JOIN USLocalisation does not happen overnight: ACMA’s Vinnie Mehta on PLI schemes in auto sector
Indian auto component makers have managed to bounce back this year after struggling with everything from supply chain issues to weak demand during the first year of the pandemic.
The sector’s exports rose 76% to $9.3 billion for the six months ended September 2021, from $5.2 billion in the year-ago period, according to the Automotive Component Manufacturers Association of India (ACMA). Its turnover climbed 65% to $26.6 billion in the same period.
In a wide-ranging interview with Deccan Herald, ACMA Director General Vinnie Mehta discussed the global chip shortage, other challenges facing the industry, domestic demand levels, the sector’s reliance on China and how it was preparing for a future filled with electric vehicles. Edited excerpts:
There seems to be an unmet demand for vehicles in the domestic market. What is the loss of opportunity for the industry?
There has been a very significant unmet demand in the car segment. I think it was ICRA who said there was a demand for 5,00,000 cars and that it was a lost opportunity. That translates into something around Rs 1,800-2,000 crore and the component value chain is about 50% of this, therefore, you can assume that the component industry would have faced a loss of about Rs 1,000 crore. And this loss is directly attributable to the whole chip shortage issue.
We are, however, seeing growing demand for commercial vehicles. The tractor industry witnessed two successive years of growth which is unheard of.
But, in the two-wheeler segment, the unfortunate thing is we are not seeing enough traction. The demand seems to have died down.
What is Plan B if the semiconductor crisis doesn’t resolve soon?
Honestly, there is not much we can do about this. Considering how the supply chain works in India, the OEMs (original equipment manufacturers) have a much better handle on the situation than the component manufacturers. Since it is eventually the vehicle manufacturers who use the chips while assembling the vehicles, and for want of a single component their vehicle lines can stall.
That’s where the challenge is. And I don’t think there is a Plan B though.
With China supplying 27% of our imports, when can we expect the industry to leverage the China Plus One strategy to reduce the reliance on that country?
One must understand that a lot of the vehicles they build are technologically superior to ours and hence their supply chain is very well evolved, robust, and efficient.
To be self-reliant, you also have to develop some parts of the supply chain that are not there in the country today. The alternatives need to be tested and approved before clearing them for production, and that's what the PLI (production-linked incentive) scheme is aiming to do.
How will the PLI schemes in the auto sector help in localisation?
It's not easy to disrupt an ongoing supply chain. When we were under the throes of the pandemic last year, the disruption taught us to de-risk ourselves. The government with its 'Make in India' policy and the PLI schemes encouraged localisation.
But localisation does not happen overnight. When we sat down to discuss this, we set ourselves some targets. For instance, out of the Rs 1.75 lakh crore worth of auto components we import, we set a target of localising 2-4% in the short term of the next two to three years and increasing it to 15-20% looking at a five to seven year-horizon.
How is the industry prepping for the EV transition?
We did a dipstick survey among the ACMA's executive committee comprising 40 elected members - which in some sort is a representative of the whole industry - to understand their readiness to meet the future needs of the industry. Out of this, 60% of the members said that they were ready to supply to the needs of the electric mobility industry and be a part of that supply chain, while the remaining 40% said that they would be ready in the next two years.
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