The pandemic has not only hit domestic demand for vehicles but also made exports difficult to erstwhile core markets of Sri Lanka, Nepal and Bangladesh. Following policy measures will do a world of good for Indian car making in the spirit of AtmaNirbhar Bharat.
Indianise and indigenise
Domestic demand for passenger vehicles has been facing a slump since the introduction of GST two years ago and leading automakers have registered decline in sales as much as 50% on average across segments. Same applies for exports but the causes here are a mix of Covid19 response as well as border closures. With worsening border tensions, it is worth asking how much of India’s auto manufacturing sector is dependent on Chinese imports? The simple answer in dollar value terms is not much. The entire auto industry in India is currently valued at $118 billion, out of which Chinese imports are worth less than 4%. But many critical components such as catalytic convertors, fuel injection systems and other semiconductor-based electronic parts are China-dependent, and this causes inordinate delays in times of border tensions and hurts Indian cars’ competitiveness in export markets. The obvious solution is to create domestic capacity to manufacture such components, which brings us to the next point.
India has nearly 60 million Micro, Small and Medium Enterprises (MSMEs) across industries employing over a 100 million people. In the auto sector alone, nearly 80% of the manufacturing is done in such small enterprises in auto clusters such as Chennai, Pune and Gurgaon. By increasing the capability and competitiveness of such SMEs and MSMEs, Indian automakers will be less reliant on imports and end up creating more jobs, thus boosting domestic demand. However, it is no secret that this segment is in dire need of deregulation and investment in order to meet cost and quality compliance of global OEMs. After demonetisation and GST, Covid19 is the final straw to break MSMEs backs and many industry experts have repeatedly pointed out that easing the cost and complexity of nearly 58,000 regulations currently required to do business in India is the way forward.
In order to become a $ 5 trillion economy, India needs to create formal jobs at an unprecedented scale and the auto industry has created millions of such formal jobs over the years. However, as the nature of jobs changes from full time employment to contract-based gigs, the new economy needs to embrace labour reforms to make it easier to skill and employ India’s rural and urban youth. Although Automotive Skill Development Council (ASDC) aims to skill and certify 25 million youth over the next 10 years, more aggressive skilling, employment and entrepreneurship opportunities need to be created under the Kaushal Vikas Yojana, especially for automotive MSMEs, if the country is to be self-reliant and truly #AtmaNirbhar.