The past few months have completely changed the way businesses are run around the world. Covid-19 has cast an unimaginable impact on the global economy, exacerbating a prolonged downturn which can only lead to a recession. The automotive industry, one of the barometers of the world economy, is been among those hugely impacted and has witnessed disruptions related to supply chain, production as well as demand.
Mirroring the rest of the world is India Auto Inc. Although the industry’s speedy leapfrogging of emission tech to BS VI should have should have been the headlines for some time, the pandemic and its resultant lockdowns stole the limelight. In India, April was a complete washout with zero production and sales for the first time in the industry’s history. When the lockdown was lifted in mid-May 2020, OEMs and component suppliers gingerly began re-opening their shuttered plants but most had to go slow due to supply chain issues, and some due to key components not being received in time from India’s biggest components exporter – China.
All this had captains of industry coming together to brainstorm the way ahead, both for their own firms in particular as well as India Auto Inc in general. How long can the country remain dependent on critical parts, is 100 percent localisation achievable and what needs to be done to get there, are some of the many questions top players were asking themselves. How far can Make In India go and can India be transformed into a global manufacturing hub?
To debate this and other key issues, apex component industry body ACMA (the Automotive Components Manufacturers Association of India) held a panel discussion on ‘Competing with the Dragon – The Smart Manufacturing Way’ on July 11.
Origin of imports: China tops at 26%
ACMA data has it that in the first half of FY2020, the Indian auto components industry exported Rs 51,397 crore (US$ 7.5 billion) worth of parts but imported parts worth Rs 57,574 crore (US$ 8.4 billion). Of the top eight countries India imports parts from, China with 26% is the No. 1.
Given China’s dynamic and robust role in global supply chains and as a primary source of products particularly automotive, India imports a varied range of parts from China covering drive, transmission and steering; engine parts; electricals and electronics; suspension and braking; cooling systems and vehicle interiors.
China’s contribution at 26 percent is by far the largest, followed by South Korea (13%), Germany (12%), Japan (9%) and the US (4%). However, while Chinese imports were able to maintain their value in FY2019 compared to FY2018, there was a 5 percent year-on-year de-growth in H1 FY2020.
According to Vinnie Mehta, director general, ACMA, “Compared to the overall automotive value chain in India, which is worth Rs 873,318 crore (US$ 118 billion), the imports from China in FY2020 are only worth Rs 35,154 crore (US$ 4.75 billion) which is just about 4 percent of the overall size of the industry. So, in quantum it is not much actually. It’s a very small amount.”
“However, the challenge does remain with respect to certain critical components such as those relate to electronics,” cautioned Mehta.
Double whammy for India Auto Inc
The coronavirus pandemic couldn’t have come as a worse time for the Indian automotive industry, which was just preparing for a massive technological transition to BS VI norms from April 1. In order to leapfrog an entire generation of norms and attain BS VI compliance in a record three-year timeframe, the industry had to rely on importing critical electronic-related BS VI parts from China.
However, what further aggravated the situation is that while on one end the BS VI parts need to continue being imported, the recent Indo-China border tussle has meant that automakers are now keen to de-risk themselves in the future from likely supply chain disruptions and reduce their dependence on China for critical parts.
According to Deepak Jain, president, ACMA, “The automotive value chain is very complex, integrated and interdependent. In our parlance, self-reliance means that if tomorrow a supply chain gets disrupted because of sourcing from a particular geography, we should have alternative sources ready so that the disruption could be minimised. Preferably, we would want the sourcing largely to happen within India as that is what is in the interest of the country and its people.”
“The auto and auto components industry in India are shining examples of 'Atma-Nirbharta' (self-reliance) and we would continue on our efforts towards ‘deep localisation’; localisation always leads to better cost structures, as well as more innovations. Having said that, we are not anti-imports, but at the same time, we want to be self-dependent,” said Jain.
He added, “Post Covid-19, all nations and industries want to reduce their dependence on China and are working towards a ‘China + 1’ strategy to de-risk themselves. In India too, OEMs and their suppliers are working to de-risk themselves. With the Indo-China geopolitical challenge, this is only going to accelerate.”
Smart manufacturing to take on the Dragon
At the ACMA webinar, eminent industry panellists discussed and debated how India Auto Inc can further enhance its localisation efforts and even compete with the Dragon by leveraging smart manufacturing and various low-cost automation methodologies.
