The fast-growing Indian auto sector may fail to become a global player unless the government endeavours to provide more support. That apart, Indian companies will also need to raise the bar. These are the views expressed by leading Indian auto companies, contained in a new report from KPMG International (KPMG) on the Indian auto-manufacturing sector.
KPMG?s India Automotive Study 2007?Domestic Growth and Global Aspirations report acknowledges that the Indian economy is growing faster than even the most optimistic projections, and that manufacturing is making an outstanding contribution to that growth. But companies themselves question whether Indian firms are fully prepared to make the leap to the global scale.
The Indian automotive industry is worth around $34 billion and contributes about 5% to the country?s GDP. It produces about 1.5 million vehicles and employs?directly and indirectly?in excess of 13 million. The government?s Automotive Mission Plan calls for automotive sales to more than quadruple to $145 billion by 2016, and for that the auto sector employment would grow from about 13 million to 25 million, the report said. But the companies interviewed by KPMG expressed that this rate of growth would be difficult to achieve if infrastructure investment remained relatively low and while a few companies have achieved anything like global scale.
But even as the sector grows, some concerns are becoming more pressing. KPMG found that senior auto executives are also concerned about India?s eroding cost advantage and the increasing challenges of rewarding and retaining talent. The report also expresses concern about the pace of consolidation in some parts of the industry and the challenges firms face in building Indian auto brands. Labour costs are becoming a big concern in an economy that historically was reliant on low-wage rates. Companies now report that a shortage of talent is driving up rates and increasing staff turnover, the report points out.
Many companies believe that Indian manufacturers will have to work hard to increase productivity as labour costs rise. Yet automating India?s production lines will require more capital than small companies can raise. Above all, companies are concerned about the ability of India?s own carmakers to build their brands to compete against the global brands.
According to the report, number of companies want the government to move faster in building domestic and export infrastructure, and in encouraging research and development investments. And one concern voiced by many companies was the fear that India may slip behind competitors in creating an alternative fuels sector. Yezdi Nagporewalla, National Industry Director, Industrial Markets in KPMG?s India practice , said, ? India may be full of potential, but it faces more than its fair share of challenges too. From the remotest road-building site to the highest levels of government where policy is hammered out, work is to be done.?