The Hindu : Business : Auto component units seek sectoral policy

Online edition of India's National Newspaper
Friday, Dec 17, 2004

Business

Business

Auto component units seek sectoral policy

By K. T. Jagannathan and Shanthi Kannan

By K. T. Jagannathan and

Shanthi Kannan

CHENNAI, DEC. 16. Far from handing out a generic treatment, the Central Government should come out with a sector-specific policy prescription for the auto component industry.

Echoing this view in an interaction with The Hindu, Deep Kapuria, President, Automotive Component Manufacturers Association of India (ACMA), said the industry was set to become a key export growth driver in the years to come and, hence, merited a focussed attention.

The demand for an independent policy prescription for the auto component industry stemmed from a combination of competitive factors emerging in the international sphere. While these factors had made integration with globe unavoidable for India, they had also put the domestic industry at a disadvantage.

Mr. Kapuria said the external environment had created roughly about 18-22 per cent cost disadvantage for the domestic component makers. Coming on top of this, the free trade agreement (FTA) with Thailand had only widened the hiatus between the domestic and overseas companies.

He reckoned that the FTA with Thailand made it prudent and profitable for the Indian firms to set up shop in that country, import raw materials at five per cent duty from India, add value and ship the products back to India.

Mr. Kapuria said some domestic companies were drawing up firm-level strategies to go to Thailand. Given this, he argued that there should be a sectoral policy for the component industry.

He saw a sense of urgency for this especially since outsourcing "is becoming a compulsion for the original equipment manufacturers."Estimates suggested the component demand from OEMs to grow to $1.6 trillion by 2015. The outsourcing portion in this could be around $700 billion.

ACMA was confident that India could garner at least 3.5 per cent of this $700 billion by 2015. The ACMA President called for an alignment in thinking between the industry, the Government and varied associations. That called for a cohesive approach to fiscal matters as well physical infrastructure, he said. If this was not done, the capital would inevitably move to a location where it fetched more returns, he pointed out.

According to Mr. Kapuria, inputs formed a major portion of cost for auto component units in India. Further, the structure of the industry also had undergone a change. In 1980s, close to 80 per cent of the industry's business came from serving aftermarket needs, the rest from OEMs.

Today, close to 67 per cent of the business was coming from OEMs, he said. Further, the global OEMs would put pressure on them in the coming days for price cuts. Given these, he felt that the industry should get a level field vis-à-vis sourcing its input needs.

Bringing the import duty level (if not to the level obtaining in countries with which Indian had signed FTA) in line with ASEAN rates, extending long-term tax holiday for investment in research and development, easing quantitative curbs on sale in DTA (domestic tariff area) by units in SEZs (special economic zones), tax-free wheeling of power from private generators and according priority status to the industry were among the myriad prescriptions suggested by ACMA to the Union Government.

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