Auto Inc keen about lower GST in Budget, electrification to be a key driver in 2023 says ACMA’s Vinnie Mehta

Going forward the Budget is the key point of focus at the beginning of 2023. Mehta sees no major concern as of now for the industry.

Representational image courtesy: Keyence

The Indian automotive industry is the world’s fourth largest and is growing at one of the fastest rates. In addition, unlike the global markets, the low penetration of personal vehicles compared to the per capita gives the country robust room for growth. In fact, the Indian component industry clocked revenue of $56.5 billion (Rs 421,620 crore) in FY2022, a healthy 23 percent growth.

The market has shown resilience and staged a comeback after the pandemic. However,  “the supply chain is not completely back to normal levels, but it is better than earlier. There are certain teething problems that continue and we are still not out of the woods when it comes to the semiconductor issues, they are still nagging,” says Vinnie Mehta, Director General, Automotive Components Manufacturers Association (ACMA).

He further adds that India is in a sweet spot, especially with macroeconomic conditions remaining stable compared to the rest of the world. “The GDP growth rate projected at 6-7% is still one of the highest in the world and that makes India the attention of every single nation that I have travelled to whether it has been in Germany or the United States. Most dominant markets are taking India very seriously now.”

Festive season powers auto retail

The passenger vehicle segment is headed for a record year, thanks to multiple launches and SUV sales powering the charge. However, the entry-level two-wheelers and four-wheelers are somewhat still behind expectations, this can partially be attributed to hikes in prices, and the lack of new options.

Vinnie Mehta, Director General, ACMA: “There are signs of the market picking up and that the OEMs are bullish on the next year. We expect capacity expansion by OEMs that is going to happen in the component industry also.”

On the other hand, the festive season (Dusshera to Diwali) has seen improvement in retail two-wheeler sales. “Till the festive season, the two-wheeler industry was under tremendous stress. The last two months October and November have gone well for the two-wheeler industry. We are hoping that these good tidings continue. That was the only segment that was under tremendous pressure,” points out Mehta.

“We’re hoping that things will get better, at least the festive season was good and we’re hoping that these good times will continue. Also, a lot of excitement in the market, so many new product launches are happening and the commercial vehicle industry which was sort of suffering for almost three years is witnessing good growth anywhere between 30-40%,” says Mehta.

Investment in capacity expansion

It is no secret that the pandemic had a major impact on businesses across various industries. It not only impacted sales but also investment and capacity expansion plans. The automotive industry has seen some key consolidation too. 

Around 75 auto component companies are part of the government of India’s ambitious PLI scheme. These component players will invest more than Rs 250 crore as a threshold level, which will all also help kick in new capacity in the industry

But now, with the retail sales improving, “there are signs of the market picking up and that the OEMs are bullish on the next year. We expect capacity expansion by OEMs that is going to happen in the component industry also,” highlights Mehta.

When asked about his opinion on R&D spending, he expresses concern, “Although that’s changing we’re still predominantly a bill-to-print industry and what I would like to see is an industry that has a thriving culture of innovation. You know that transformation needs to happen, it’s still way too slow sort of to what you would want it to be.” 

Impact of electrification

Globally, the electric vehicle industry is seeing much more improved traction.  Does it mean that all traditional auto components that are completely relying on and working with the IC-engine segment, need to focus or restrategise? The answer is No. Mehta says there is no denying that while many Tier 1 suppliers will transform, there will be “some who do not want to move on to that opportunity.”

He adds “Not all is going to transform and even in those sectors that are going to be transforming first and then the passenger vehicle industry and the commercial vehicle industry and the tractor industry will continue for a much longer duration to be traditional.” 

According to him, “It’s also an interesting thing to look at, also a lot of the Tier 1s are now preparing for electric mobility opportunities and that is something very different from the existing kind of investments that we are traditionally making. That will also trigger investments of a different nature.” 

He pointed out, “Our own understanding is that 10-15% of the car industry will be electric by 2030 and in the commercial vehicle even lesser probably 10% or lesser because there we still do not have an economically viable solution. About 40-50% of the value chain of the two- and three-wheeler will continue to be of the traditional kind.”

Outlook for Budget 2023 and R&D spend

Going forward the Budget is the key point of focus at the beginning of 2023. Mehta sees no major concern as of now for the industry. He says while the government has consistently improved the GST structure since its first introduction in 2017, there are still some components that are taxed in the higher 28 percent bracket.

“When the GST was first announced in 2017, the ACMA component industry has 219 tariff lines of these, 40% were at 18% GST. Over the years, we have worked with the government, and today, 60% of these tariff lines are at 18% and 40% remains. I’m hopeful that as the revenue position of the government increases with more compliance across the sectors I think the government will take a be in a position because we are an intermediary industry. There are, there are very few concerns about any leakage or loss in our sector. I’m hoping that in the next few years even these 28% rates will become 18%,” explains Mehta.

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First published on: 13-12-2022 at 07:30 IST
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