We talk to Srivats Ram, the new president of ACMA
The new president of the Automotive Components Manufacturers Association of India speaks about Vision 2020, the need for improved R&D and FTAs in an exclusive interview with Murrali Thalor.
Congratulations on becoming the president of ACMA. What are your priorities?
For us in ACMA, our priorities are dictated by our customers who are the vehicle manufacturers. There has been a significant growth over the past 12 months and we see the next one year also showing growth. In line with this, I would look at the priorities on two aspects -- capacity and capability.
What are the issues related to component manufacturer capacity?
I think there is a need for component manufacturers to invest in capacities and find a way to meet demand. The component industry grew by 20 percent last year and we are likely to grow by 18 percent to reach $ 26 billion in the current financial year. We are looking at more interactions with SIAM to align ourselves to support the growth.
What was the reason for current capacity crunch?
The issue of capacity came up primarily due to the global recession in 2008, which also affected some segments of the industry. Investments were frozen by several companies. However, from the second half of 2009, there has been significant growth and the last fiscal too saw ACMA member companies recording significant growth. Vision 2020, released at ACMA’s 50th annual convention last month, states that the component industry has the potential to grow from the current level of $ 26 billion to $ 110 billion by the year 2020.
To achieve Vision 2020’s objective, capacity expansion should be exponential. How can this be achieved?
It is fairly clear that there is a need to build capacities in higher scales compared to what was happening earlier. The component industry used to resort to incremental capacities earlier but now it needs to increase at a much larger scale. We are also going to engage the machine tool manufacturing industry as it supports the component industry with equipment and machines. Having an engagement with them will help us sell our vision and make them invest in their capacities to meet our timely requirements. Typically, capacity expansion projects take six to 12 months which is why, despite the member companies investing $ 1.7 billion, there is still some shortage. Also, there are more teething issues with the sudden spurt of demand from OEMs.
What about availability of raw materials?
There is a need for interaction with raw material suppliers to ensure availability. We have been planning on an annual basis but I think we need to plan for a three- to five-year period with all the stakeholders moving forward. Our industry is very different from the vehicle manufacturing industry as we have a tiered structure – going from Tier 1 to Tier 4. About two-thirds of the component industry comprises of SMEs and the focus of our association is to reach out to them. ACMA will get the SMEs engaged with Vision 2020 by emphasising the importance of investing in capacities and capabilities.
What about the aftermarket that witnessed tremendous growth even during the slowdown?
There is a need for the component industry to focus on aftermarket, not only because opportunities increase due to an increasing vehicle parc but also due to better margins. This will give us the opportunity to serve the end customer and also help the finances of the members, eventually supporting them in their capacity expansion plans.
Can you elaborate about capability enhancement of component manufacturers?
It is about people being able to invest in improving their competitiveness, productivity improvement and low cost automation, which are carried out by ACMA Centre for Technology (ACT). We have also tied up with the Indian School of Business in Hyderabad to have a management programme for our members to make them think about management in a more holistic way and plan for the future years ahead.
What about skills availability?
Skill development is a major area we will focus on. We have forecast that the industry needs at least a million people to be inducted over the next decade. Though IT requirement is across the board, the one million addition will be predominantly in the operator level. And in line with that, we need to skill our people. We are working with SIAM and FADA through the Automotive Skill Development Council, which is the first sector-based council that was formed under the National Skill Development Programme. We are working on a pilot project in terms of creating modules. We believe that this would be the process that would take forward the skill levels of the industry in the next decade.
R&D is still in the nascent stage in the auto component industry. What is ACMA’s role in propagating it?
New product development is a key area to be focused on since India is, by and large, into a build to print mode. The need of the hour is to build design capabilities. Velocity of change needs to be lot quicker and for that in-house capabilities are required. ACMA is facilitating cluster programmes through ACT. In addition, we are looking at opportunities to build bridges with academia in India and abroad, testing agencies such as ARAI and our members. We also have a MoU with Fraunhofer Institutes in Germany to work along with SIAM on lightweighting vehicles. We have also set up a Sustainable Technology Committee that looks at several opportunities including renewable energy. We have also started engaging with the aerospace and defence segments in India due to some commonality especially in terms of stringent quality norms. We also have the Young Business Leaders’ Forum, set up by young members and members’ children to enhance their involvement and face new challenges.
To notch a turnover of $ 110 billion in a decade, the component industry has to invest about $ 30 billion – how will this be done?
There are a few things we are looking at to attain this objective. We have had discussions in formalising a proposal to the government for the Technology Development and Upgradation Fund. Though this will not support the entire requirement, it will certainly give some kind of impetus. We also plan to engage with some financial institutions about the auto component growth story. Most of today’s medium and large-sized companies were smaller ones a decade ago. So, if the banks and financial institutions support the requirements of the smaller companies, they can be part of the growth story. Attracting capital is an issue due to thin margins. However, the volumes are encouraging, which is evident in the top line growth.
What are the other challenges the industry is currently facing?
There are a lot of challenges in terms of availability of skilled manpower, infrastructure and power availability. There are issues related to improving the capabilities of members – enabling them to think big. Yet another big challenge is the competition in the form of imports. Therefore unless we ramp up, I think vehicle manufacturers will increasingly be looking at imports. We need ensure that there is no dumping of products. Already a number of Tier 1 companies from abroad have invested in India by setting up manufacturing bases. Based on the emerging business opportunities, several Tier 2 and Tier 3 companies are looking at entering India. It will be a threat for us as it will increase the competition across the tiers.
With real estate turning expensive, how can component makers, especially SMEs, build capacities and still be competitive?
We are looking at private institutions and the government to set up a supplier parks with reasonable infrastructure for them to grow faster. Existing industrial estates have grown organically but the present requirement is to develop at a faster pace. Therefore, the planned supplier park might help well.
What is the current status of components exports?
Exports were quite stagnant last year at $ 3.8 billion due to the recessionary trend. We expect to log about 25 percent growth this year. Two-thirds of our exports go to Europe and the US. The European economy is still sluggish and the US market has not fully recovered. When the component industry reaches $110 billion by the year 2020, we expect the contribution from exports will be around $ 30 billion.
What is your opinion about the Free Trade Agreement?
We believe that the government can gain by looking at FTAs with countries that are also growing economies and also having similar automotive sectors and structures. For instance, Brazil is similar to India. And countries like this will be suitable for establishing FTAs, from an auto component view point. I think the government is likely to go ahead with FTAs with number of companies. We need to be careful with few issues. Firstly, it is necessary to ensure that there is no inverted duty structure; secondly, FTAs should not reduce the quantum of investments that is made in terms of technology products in the country.
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