Final AMP Report

8/6/2019 Final AMP Report

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VISION

To emerge as the destination of choice inthe world for design and manufacture ofautomobiles and auto components withoutput reaching a level of US$ 145 billionaccounting for more than 10% of the GDPand providing additional employment to

25 million people by 2016.

Automotive Mission Plan 2006-2016


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3

AUTOMOTIVE MISSION PLAN 20062016


From the Desk of Honble Minister ofHeavy Industries and Public Enterprises

e Indian Automotive Industry has emerged as a Sunrise Sector in our economy

within fieen years of its liberalisation. e next ten years will be crucial period forgrowth of the Indian automobile industry as a significant player in the global stage.I am happy to see that all stakeholders are focused to convert this challenge intoopportunity.

In order to accelerate and sustain growth in the automotive sector, a roadmap wasneeded to steer, coordinate and synergise the efforts of all stakeholders. I am gladthat my Ministry in consultation with all; the industry, the planners, the academia, allconcerned central and state authorities; has prepared this comprehensive document :Automotive Mission Plan 2006-2016 to make India a Global Automotive Hub.

I am confident that the combined efforts of the Government, Industry and Academiawill succeed in this mission. My compliments to all those who are instrumental ingiving shape to this valuable Automotive Mission Plan.

(Sontosh Mohan Dev)New DelhiDecember, 2006



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Contents


Abbreviations i

Foreword v

Preface ix

Executive Summary xiii

Auto Industry : e Global Scenario 1

Evolution of Indian Automotive Industry 5

Indian Automotive Industry : An Overview 17

e Automotive Mission Plan 25

Recommended Interventions 31

Summary of Recommendations 47

Annexure I-Working Groups 51

Annexure II- Composition of Inter-Ministerial Groups 53


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Abbreviations

ACMA Automotive Component Manufacturers AssociationAISC Automotive Industries Standards CommitteeARAI Automotive Research Association of IndiaASEAN Association of South East Asian NationsASI Annual Survey of IndustriesATI Automotive Training InstituteBIMSTEC Bay of Bengal Initiative for Multi Sectoral Technical and Economic CooperationBIS Bureau of Indian StandardsBS Bharat StageCAGR Compounded Annual Growth RateCAR Core group on Automotive R&DCBDT Central Board of Direct TaxesCDM Clean Development Mechanism

CFS Container Freight StationCMVR Central Motor Vehicle RulesCNG Compressed Natural GasCOP Conformity of ProductionCSIR Council for Scientific and Industrial ResearchCV Commercial VehicleDEPB Duty Entitlement Pass Book SchemeDG Diesel GeneratorDGFT Directorate General of Foreign TradeDHI Department of Heavy IndustriesDIN Deutsches Institut fr NormungECE Economic Commission for EuropeEEC European Economic Community

ELV End of Life VehicleEOU Export Oriented UnitEPCG Export Promotion Capital Goods SchemeEU European UnionFDI Foreign Direct InvestmentFTA Free Trade AgreementFY Financial Year

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GCC Gulf Co-operation CouncilGDP Gross Domestic ProductGST Goods & Service TaxHP Horse PowerI&C Inspection & CertificationICD Internal Container DepotICRA Indian Credit Rating AgencyIIM Indian Institute of ManagementIPP Industrial Policy & PromotionIIT Indian Institute of TechnologyiMaCS ICRA Management Consulting ServicesIPR Intellectual Property RightsISO International Organisation for Standardization

IT Information TechnologyITI Industrial Training InstituteJIPM Japan Institute of Productivity ManagementJNPT Jawaharlal Nehru Port TrustLCC Low Cost CountriesLCV Light Commercial VehicleM&HCV Medium & Heavy Commercial VehicleMFN Most Favoured Nationmn MillionsMNC Multi National CorporationMNRE Ministry of New & Renewable EnergyMoHI & PE Ministry of Heavy Industries & Public EnterprisesMUV Multi Utility Vehicle

MW Mega WattNAFTA North American Free Trade AreaNAII National Automotive Infotronics InitiativeNATRIP National Automotive Testing and R&D Implementation ProjectNCAER National Council for Applied Economic ResearchNGO Non-Governmental OrganisationNHAI National Highway Authority of IndiaNHDP National Highway Development ProjectNHEB National Hydrogen Energy BoardNID National Institute of DesignNMDP National Maritime Development ProjectNRSB National Road Safety BoardOEM Original Equipment Manufacturer

