Covid-19 crisis an opportunity for Indian auto components sector to become a hub: ACMA

We used to say people are our best assets, but at the end of the day products used to take precedence. Now, we are talking about quality of people; it’s an opportunity to invest in them, says ACMA.

By:Updated: Apr 27, 2020 11:39 AM

 

In 2018-19, the turnover of the Indian auto components sector was Rs 3,95,902 crore ($57 billion), its contribution to GDP 2.3% and to manufacturing GDP 25%. The sector also exported components worth Rs 1,06,048 crore ($15.16 billion), primarily to North America and Europe. But its exports, as compared to global auto trade, are still less than 1.5%. The Covid-19 crisis presents an opportunity for the Indian auto components sector to become the factory of the world, believes Deepak Jain, President, Automotive Component Manufacturers Association of India (ACMA). In an interview with FE’s Vikram Chaudhary, he adds this is also the time to focus on deep localisation, to have better training facilities, and putting people first.

While we argue about ‘deep localisation’ of the Indian auto components sector, is it really possible in a globalised, interconnected world?

The Indian automotive industry traditionally has had high levels of localisation, but with changes in technology (the transition from BS4 to BS6) there was not enough time (to continue with those levels). During BS4, we had local content of about 95%. With BS6 coming in, a lot of systems had to be imported from global counterparts, because testing and validation for localised components may not have been possible in a short period of time. With time, we will have deep localisation; it means localisation of not just products and components, but also in terms of design and engineering content, including the processes and so on.

In which all ways do you expect the automotive components supply chain to change once the economy gets back to normal?

Earlier, there were certain constraints to localisation—some parts come only from one region. China has the lead because it’s the factory of the world. But after Covid-19, there will be a focus on self-sufficiency; many countries are advocating making in their own country. I believe there will be a fast-tracking towards deep localisation post the stabilisation of Covid-19. In addition, we will have to readjust the supply chain as a one-plus-one concept; for example, if earlier there was only one source globally for certain components (maybe because of economies of scale or competitive advantage), now there has to be an alternative. Herein lies an opportunity for India; we can play a bigger role in the global auto sector.

What about the availability of trained workforce in India?

We are working with the ASDC (Automotive Skills Development Council); ACMA has also launched a centre of excellence in imparting training in areas such as mechatronics, design engineering systems, etc. We need to fast-track this. As a components sector, we have to think how we can leverage the export opportunity that is now emerging (because of the one-plus-one concept I earlier talked about).

Many OEMs are running their own training centres…

Yes, and all will need to step up the tempo. It’s not only about the quantum, but also the quality of training that we need to focus on; we need to relook at the training ecosystem for better collaborations, it need not be company-specific but industry-specific, and we have to rope in the academia.

What is meant by de-risking of the Indian auto components sector? Does it imply reducing dependence on China, or reducing dependence on imports in general?

It means that whatever we are importing right now, we should try and make in India (wherever we are competitive). One must understand why companies went to a particular region for supply and components—it was not out of love but because of the ‘competitiveness’ of that region. India will have to see this as an opportunity, and auto is a prime sector where we can become competitive both in terms of cost and quality.

How do you see ease of doing business for tier-2 and tier-3 suppliers in India?

Ease of doing business is work in process; I hope with more support coming from the government, it will become better. For smaller suppliers, the real challenge today is financial capability—because they don’t have the scale to withstand this kind of economic aftermath (Covid-19). Hence, I think, everyone is waiting for a stimulus.

Is a stimulus definitely needed?

An urgent stimulus is needed. For example, if a patient is in an ICU, he needs much more than medicines. The whole industry needs urgent intervention by the government.

What opportunities do you see in the current crisis?

One, we have seen companies across sectors coming together and communicating; we need to keep up the tempo of this collaboration, going forward. Two, health is getting due importance. We used to say people are our best assets, but at the end of the day the product used to take precedence. Now, we are talking about quality of people, and so this is a massive opportunity of investing in people.  Three, cash is not just king, it is the emperor today; those entities that have had a strong focus on cash flows will emerge winners in this scenario.

Four, at the front-end, there will be a new way of approaching and acquiring new customers, and so this is an opportunity for the whole industry to become asset-light. Five, people might get more into private ownership of vehicles, so this is the right time for the government to rethink certain taxations and get the scrappage policy to incentivise consumption—in order to get the customer confidence back. That is the only way the economy will actually work.

Lastly, this is an opportunity for the Indian components sector to become the factory of the world—we already score high on quality, as proven by the fact that 65% of our exports are to high-quality product markets such as North America and Europe—but we need to work with the government to ensure we have the right benefits. We need a completely different approach to see that the export opportunities are captured—to become large-scale component makers who are very competitive.

The Chinese auto components sector may be returning to normal. Is ACMA observing it closely, and can it learn something from them?

The biggest learning is that China takes automotive sector almost like an essential service; even the US declared auto sales as an essential service recently. It is difficult for the auto sector to go through a stop-start-stop cycle—it has a massive multiplier effect on the ecosystem, so it is important there is continuous sustainability. Even when China found Covid-19 cases going up, it did not let the sector stop.

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