October 15, 2012: Surinder Kanwar, President, ACMA
In a tête-à-tête with Shobha Mathur, ACMA president Surinder Kanwar, vice-president Harish Lakshman and executive director Vinnie Mehta talk about the current slowdown in the automotive sector, the role of a supportive government in boosting exports and the kinds of investments that can be expected in the components sector till 2015.
SIAM has drastically revised its growth targets for the second time this fiscal. How will it impact the auto component industry and how is the sector expected to perform in this scenario?
Kanwar: If the mother is gone, then the children have to go with them only. We reached a turnover of $ 43.4 billion in 2011-12 and our growth was about 15.7 percent. However, in the current fiscal, I expect it to go down by half. With exports and aftermarket sales, the growth rate will be 8 to 10 percent in FY’13. Lakshman: Definitely, there is a slowdown. Last year we grew almost 16 percent as an industry. This fiscal we were hoping to grow at the same percentage but it will be half of that with domestic growth to be better.
With this industry downslide, how will the sector rake in new business? Is the festive season likely to prop up sales?
Kanwar: We are saying the growth will be below last year’s and the auto component sector will be affected across all segments by the downward trend in the vehicle segment. Two-wheelers, which were never affected, have been quite badly impacted this year. The motorcycle segment has especially done badly in the last two months. So we are automatically going to be affected. In the commercial vehicle segment, what will bring in growth will be more light commercial vehicles rather than the heavy CVs.
Are new model launches likely to draw customers to the showrooms…
Kanwar: Even the customer at the end of the day wants to evaluate new launches and does not run overnight for every new launch. Mehta: The festive season is around the corner and we believe that it will pull things into a better shape. We are all working to make things happen better. At one end, there is a projection but on the other there is nothing to stop us from making the best effort to salvage the situation. There will be newer launches happening during the festive season and then there are the reforms announced by the government as part of confidence building measures. The stock exchange seems to be doing well now and there's talk of better business and sales targets, so it is all building up. So growth prospects should look up, going forward.
SIAM has gone on record that the Automotive Mission Plan (AMP) target will not be achieved by 2016. So how big will the shortfall be for the component sector?
Mehta: It is definitely time to take a relook at the AMP because it was taken up in 2006 and the annual target for 2016 for the auto component industry was $ 40 billion. We have overshot it last fiscal, so we have already in that sense met the target. But what was envisaged was that an equal (level of) growth would be coming from the domestic as well as the export markets with both contributing 20:20. But today, we are so much skewed towards the domestic market with exports accounting for $ 6.9 billion in FY’12, almost a sixth of the total turnover. Also while looking at 2016, why not look 10 years ahead at 2020 or 2022 so that you have something to work towards? In 2010, we revisited the AMP and got Ernst & Young to do a Vision exercise for 2020 which projects a $ 150 billion industry potential (including imports) by that time with $ 85 billion coming from the domestic market and about $ 30 billion coming from exports. What is a cause for concern is from the market point of view; we need a YoY growth. AMP is a target for vehicles and when they are not meeting targets, it is a cause for worry.
In China and Korea the government gives a lot of sops and incentives to the auto sector. What incentives are you expecting from the Centre?
Kanwar: We don’t expect China kind of incentives to be given to us but we need incentives to give a level playing field but the government has its own challenges. Mehta: For a very long time we have been asking for a technology upgradation and development scheme which will be an interest subvention scheme, with the government outgo for interest subsidies of around Rs 40 crore for a five-year period. We understand that the Planning Commission has principally accepted it but Cabinet approval is needed. For a five-year period, we need a Rs 15,000 crore scheme, and a grant that is a loan on subsidy, with the industry matching the same. So we asked the government for a technology upgradation scheme for Rs 7,500 crore at an interest subvention of 4 to 5 percent from the market for a five-year period. This has been recommended by the Ministry of Heavy Industries to the Planning Commission for the 12th Five Year Plan period. The MSME ministry has also recommended this for the Planning Commission and they have asked for another Rs 3,500 crore for the micro, small and medium enterprises that will not only include the auto component sector. This will be a separate scheme.
Growth for South Korean suppliers has been driven by exports whereas in India imports continue to dominate. Can the learnings from Korea help remove this imbalance?