PMP Phased Manufacturing ProgrammePPP Public Private PartnershipPTA Preferential Trade AgreementQR Quantitative RestrictionR&D Research & DevelopmentRSPM Respirable Suspended Particulate MatterRTA Regional Trade Agreement

ii

ABBREVIATIONS



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SAARC South Asian Association for Regional CooperationSACU Southern African Customs UnionSAFTA South Asia Free Trade AgreementSAP Special Auto component ParksSERC State Electricity Regulatory CommissionSEZ Special Economic ZonesSIAM Society Of Indian Automobile ManufacturersSIDBI Small Industries Development Bank of IndiaSION Standard Input Output NormsSME Small and Medium EnterprisesSPM Suspended Particulate MatterSQC Statistical Quality ControlSUB Supplementary Unemployment Benefit Fund

SUV Sports Utility VehicleTA Type ApprovalTIFAC Technology Information Forecasting & Assessment CouncilTPM Total Productivity ManagementTQM Total Quality ManagementTSC Technical Standing CommitteeUNECE United Nations Economic Commission for EuropeUSD US DollarsVAT Value Added TaxWP.29 Working Party 29WTO World Trade Organisation

ABBREVIATIONS

iiiAUTOMOTIVE MISSION PLAN 20062016


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India is emerging as one of the worlds fastest growing passenger car markets and second largesttwo wheeler manufacturer. It is home for the largest motor cycle manufacturer and fih largestcommercial vehicle manufacturer. e industry is producing about 13 lakhs passenger vehicles,

4 lakhs commercial vehicles, 76 lakhs two wheelers and about 3 lakhs tractors per annum. eautomobile industry has achieved a turn over of US $ 28 billion and the auto component industryhas reached a turn over of US $ 10 billion. e Indian tyre industry, which is an integral part ofIndian Automotive Industry has registered a turn over of almost US $ 3 billion.

In order to further improve the automobiles in the Indian domestic market, to provide worldclass facilities of automotive testing and certification and to ensure a healthy competition amongthe manufacturers at a level playing field, our Ministry has undertaken to lay down the road map forfuture development of the industry in the form of this Automotive Mission Plan 2006-2016.

Ministry would like to place on record its appreciation for the work and support of Chairmanand members of five working groups for ably identifying the challenges and for making valuablesuggestions for intervention which enabled us in finalizing the Mission document. Ministry alsoacknowledges the valuable contributions made by the members of five Inter-Ministerial Groupsand suggestions provided by various Ministries/Departments of the Government of India. eGovernment is of firm conviction that the aspirations unfolded in the Mission document will beachieved and Indian Automotive industry will attain the strength to meet the competition at worldlevel and fare as a world class industry. e Mission Plan would be a useful blueprint for future toprovide the joint vision of the Ministry and the Indian Automotive Industry.

(Dr. Ramesh Chandra Panda)Secretary to Government of India

Ministry of Heavy Industries & Public EnterprisesNew DelhiDecember, 2006

Foreword

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Preface


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Preface

The Indian Automotive Industry embarked on a new journey in 1991 with delicensing of thesector and subsequent opening up for 100 per cent FDI through automatic route. Since thenalmost all the global majors have set up their facilities in India taking the level of production

of vehicle from 2 million in 1991 to 9.7 million in 2006.

e growth of Indian middle class with increasing purchasing power along with strong growthof economy over a past few years have attracted the major auto manufacturers to Indian market.e market linked exchange rate and availability of trained manpower at competitive cost havefurther added to the attraction of Indian domestic market. e increasing pull of Indian marketon one hand and the near stagnation in auto sector in markets of USA, EU and Japan on the otherhave worked as a push factor for shiing of new capacities and flow of capital to the auto industryof India. e increasing competition in auto companies has not only resulted in multiple choicesfor Indian consumers at competitive costs, it has also ensured an improvement in productivity by

almost 20 per cent a year in auto industry, which is one of the highest in Indian manufacturingsector.

