'The Made-in-India vision will improve the overall environment and lot of foreign manufacturers will start establishing their facilities here.'
Ramesh Suri, ACMA’s newly elected president, speaks to Shobha Mathur on his priorities, encouraging SMEs and driving the Made-in-India mantra to a changing global automotive industry.
You have recently taken over as the ACMA president. What will be your priorities going forward?
We have just had a very challenging year for the automotive industry, especially with poor offtake in domestic sales of vehicles. However, exports of auto components grew by 16 percent over the last fiscal and therefore the need to become an integral part of the global auto supply chain has become ingrained in our strategic intent.
It is in this context that ACMA chose ‘Capturing the Global Opportunity – The Next Imperative for Indian Auto Component Industry’ as the theme for 2014-15 and set for ourselves the target of enhancing by 2020:
- Exports from $10 billion to $35 to $40 billion.
- Revenues from overseas assets from $6 billion to $20 to $22 billion
- Increasing the number of Indian suppliers in the global top 100 from one to five by 2020.
- Increase overall industry turnover from $35 billion to $100 to $115 billion.
India has all the ingredients to become one of the leading players in the global auto component space. The domestic market is going through a cyclical slump, but is bound to recover and gain momentum. However, in the immediate future, we have a lot of ground to cover before one sees resurgence in the industry.
As ACMA’s new president, I look forward to mobilising the association towards achieving the targets it has set for itself. Through our committees, we will endeavour to address challenges, domestic as well as international, being faced by the industry, interface with government agencies to create an enabling environment for investment, growth and development and evolve our industry’s value chain.
A lot has been said about globalisation and FTAs during the 2014 convention. Which FTAs would be beneficial for the sector and how? Has ACMA taken it forward with the government?
Globalisation is an imperative. As vehicle OEMs consolidate platforms and streamline their vendor base, Indian parts makers have to set up global footprints either through exports or investments.
ACMA has always stood for fair trade and has maintained that trade agreements should be beneficial to their respective signatories. Unfortunately, till date, the Free Trade Agreements (FTAs) that India has signed are with those countries that have relatively lower import tariffs compared to India’s.
As a result, FTAs give advantage to those countries rather than to the Indian suppliers. The government should, therefore, consider FTAs with countries that have relatively higher tariffs than India’s such as Brazil and South Africa.
Also, we must ensure that FTAs do not lead to an inverted tariff structure wherein the rate of import tariff on raw material is higher than that on the finished components, thus rendering manufacturing unviable for such items here in India.
What action will ACMA take and what are the expectations from the new foreign trade policy?
We favour a long-term stable policy for growth and development of trade. To be globally competitive, it is important that high transaction costs and turnaround time for Indian exports be addressed. It has also been suggested that all export promotion schemes in the current FTP continue for the next five years till 2019.
Some of ACMA’s key suggestions for the forthcoming Foreign Trade policy include extending of export interest subvention for working capital from only 11 auto component tariff lines to all 213, enhancing the scope of Market Linked Focus Product Scheme (MLFPS) to the auto component tariff lines in Chapter 87 for exports to the European Union as also increasing the benefit from two percent to five percent and lastly giving assistance to growth markets such as EU, USA, Germany, UK, Italy, Turkey and protected markets such as Mexico, Brazil, South Africa, and Russia.
How will the auto component sector fare in 2014-15?
The automotive industry is showing early signs of recovery in India. In US and Europe too, passenger car sales have grown by decent rates since May 2014. These are early signals that give me a sense of optimism for the year ahead. However, given the deep-rooted problems, recovery will be gradual. I believe the worst is behind us and we need to now prepare ourselves for the next growth cycle.
With a new government in Delhi, the feel-good factor is there. The stock market is picking up and vehicle manufacturers have begun to increase production.
Normally during the festive season, sales are much better than the rest of the months. We are expecting a good response even in Q3. We expect a growth of maybe 6-7 percent in this fiscal for both the sectors but it is difficult to say. With new launches, we should see an upward trend in the coming months.
Do you see discounts driving growth during the festive season?
There is competition with all manufacturers launching new models so if there is a price variation they don’t want to lose market share. In that context, OEMs give certain incentives. Incentives are first given to the dealers to be passed onto the customers.
The Narendra Modi government has spoken about its Made-in-India vision. What does this mean for the auto component industry?
It is a good message since we are now going forth as a global hub for auto components and even for vehicles. The idea is that cost-wise, India is going to be a cheaper manufacturing hub so there can be good volume of exports as well. Localisation is also very important and that is why the PM emphasised that you come to India and make in India.
The Made-in-India vision will improve overall environment and a lot of foreign manufacturers will start establishing their facilities here. Those who already have a manufacturing base here will move forward in R&D or start localising components.
Most of the new technology components that are coming in new vehicles still need to be localised. The idea is to establish local facilities as fast as possible and then bring down the cost and reduce the import content as India is a very competitive market.
How do you plan to improve productivity?
Industry and ancillary units must upgrade their facilities because now there is a changed environment and customer expectations are high. So not only the end product customer but also OEMs and those connected with the manufacturers expect the operational area to be upgraded.
From the productivity point of view, automation is required and a quality check facility is necessary. We have to reduce wastage, save costs so that the end products will be able to compete internationally in terms of quality and costs.
With almost 80 percent of ACMA members being MSMEs, how will ACMA leverage the government’s thrust on this sector?
The health of SMEs is important for ACMA because the percentage of this membership is quite high and we cannot ignore this. We are working on various types of support and training to help them manufacture quality products and hire trained engineers for production processes.
Does ACMA have an R&D centre and what are the plans in this regard?
Considering that the component industry nurtures the ambition of moving up the value chain and graduate to one with its own design and engineering capability, we have been contemplating the idea of setting up Centres of Excellence in major component clusters. This plan is still in its infancy.
We need to have more consultations within the industry before we can give it shape. My idea of such a centre of excellence is one where we could have shared resources for the industry for testing and validation.
The facility should also allow for pre-competitive and collaborative research in technical domains of emissions and safety among others which will eventually shape the industry. We expect the centres to come up in three to five years’ time.
The ACMA Centre for Technology (ACT) is driving the skilling programme for its members. Do you think any other initiative is required to augment it?
ACT means that we have clusters and provide training to the skilled staff of the vendors. We undertake courses also and ACMA is providing all these facilities to the suppliers.
Members take advantage of these facilities and upgrade themselves with the best practices and knowledge required for managing the operations of their units so this is a good initiative by ACMA. It takes care of units striving to be competitive quality-wise and aids in operations to meet the requirements of their customers.
Is an R&D cluster programme required to drive innovations?
At present, we are introducing product development clusters at respective units in a small way under ACT. The auto component units will avail these facilities because everyone cannot invest in R&D.
The prime minister has emphasised skilling India. Will ACT be sufficient to achieve this target?
We share the views of different cluster units as well as the best practices they are following among member units.
We have a forum for exchanging knowledge and presentations to other vendors as well. ACT imparts training on similar lines. Finally, it depends on the individual interests of production unit owners how they use this training to upgrade their facilities because unless they are able to meet the needs of the customers and their expectations they will not succeed.
If any financial help is required we have made arrangements with the banks to extend loans at low rates; even the government has given that direction to banks to take care of MSMEs. But still banks ask for certain collateral securities and guarantees for giving loans. We work and support them where it is possible but it has to work jointly.
In which areas is further skilling required in future?
Technology is moving very fast and manufacturing of electronic goods and automation are going to be a very important area so that knowledge and skill is required. ACMA organises outside trainers to impart technology trainings for a few days and we follow up on these trainings to ensure benefits accrue to members.
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