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Evolving landscape

  • The Indian automotive industry has been flourishing in recent years. The extraordinary growth can largely be attributed to the rise in per capita disposable incomes which have improved the living standards of the middle class.
  • Car companies have lined up more than US$ 6.67 billion investments.
  • Most automakers of the world either have an active presence or they source components from Indian component manufacturers. Leading global players like Hyundai, Ford, Mercedes, Toyota, Suzuki and GM now have a production base in India.  
  • The growth is primarily driven by the lower cost of manufacturing components which is 30 per cent lower compared to developed countries.
  • With the growth of the auto industry, the Indian auto components industry has also sizably grown. It is now well on the way to achieving global competitiveness in cost and quality.
  • The Indian automotive component industry has grown at a staggering pace in the last few years. The US $8.7 billion industry has registered a 30-35 per cent jump in the last few years. Exports increased from US $1 billion in 2003-04 to US $1.4 billion in 2004-05, and more thereafter.
  • Industry observers believe that while the auto market is likely to grow at a measured pace, the auto components industry is poised for a take-off, and one where India has a distinct competitive advantage.
 All eyes on India
  • The global automotive parts industry has undergone a sea change in the past decade. Consolidation and restructuring have accelerated with the opening of new and increasingly important markets.
  • The search for scale and scope economies by large manufacturers and the difficulty of smaller manufacturers to sustain themselves in the investment race have led to increased outsourcing to countries like India.
  • Suppliers are diversifying geographically, increasing R&D, and entering into joint ventures to seek more module contracts.
  • The world is also witnessing mushrooming of OEMs in India, China, Thailand etc.
  • With cost reduction and precision engineering being the mantra of most OEMs, India aspires to become the auto component supplier of the world.
Pithampur’s auto cluster
  • Pithampur is an industrial estate spread over 5,000 hectares near Indore. It is a hub for the automobile manufacturing industry, especially the units of Eicher, Kinetic Honda, Hindustan Motors, and Bajaj Tempo. The cluster will be equipped with the world’s largest testing facility, and the capability to test various category of vehicles in different climatic conditions at different stages. The track will also issue certificates to vehicles produced both here and abroad. Adding to Pithampur’s overall attraction is the proposed multi product SEZ in the vicinity.
  • With five OEMs (plus two more proposed) and over 100 component manufacturers, Pithampur is ideally placed to make automobile and auto components. Proximity to the Bhilai steel plant, and Nagpur city will cut raw material costs which normally are 60 per cent of the total production cost. Since the auto industry is largely export driven, the linkage is critical to the development of the cluster.
  • MP has been actively promoting the development of its engineering industry. With the result that it is now perceived to be among the leaders in the auto and auto ancillary sector with around five Original Equipment Manufacturers (OEMs) and over 100 auto component manufacturers.
  • The state has an auto component industry of around worth US $306 million, 60 per cent of which is controlled by auto component players.
  • Investments in the auto sector have been rapidly growing. Strategic location coupled with the state government’s cluster development initiatives have given MP a slight competitive edge over most other states.
Proposed Facilities
High speed test tracks
  • Oval shaped test tracks at the outer boundary
  • Two straights of 3,500 metres and curves of radius 100m each
  • Maximum testing speed of 350 km/hour
Dynamic platforms
  • Dynamic area of 150 metre radius
  • Two acceleration lanes of 1,000 metres
  • Testing speed more than 200 km/hr
Straight line braking
  • Four different braking surfaces
  • Low with basalt tiles: 250 metres in length
  • Low with ceramic tiles: 250 metres
  • High (asphalt): 200 metres
  • Acceleration lane: 1,000 metres
  • Registration fees and stamp duty
  • Sales tax
  • Entry tax
  • Octroi
  • Works contract tax
  • Property tax
  • Other local taxes
Specific incentives
Following the country’s WTO commitments, the GoI’s Auto Policy of 2002 aims at developing India as a manufacturing and export base for small cars and auto ancillaries. Accordingly, the policy enumerated several measures to develop the automobile market. These include:

  • Removal of the clause on minimum foreign direct investment
  • Removal of earlier stipulations on indigenization and import-balancing requirements
  • Permitting foreign automobile manufacturers to set up wholly-owned subsidiaries in India without requiring approval from the Foreign Investment Promotion Board
  • Specific fiscal incentives for cars less than 3.8 meters in length, to enable India to emerge as the Asian base for the export of small cars and multi-utility vehicles;
  • Incentives to manufacture automobiles using alternative fuel technology such as CNG and electric batteries
  • Proposals to discourage the use of old vehicles by levying higher taxes on older vehicles;
  • Proposal for a terminal life policy for commercial vehicles (CVs) along with incentives for the replacement of such vehicles.
State backing
  • Commercial tax rates levied on automobile components industries and trade are being rationalized and will be brought at par with the rates prevalent in other competing states.
  • Entry tax rates on raw material such as steel being used by automobile component industries shall be rationalized.
Regulatory trends
There are several trends in government legislations that are making Indian companies increasingly competitive. Among them are:
  • Safety norms to be brought on par with that of developed countries
  • Emission norms and environmental standards in line with those in the developed world
  • Fiscal duties have been significantly reduced over the years
  • Gradual dereservation of items for the small-scale sector augurs well for the industry
  • Value added tax (VAT) as a system of taxation aimed to harmonise the tax structure across states
  • Exports are virtually untaxed on account of the various advance license schemes

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20 Feb 2019
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