To maintain this high rate of growth and to retain the attractiveness of Indian market andfor further enhancing the competitiveness of Indian companies, the Government through theDevelopment Council on Automobile and Allied Industries constituted a Task Force to drawup a ten year Mission Plan for the Indian Automotive Industry. e challenge was to give shapeto a futuristic plan of action with full participation of the stakeholders and to implement it in amission mode to remove the impediments coming in the way of growth of industry. Besides makingconcerted efforts for removal of obstacles for accelerated growth, the prime need was to put in placerequired infrastructure well in time to facilitate growth. rough this Automotive Mission Plan2006-2016, Government also wants to provide a level playing field to all players in the sector and tolay a predictable direction of growth to enable the manufacturers to take more informed investment

decision.

Automotive Mission Plan (AMP) 2006-2016 was the outcome of a protracted in-depth dialoguewith all stakeholders (industry, academia, authorities) over a period of fieen months. FiveWorking Groups were constituted with people of eminence from industry, academia and publicinstitutions to map the challenges, set targets and evolve mission mode for implementation ofagreed mile stones. ey examined policy parameters as well as the configuration of manufacturing

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infrastructure of Indian industries and addressed a wide range of issues including upgradinginfrastructure of production, induction of technology, labour law reforms and employment relatedissues, R&D needs, change of fiscal and policy parameters, human resource development, growthof domestic demand and exports and finally, environment and safety concerns. eir findings andrecommendations were considered by five IMGs having representatives of all concerned Ministries,Academia and Public Institutions. e final recommendations of the IMGs vetted by respectiveMinistries were put in the public domain for wider debate and more inclusive recommendations.e final outcome was put before the Development Council of Automobile and Allied Industries,which has unanimously endorsed it. us the consensus was arrived at.

India is at the threshold for a major take off in the automotive sector. Time bound implementationof Automotive Mission Plan AMP 2006-2016 together with establishment of world class testing,homologation and certification facilities along with 9 state of art R&D centres under National

Automotive Testing & R&D Infrastructure Development Project (NATRIP) will ensure IndianAutomotive Industry a distinct edge amongst the newly emerging automotive destinations of theworld.

(Dr. Surajit Mitra)Joint Secretary to Government of India

Ministry of Heavy Industries & Public EnterprisesNew DelhiDecember, 2006

PREFACE

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Executive Summary


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Executive Summary

1. e Indian Automotive Industry aerde-licensing in July, 1991 has grown ata spectacular rate on an average of 17%for last few years. e industry has nowattained a turnover of Rs. 1,65,000 crores(34 billion USD, assuming 1$ = Rs. 46)and an investment of Rs. 50,000 crores.Over Rs. 35,000 crores of investment is inpipeline. e industry is providing directand indirect employment to 1.31 crorepeople. It is also making a contributionof 17% to the kitty of indirect taxes. eexport in automotive sector has grown

on an average CAGR of 30% per year forthe last five years. e export earningsfrom this sector are 4.08 billion USD outof which the share of auto componentsector is 1.8 billion USD during the year2005-06.

2. Even with this rapid growth, the IndianAutomotive Industrys contribution inglobal terms is very low. is is evidentfrom the fact that even though passengerand commercial vehicles have crossedthe production figure of 1.5 million

in the year 2005-06, yet Indias share isabout 2.37% of world production of66.46 million passenger and commercial vehicles. Indian automotive exportconstitutes only about 0.3% of globalautomotive trade.

3. It is a well accepted fact that theautomotive industry is a volume drivenindustry and certain critical mass is apre-requisite for attracting the muchneeded investment in Research andDevelopment and New Product Designand Development. R&D investmentis needed for innovations which is thelife-line for achieving and retaining thecompetitiveness in the industry. iscompetitiveness in turn depends on thecapacity and the speed of the industryto innovate and upgrade. e most

important indices of competitiveness areproductivity of both labour and capital.

4. e concept of attaining competitivenesson the basis of low cost and abundantlabour, favourable exchange rates, lowinterest rates and concessional dutystructure is becoming inadequate andtherefore, not sustainable. In light of theabove, it is felt that a greater emphasis isrequired on the development of the factorswhich can ensure competitiveness on along-term basis. e automotive sector

with its deep backward linkages (such asmetals like steel, aluminum, copper etc.,plastics, paint, glass, electronics, capitalequipment, trucking, warehousingand logistics) and forward linkagesincluding (dealership retails, credit andfinancing, logistics, advertising, repair

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and maintenance, petroleum products,gas stations, insurance, service parts)has been recognized and identified atdifferent fora (Development Councilof Automobile and Allied Industries,Planning Commission, NationalManufacturing Competitiveness Counciland Investment Commission etc.) asa sector with a very high potential toincrease the share of manufacturingin GDP, exports and employment. esector is also seen as a multiplier ofindustrial growth. It helps in attaining

two critical goals of the CommonMinimum Programme, that of increasingmanufacturing output and providingemployment. Although indirectly, it alsofacilitates the third objective of increasingagricultural productivity throughfarm mechanization and the needs ofagricultural product transportation.

