India’s objective of being self-reliant may be difficult for the auto sector to achieve as electric vehicle parts and auto parts that fit the BS-VI norms are not produced in India, said Society of Indian Automobile Manufacturers’ (SIAM) president, Rajan Wadhera.
Survival in the auto sector will be a difficult task and it will take about four years for the auto sector to revive and reach 2018 levels. There is 50pc degrowth in auto sector compared to 2018 and to recover from that, GDP growth must be over 10pc, SIAM noted.
Approximately, 70pc of the auto components are supplied locally but the remaining is imported. Geo-political situation is forcing major companies to go for local products but availability remains a concern. For the auto sector to be self-reliant, aggressive production of the remaining 30pc components is required.
Challenges galore
To be 100pc self-reliant it will take India two to three years, said Wadhera. Economies of scale is required to provide all the technology that auto sector is demanding. Scale is also essential for localization and reduction of cost of materials. Free trade agreements have to be initiated with several countries for smooth flow of products. India has one of the highest logistics cost which needs to be brought down.
The steel companies in India do not produce the exact ‘small lots’ of steel required by original equipment manufacturers (OEMs), forcing them to import it. Focus has to be shifted to produce electronic parts as they are not yet produced in India, Wadhera said, adding that the country has the potential to export auto material.
The auto sector in India is running at 20-30pc production levels due to COVID-19 which might climb up to 40pc by the end of July, according to SIAM. The auto sector’s growth has tumbled by 75pc during the first quarter (April-June) compared to the previous fiscal.
The primary concern for the auto sector is from the supply side as critical auto parts are being imported as its availability in India is next to zero. The imported auto part is cheaper and better compared to the domestic units. Labour issues, stuck consignments at ports and a break in supply chain link are the biggest problems of auto producers. Till recently, Chinese import consignments were being manually inspected at ports which resulted in inordinate delays, eventually impacting vehicle manufacturing, Wadhera revealed.
SIAM reached out to the government with the issue which later led to restoration of smooth operations. In June quarter, import of auto components rose by 2-6pc compared to previous year as the lockdown affected local markets. This is the longest slowdown in the auto sector which is continuing for nine quarters, according to SIAM’s data. The de-growth of the auto sector started with the economic slowdown in Q1FY20 and was further accentuated by shifting to BS-VI and now by COVID-19 in Q1FY21.
Production
Total production of vehicles has slipped by 51pc in June to 1,094,363 units compared to June 2019. In the quarter ending June however, production fell by 80pc to 1,486,594 units from the prior-year quarter.
The medium and heavy commercial vehicle auto segment witnessed the highest de-growth of 92pc at 6,669 units in the June quarter compared to 2019. Passenger car production fell by 83pc to 144,860 units in April-June 2020 from the previous quarter.
Domestic Sales
Total domestic sales of vehicles nosedived by 75pc to 1,491,216 units in June quarter from the previous year. Major de-growth in sales was in the medium and heavy commercial vehicle auto segment with just 4,403 units sold, down 94pc year-on-year.
Passenger car sales slipped by 78pc to 153,734 units in June quarter compared to 2019. The two-wheeler sale fell by 74pc to 1,293,113 units from 2019 June quarter.
The auto sector is a major consumer of steel, lead, zinc, aluminium and other metals and is a huge source of scrap too. The health of the auto sector is crucial for these heavily relying sectors.