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Nano offers scope for cost effective component hub

MUMBAI: The successful launch of Tata Nano last week generated interest world-wide and has re-kindled interest in India as a low cost manufacturing centre, particularly for small automobiles. The interest is amplified by the global slowdown and the fact that companies across the board are seeking more corners to cut.

The Nano’s on-road price, starting at Rs. 1.20 lakh (about $2,300), is about 50 per cent lower than other low cost cars launched world-wide in the recent past.

Crisil Research estimates that the new price point reduces the cost of ownership in India by 30 per cent, and takes it to below three times the cost of owning a motorcycle. This makes the car affordable to an additional 1.4 crore families, including a section of the 5.8 crore two-wheeler owners.

India exported three lakh small cars in 2008-09 and this figure has been growing at an annual growth rate of 21 per cent over the last five years and is expected to double in the next five years.

Sachin Mathur, Head, Crisil Research, said, “this growth has been enabled by increasing manufacturing competitiveness across the board, driven by continuous improvement in quality and productivity. The Nano initiative, entailing significant product design innovation and cost optimization, further adds to the competitive edge of automotive manufacturing in India.” Surinder Kapoor, Chairman, Sona Koyo Steering, which makes the steering system including the differential sub-assembly for the Nano, said his company was investing around Rs. 15 crore for its Sanand unit. “While all credit should rightly go to the Tatas, vendors have shown that they can make cost effective components.”

For too long India had the reputation of a high volume manufacturer of low quality components. But, in a testimony to the vendors’ pro-activeness, that is changing now and they are proving to be extremely innovative even in automotive design capability.

Mr. Mathur said the Nano had further highlighted the capabilities of a low cost automotive manufacturing ecosystem in India.

Bosch, a global component maker, is stepping up its investments in India. Bosch India Managing Director V. K. Visvanathan said, “we are supplying the fuel injection systems for the Nano — pumps and injectors from our existing facilities in Bangalore and Nashik.” Notwithstanding the huge market opportunity, Crisil Research expects that the scaling up would be challenging.

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