5. India with its rapidly growing middleclass (450 million in 2007 as per NCAERReport), market oriented stable economy,availability of trained manpower at

competitive cost, fairly well-developedcredit and financing facilities and localavailability of almost all the raw materialsat a competitive cost has emerged as oneof the favorite investment destinationsfor the automotive manufacturers.ese advantages need to be leveragedin a manner to attain the twin objectiveof ensuring availability of best qualityproduct at lowest cost to the consumerson the one hand and developing andassimilating the latest technology inthe industry on the other hand. e

Government recognizes its role as acatalyst and facilitator to encouragethe companies to move to higherlevel of competitive performance. eGovernment wants to create a policyenvironment to help companies gaincompetitive advantage. e government

policies target to encourage growth,promote domestic competition andstimulate innovation.

6. It is also felt that a general improvementin availability of trained manpowerand good infrastructure is requiredfor sustainable growth of the industry.Besides, specialized and industry-specific initiatives can lead to enhancedcompetitiveness. Keeping in viewthe above factors, the Governmenthas launched a unique initiative of

National Automotive Testing and R&DInfrastructure Project (NATRIP) toprovide specialized facilities for Testing,Certification and Homologation to theindustry. A similar initiative is requiredfor creating specialized institutions inautomotive sector for education, trainingand development, market analysisand formulation and dissemination ofcourses.

7. e issues relating to fiscal incentives forthe industry to promote R & D is under

study of Mashelkar Committee and theissues pertaining to R & D related dutystructures is being examined by theHoda Committee. e concerns of theindustry will be suitably addressed in theabove fora.

8. It has been noticed that the AutoIndustry has grown in clusters of inter-connected companies which are linked bycommonalities and complementarities.e major clusters are in and aroundManesar in North, Pune in West,

Chennai in South, Jamshedpur-Kolkatain East and Indore in Central India.e Department is envisaging in theEleventh Five-Year Plan period tocreate a National Level SpecializedEducation and Training Institute forAutomotive Sector and to enhance the

EXECUTIVE SUMMARY

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transportation, communication andexport infrastructure facilities throughconcerned Ministries in and aroundthese clusters. e Government willmake attempts to streamline the relevantGovernment Institutions and Educationaland Research Institutions in and aroundthe clusters to meet the growing needs ofthe automotive sector.

9. e Automotive Mission Plan (AMP)2006-2016 aims at doubling thecontribution of automotive sector inGDP by taking the turnover to 145USD in 2016 with special emphasis onexport of small cars, MUVs, two & threewheelers and auto components.

EXECUTIVE SUMMARY

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t t t t t


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Auto Industry: Global Scenario


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Auto Industry: Global Scenario

1.1 e production of passenger andcommercial vehicles has reached a newrecord of 66.46 million units in 2005.e growth in production has been asfollows:

1.2 ere has been an addition of 10.59million vehicle production since 1997. Amajority of this growth is coming from theAsia Pacific region (excluding Japan).e production has nearly stagnated inWestern Europe at 17 millions, NAFTA

at 16 million and Japan at 10 million butit has more than doubled in Asia-Pacificregion from 7.1 million in 1997 to 16million in 2005.

1.3 A bulk of this increase in Asia- Pacificregion has come from China whereproduction has trebled from 15.82 lakhunits in 1997 to 46 lakh in 2005. esecond contributor to this growth isIndia where production has doubledgoing up from 7.72 lakh units in 1997 to15.76 lakh in 2005. e third contributor

to this growth is ailand where it hasincreased from 3.60 lakh units in 1997to 8 lakh units in 2005. It is pertinent tonote that the global installed capacity inthe sector is around 80 million, so still anidle capacity of about 15 million existsworld wide.

1.4 e 12 global majors account for 53.02million of vehicles produced in 2005,which is 80% of the total production of66.46 million.