Lakshman: Definitely. What happened in Korea took place 10 to 15 years ago, and which is continuing since then. We have our own challenges. Of course, the endeavour is that we export much more than we are importing right now; there are some opportunities but some challenges as well because there is intense competition from countries like Korea and China. And we need the government to support us because the way the governments have carried the Chinese and Korean industry along has not happened in our country. That is very clear and over and above that we are now all signatories to the WTO and when Korea did that they were not. Many of those countries liberalised first and then globalised. Unfortunately, we have done both together so for us to do exactly what Korea did would be difficult but there are some learnings from it. Mehta: Korea is a big example of collaborative R&D because structurally they work in chaebols and the component makers are part of the same family as the vehicle OEM. So one great lesson is to look at more collaborative R&D and have a more symbiotic relationship between OEMs and suppliers.
How will you succeed in this endeavour?
Kanwar: It is all about resource and risk sharing. We have had discussions between suppliers and OEMs that we should have that kind of approach so that we can collaborate for R&D as well as finances to support each other that will be more economical than buying parts from outside. India is known for its frugal engineering skills and good engineers and a lot of MNCs have captive R&D centres here. The skills are available in India and the challenge is of joining hands to work together with vehicle manufacturers and overcoming the risk factor. Some companies can take risks, others cannot. So it has to be a win-win situation for both.At present, initiatives are being taken in collaborative R&D and some companies are successfully designing engine components for OEMs using newer technology.
How is the industry response to Automechanika India which comes up in February next year in New Delhi?
Kanwar: We have received a very positive response so far. At the recent Automechanika Frankfurt, there were a lot of foreign companies and we have had interest shown from Germany, Italy, UK, Egypt and China. Automechanika Frankfurt was very successful and had 177 Indian companies participating. The India Automechanika will be held between February 7-10 on around 8,000-9,000 square metres of space. Bookings are still underway for it.
What is your five-point agenda for the auto component industry…
Kanwar: Growth, growth, growth, growth and more growth. A major agenda is that we want to see the component industry grow both domestically and internationally. Another agenda is for the government to come up with a long-term policy on various issues which are comparable with other parts of the world. We are going to take up with the Centre issues of incentives given to the sector in China and Korea that will facilitate the Indian component industry to become more competitive vis-à-vis competitor nations. Some of the incentives and government schemes for exports can consider whether a larger number of components can be covered under it, or can more markets be brought within its ambit. Some of these issues are being discussed with the government.
How can component makers become cost effective?
Mehta: We can’t make them cost effective as individual companies have to take up that initiative themselves. But we have the ACMA Centre for Technology and run various cluster programmes that provide the foundation, besides basic and advanced engineering expertise. We are now working towards a new product development cluster. Each of these has a curriculum and a roadmap and we have highly qualified counsellors coming in from the industry to work in clusters. They work with eight to 10 companies in a batch and interventions are right from the shopfloor to the top management level. And depending on the roadmap, the intervention could be for a duration of six months to two years making the companies world class.
How much do rising fuel costs including the recent diesel price hike affect the industry?
Kanwar: It does affect the market and from the cost point of view impacts companies as they need diesel for generating power.
What are the challenges for industry and in which areas do you need to gird up?
Lakshman: Capacity shortages are no more an issue, in fact capacity is more than required at present. Casting was a major concern earlier though. What has happened is that when demand came in during 2009-10 closing in 2010-11, it came far too fast and then we went in for a lot of investments and the market has now petered down so we have excess capacity in some cases. Every year there are industry investments and even if the market is down, investments will only slow down. Today, there is idle capacity at component makers’ factories.
What kind of investments are expected in the Indian component sector till 2015?
Kanwar: Companies are making long-term investments but we had projected a capex of $ 2.5 to 3 billion annually to reach the $ 115 billion mark by 2020 (domestic and exports). For 2010-11, we had a capex of $ 2 to 2.5 billion, in 2011-12 we did $ 1.6 to 1.9 billion. It is not as envisaged and the reason is that the capital is hugely expensive and one big challenge is to bring down the cost of capital in the country. Capacity creation truly mirrors the performance of the industry because the capacity creation happens at least a year ahead of what you see. Investments in the current fiscal will be lower than last year. With new investments coming in the west at Sanand, Gujarat, you will see a spike in investments in this region in the next two years. A lot of investment will happen in the Delhi-Mumbai Industrial Corridor as well.
What is your roadmap for the future?
Kanwar: We stand by our projection of reaching a $ 115 to $ 120 billion industry (status) by 2020.
And finally, what’s the latest status on the menace of counterfeit components?
Mehta: We are working on it. We need to have in place safety standards for aftermarket products which is a long-drawn process. We are working with the Bureau of Indian Standards on this. We are also undertaking awareness programmes like 'Asli Naqli' shows across India and, once every month, we set up a kiosk in any of the markets with a value add being ‘nukkad nataks’ that spread awareness about the disadvantages of spurious products. It will travel to various cities and towns in the future.
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