The $22 billion Indian auto component industry faces many challenges. It needs a large dose of investment - an average annual investment of $3.5 billion over the next 10 years. (A mammoth figure indeed if one looks at historical data. Over the past decade cumulative investment in the sector has been $9 billion.)
If the investment materialises, it will enable the industry grow rapidly, become a $110 billion sector by 2020 and create as much as a million new jobs, according to data from the Automotive Component Manufacturers Association of India (ACMA). If it does not, imported auto components will invade the Indian market. There are already signs of this. During the 2009-10 year, imports worth $8.2 billion - accounting for almost 37 per cent of the industry turnover - found their way into the country. This figure is set to grow by 25 per cent in 2010-11.
China appears to be the biggest beneficiary of the Indian auto component sectors inability to invest and keep pace with the surging demand from the automotive sector. Imports from the dragon land have more than doubled in the last five years. The share of Chinese components in total exports has risen from five per cent in 2003-04 to 11 per cent in 2008-09.
To enable access to capital and technology, the auto component industry is seeking 'some timely' government intervention in the form of a Technology Upgradation Fund with a corpus of Rs 7,500 crore to be spent over five years as soft loans.
"The Technology Upgradation Fund will help in developing technologies related to light-weighting of auto components, engine and transmission technologies and manufacturing technologies. We propose that in the coming year the government looks at interest subvention of 4 per cent on Rs 1,000 crore worth of projects in these areas. The proposal will encourage industry to invest in technologies that help reduce the fuel bill, improve emission levels and lastly improve the competitiveness of our small and medium companies. We believe that this fund will ensure that there is a strong domestic base to realise the potential of the industry as brought out in the automotive mission plan," says Srivats Ram, President, ACMA.
ACMA is also seeking incentives to drive capital addition.
"We propose that the rate of depreciation on capital goods is increased to 25 per cent from the current level of 15 per cent. The government could even look at a higher rate of depreciation if the capital goods are bought within the country to encourage the domestic capital goods industry," says Ram.
These measures, ACMA feels, will enable the industry not only fight competition from imports but also achieve a global scale over the next 10 years.