1.5 Global motorcycle production hasincreased from 30 million units in 2003to 40 million units in 2005. Asia is themajor producer of motorcycles in theworld with 90% share. Within Asia,China accounts for 17 million unitswhereas India is at second position with

1

Table: 01 Global vehicle production

(1997-2005)

Year World Vehicle PercentageProduction increase/(units in million) decrease (-)

1997 55.871998 53.20 (-) 4.77

1999 55.74 4.77

2000 58.33 4.64

2001 56.17 (-) 3.70

2002 58.45 4.05

2003 60.09 2.80

2004 64.16 6.77

2005 66.46 3.58

Source:OICA Statistics Committee, world ranking 2005

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2 AUTOMOTIVE MISSION PLAN 20062016

7.7 million units in 2005.

1.6 e industry being highly capitalintensive, has entry barriers for smallerplayers. Even the existing global automajors themselves are realigning theirproduction bases coming closer to thescene of action in Asia- Pacific region,mainly in China , India and ailand.Besides the above, the constant pressurefor cost reduction on OEMs is compellingthem to outsource more and morecomponents from Low Cost Countries.

e changing scenario has opened upopportunities for Indian AutomotiveIndustry.

1.7 India, with its huge domestic market,

rapidly growing purchasing power,market linked exchange rate and wellestablished financial market and stablecorporate governance framework isemerging as an attractive destination fornew investments in this sector.

1.8 e rapid improvement in infrastructureincluding road, port, power and worldclass facilities for Testing, Certificationand Homologation, coupled withavailability of trained manpowerand enabling government policies to

promote fair competition make IndianAutomotive Industry more competitivein world besides making the country afavourable destination for investment byglobal majors in auto industry.

AUTO INDUSTRY: GLOBAL SCENARIO

t t t t t


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Evolution of IndianAutomotive Industry


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5AUTOMOTIVE MISSION PLAN 20062016

Evolution of IndianAutomotive Industry

2.1 AutomobilesWhile the genesis of Indian AutomotiveIndustry can be traced to the 1940s,distinct growth decades started in the1970s.

Between 1970 and 1984 cars wereconsidered a luxury product;manufacturing was licensed, expansionwas restricted; there were quantitativerestriction (QR) on imports and atariff structure designed to restrict the

market. e market was dominated bysix manufacturers - Telco (now TataMotors), Ashok Leyland, Mahindra &Mahindra, Hindustan Motors, PremierAutomobiles and Bajaj Auto.

e decade of 1985 to 1995 saw the entryof Maruti Udyog in the passenger carsegment and Japanese manufacturersin the two wheelers and lightcommercial vehicle segments. Economicliberalization, started in 1991, led to thedelicensing of the passenger car segment

in 1993. QR on imports continued. isdecade witnessed the emergence of HeroHonda as a major player in the twowheeler segment and Maruti Udyog asthe market leader in the passenger carsegment.

Between 1995 and 2000 severalinternational players entered the market.Advanced technology was introducedto meet competitive pressures, andenvironmental and safety imperatives.Automobile companies startedinvesting in service network to supportmaintenance of on-road vehicles.Auto financing started emerging as animportant driver for demand.

Starting in 2000, several landmark policychanges like removal of quantitative

restrictions (QR) and 100 percentFDI through automatic route wereintroduced. Indigenously developed(Made in India) Vehicles were introducedin the domestic market and exports weregiven a thrust. Auto companies startedcollaboration with financial firms toprovide auto financing and insuranceservices to customers. Manufacturers alsointroduced systems to improve capacityutilization and adopted quality andenvironmental management systems. In2003, Core-group on Automotive R&D

(C.A.R.) was set up to identify priorityareas for automotive R&D in India.

2.2 Auto Components

In 1953, the Tariff Commission in itsreport to Government had stressed

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the need for a balanced and integrateddevelopment of the AutomotiveIndustry by promoting the emergenceof a strong auto-component sector. Asa result of this recommendation theleading entrepreneurs were invitedby Government to establish an auto-component manufacturing industry.

In the pre-1985 era, the auto componentsector was a protected market with highimport tariffs. e market was orientedprimarily towards supply of components

to domestic manufacturers.