According to Ashok Taneja, MD and CEO, Sriram Pistons & Rings, “When we think of the USA, we think of innovation but when we think of China, the first thing that comes to mind is low-cost, quick development and quality that is increasingly being accepted around the world. The Indian auto components industry is driven by things such as good quality and technology, but most importantly, affordability. China has somehow found a way of offering cost competitive products and acceptable quality. We need to first beat China if we aim to become a manufacturing hub.”
Anirudhha Kadkol, manufacturing, IT and digital head, Mahindra & Mahindra, is of the opinion that, “If we improve on quality followed by productivity and speed, it would, at the very outset, enable us to stand against a country like China.”
“Technology definitely gives a very big jump in productivity and quality and if we are looking at a greenfield facility, technology does help to leapfrog and offer enhanced output. Moreover, if we use technology for de-skilling in a very big way – bring in mechanisation and follow it up with automation and Industry 4.0, it will help a lot in improving quality,” added Kadkol.
As per Lokesh Payik, head – digital enterprise, Connected Industry, Bosch, “The first thing is to have an 'intent' to adopt new technology. This is what we need at the moment. Right now, it’s a mixed bag feeling in the Indian automotive industry. When we talk about intent, it should not be a half-baked intent. I am not saying that we are lacking it, but we could do a lot better in comparison to countries like China.”
Manoj Kolhatkar, managing director, Gabriel India, said: “The first and foremost thing is that we have to be competitive when we talk about going on a global scale. Presently, India forms a very miniscule part of the global automotive scale. What I see is that there is a huge upside to the ongoing situation, and while we can win, it may not be in the short-term, but certainly on a mid-term basis. We need to first have our manufacturing systems in place and have good work ethics. Basic work discipline is what we can learn from China and even other South East Asian countries for that matter.”
According to Sri Karumbati, CIO, Stumpp, Schuele & Somappa Group and chairman, ACMA Digital, “What has significantly contributed to China’s growth is its laser-sharp focus on productivity. We, as a nation, have seen a significant drop in productivity over the years. Furthermore, today China files over 21 percent of the global patents, while the US is at about 22 percent. On the other hand, the number of patents filed out of India are merely 0.8 percent. This shows that there is a big gap between the two countries in terms of innovation as well.”
“I feel that the smart manufacturing would help us leapfrog from where we are to where we want to be. In my view, if you install these smart technologies, they help you improve your basics,” said Gaurav Sarup, managing director, Marshall Machines.
According to Nishant Jairath, director, Metalman Auto and co-chair, ACMA Digital, “Not just intent but acceptance is also necessary with respect to being able to compete or beat China. How we need to do it is to first get the basics of manufacturing right and eventually look at smart manufacturing. Once, PQCDSM (Production, Quality, Cost, Delivery, Safety, Morale) is there, then comes the aspect of smart manufacturing.”
The webinar panellists also unanimously agreed on the fact that the OEMs and Tier 1s need to handhold their Tier 2s and Tier 3s in order to ensure widespread adoption of smart manufacturing technologies, and thus, an inclusive growth.
According to Jairath, “As an industry, we need to go the extra mile to have an inclusive growth and handhold the Tier-IIs and Tier-IIIs. It’s about understanding interdependence, which makes the entire system more competitive. It’s the big companies with the resources of profitability and Cloud technology that must have this technology trickle down right to their Tier-IIIs and encourage them to adopt some sort of smart technology to witness the results.”
“We need to have the bigger companies take the smaller companies along and only then we can see ourselves beating China,” he remarked.
The panellists summarised the entire debate about self-reliance and being able to reduce industrry’s dependence on China by diving into the different aspects that determine India’s intent to do so. While the outcome of the discussion was that competing with the Dragon is now a necessity and is doable, it also reminded the industry to focus upon its own circle of influence.
Now as the prevalent global circumstances do push the country and the automotive industry to register its strengths and work upon its weaknesses, the time has clearly come when a combined might of talent, hard work and technology can enable India to catapult into a self-reliant future. Can the domestic components industry take on the challenge. ACMA president Deepak Jain certainly thinks so: “Our industry has always been a champion of localisation. The recent shift in technologies led to more imports, but we will soon localise that. If we're looking at scale and export, our domestic manufacturing should be competitive on a global index.”