenges not only in the international market but also on the domestic turf. <br /><br />In fact, the Indian auto component manufacturers, struggling to come out of the blues of ongoing global recession, are now increasingly getting hit by cheaper imports and growing competition from Chinese manufacturers.<br /><br />What is alarming is that unless the Indian auto component manufacturers gear themselves up on a war footing, they may find themselves in a tight corner to retain their dominant share in the domestic market. Auto experts feel that the way the share of imported auto components in the domestic market is rising, it will only be a matter of time when Indian manufacturers will lose ground to their overseas counterparts especially those from China and South East Asian countries.<br /><br />Echoing this is a study conducted by the Federation of Indian Commerce and Industry (Ficci), which forecasts that the share of imported auto components in Indian domestic market is set to increase from the current 31 per cent to over 42 per cent by 2013-14 if the current rate of growth in import continues. (see table)<br /><br />Trade agreements<br />The pertinent question that comes to mind is: Why are the Indian auto components manufacturers, who have been doing so well in recent years, facing threat from cheap imports? As the Ficci study explains, in view of customs duty reduction/elimination on several auto components under India-ASEAN and India-South Korea Free Trade Agreement (FTA) and forthcoming India-EU and India-Japan FTA the share of imports in domestic auto market is likely to be 50 per cent by 2013-14. Custom duty on auto parts like pistons, piston rings, bumpers, gear boxes, radiators etc, for example, would be zero by 2013 under India-ASEAN FTA. Similarly, custom duty on motorcycle parts, parts of engine, piston etc would also come down to five per cent level or zero under India-South Korea FTA. “This could affect our plans to achieve the targeted size of $40 billion-$45 billion of auto component industry by 2016 under the Automotive Mission Plan announced in 2006,” the study noted.<br /><br />India continues to be a net importer of auto components, despite being a favourable destination for small cars. India’s trade deficit in auto components has ballooned from $371 million in 2004-05 to $2.8 billion in 2008-09. While our auto parts imports increased by an annual average rate of 30 per cent during this period but our exports grew by 17 per cent (much below the imports) for the same period. <br /><br />Unfair advantage<br />In terms of size, the study observed that imports were almost one fourth the size of domestic production of auto components in 2004-05 and by 2008-09 this ratio increased to one third. In terms of sources of our auto-component imports, European Union continues to be the largest source of imports with a share of around 35 per cent to 37 per cent in our total auto component imports. <br /><br />Share of South Korea and China has increased in the last few years. While the share of China in our auto component imports increased 4.5 times from two per cent in 2004-05 to 9 per cent in 2008-09, that of South Korea increased from 15.4 to 17 per cent in the same period. <br /><br />Share of US and Japan has come down over a period. In 2004-05, Japan was the second largest source of our auto-components. Of late, imports from ASEAN countries have also shown rising trend. Giving an example, Ficci said that Thailand has emerged as the largest exporter of engines with 32 per cent share in India’s total imports of engines (Diesel/Semi Diesel). <br /><br />Thailand has in fact replaced South Korea which at one point of time was the largest exporter of engines to India. <br /><br />Chinese invasion<br />The study also reveals that imports of auto parts from China have been increasing at an alarming rate of 88 per cent per annum and with this growth rate share of China in our domestic auto component market would increase from current 2.7 to 15.6 per cent by 2012-13.<br /><br />The large scale participation by auto component manufacturers from China in the Auto Expo held January this year reflects the growing interest among the Chinese firms to strengthen their footing in India’s booming auto market. In fact, the Chinese auto component makers recorded the biggest presence among all foreign automotive players in the event. The Automotive Component Manufacturers Association of India (Acma) says import of auto components from China has registered a 97 per cent compounded annual growth rate over the past seven years. The reason why China is making inroads is simple: According to a report by research firm A T Kearney, the 12,000 odd auto parts companies in China are far more competitive than the 5,000 plus firms in India due to several factors, including lower expenses on wages, steel, power tariffs and taxes.<br /><br />Cost advantage<br />According to estimates, wage rates in China are 15 to 25 per cent lower than in India and the companies there get higher subsidy on power usage. Automotive Components Manufacturers Association (ACMA) has found that the difference between Indian and Chinese auto component companies’ factory-to-factory cost - taking into consideration the cost of transport, octroi, customs duty and others - is a huge 45 per cent in China’s favour. The Chinese auto components started flooding the Indian market after the government lowered the import duty from 15 per cent in 2005 to 12.5 per cent in 2006 and 2.5 per cent the following year.<br /><br />As Shriram Piston and Rings Managing Director and Chief Executive Officer Ashok Taneja said, “the fact is that Indian auto component manufacturers are going to face increasing competition from their counterparts from China and some of the South East Asian countries. We have to gear up to contain the heavy influx of components from China, as this could pose as a big threat in the not-too-distant future.”<br /><br />India is already the third biggest importer of cheap Chinese tyres, which not only cater to the replacement demand but are also bought by car manufacturers. <br />The demand recently shot up due to unavailability of adequate commercial vehicle tyres in the local market. Acma also privately acknowledges that most of the Chinese auto component products are about 40 per cent-50 per cent cheaper than India-made products having the same quality standards.<br /><br />The fear is also shared by Sona Group Chairman Suridner Kapur. He said, “competition is getting intensified day by day. The government has to step up infrastructural facilities for auto industry as a whole to global level. Besides we need highly skilled and dedicated workforce to improve our competitiveness. We have to tackle these problems very fast otherwise we may find difficulty in sustaining our dominant role in the global market.”<br /><br />Difficult future<br />Auto analysts say the overall business environment for the domestic auto component sector is going to witness rapid changes with India entering into FTAs with many countries. Therefore necessary policy initiatives will have to be taken to enable the auto component sector to meet the upcoming challenges in the global as well as domestic arena. <br /><br />In order to ensure orderly development of domestic auto-component industry in view of the growing challenges from various FTAs, the Ficci suggested that the government should create a conducive environment to attract investments in the sector and also expand the opportunities for domestic players. Industry experts feel that considering the importance of auto industry in country’s economy the government should provide fiscal incentives for promoting production of critical and high value added components.<br />DH News Service</p>