In the 1980s, encouraged by theestablishment of many Japanese OEMsin the passenger car, two-wheeler andLCV industry in the country, a numberof Indian companies entered into joint ventures with Japanese companies andexports also commenced.

e Phased Manufacturing Programme(PMP) introduced in Indian automotivesector in the 1980s for localization had

laid the foundation for the developmentof auto component industry. isprogramme enabled the auto-componentindustry to modernize its technology,improve quality and to imbibe goodmanufacturing and shop-floor practicesand to transform itself into a highlycapable sector of the industry, while atthe same time contribute to localizing thecomponent base. In 1990s global OEMsand Tier 1 suppliers started operationsin India. is paved the way for a largenumber of new Joint Ventures in the

component industry with European andAmerican component manufacturersand gave the Indian component industryan all-round expertise to manufacturecomponents for applications in Japanese,European as well as American vehicles.Aer the PMP programme came to an

end in 1991, Government introducedthe MOU system that continued to placeemphasis on the aspect of localizationof components. With support from thispolicy, the component industry developedfurther capability to manufacture thenew breed of auto-components requiredfor the new generation vehicles.

As a result of successful localization ofthese components, Vehicle manufacturersstarted outsourcing more and morecomponents rather than manufacturing

in-house. Entrepreneurs were encouragedto develop components and set upfacilities. Whenever required, OEMssupported component manufacturersthrough equity participation, technicalcollaboration, etc.

Currently the Auto component Industrymanufactures a wide range of productsin India for both domestic consumptionand exports. e total size of thecomponent industry is close to USD14 billion out of which USD 9.4 billion

is the domestic OEM market, USD 2.6billion is the domestic aermarket andUSD 2.0 billion are the direct exports ofcomponents.

More than 60% of the exports of auto-components are to Europe and USA.More than 70% of the exports go to theOEMs and Tier I suppliers and only 30%to the global aermarket, indicating thehigh level of maturity in quality andtechnology that has been achieved by thecomponent industry.

Currently the Auto component Industrymanufactures a wide range of productsin India for both domestic consumptionand exports.

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2.3 Size of the IndianAutomotive Industry

2.3.1 e Indian Automobile Industryproduced 8.5 million vehicles in 2004-05 amounting to around USD 25 billion.During the financial year 2005-06, IndianAutomobile Industry produced morethan 9.7 million vehicles amounting toalmost USD 28 billion. e growth inproduction was 15%. India is the secondlargest market for two wheelers in theworld. However, in value terms, the value

of the market for passenger cars and CVsis higher than the market size for twowheelers.

2.3.2 Sales of passenger cars and utility vehicleshave grown at 12% CAGR over the lastdecade. However, in 2005-06 the growthrate for the passenger car segment waslower than 8%. Sales of passenger carspost 2000 have been driven by increasein the number of available models,purchasing power, especially of themiddle class, easy availability of car

finance, favourable government policiesand growth of used car market. Furtherreduction in cost of ownership wouldfuel demand for passenger vehicles.

2.3.3 Commercial vehicles sales have grownat a 4.4% CAGR over the last decadeand the segment has also demonstratedcyclical trends. In 2005-06, however,growth was over 10% in domestic salesand production. Exports have alsopicked up registering a growth of36% over the last year. Growth in the

commercial vehicle sector is dependenton the general economic trend,development of infrastructure projects,transport economics and availability offreight, replacement period of vehicles,easy availability of credit and favourablegovernment policies.

2.3.4 e Utility Vehicles had reached aproduction of 1,82,000 units in 2004-05 and has gone upto 1,96,000 units in2005-06. e tractors production hasreached a figure of 293,000 in 2006.

2.3.5 Two wheelers sales have grown at 11%CAGR during the last decade. Over theyears, while the sales of motorcycleshave increased, sales of scooters andmoped have stagnated. With 5.82million units sold in 2005-2006 (out of7 million two wheelers), motorcycles

have replaced scooters as the preferredmode of transport with higher loadbearing capacity (essential feature forrural areas), better fuel efficiency, betteraesthetics thus resulting in a change inconsumer preference/ behaviour. Lastyear for the first time two wheeler salescrossed 7 million units registering agrowth of around 14%. Also, exportsof two wheelers crossed half a millionregistering a growth rate of 40%.

2.3.6 ree wheelers have also exhibited strong

growth with a CAGR of 9%. Sale of threewheelers has grown from 145,000 unitsin 1995 -1996 to over 360,000 in 2005-06. Last year growth in three wheelersales was around 17%.

2.3.7 Today, the Indian auto component sectorhas over 500 organised players and about5000 unorganised sector players. e500 players of organised sector reacheda turnover of over USD 14 billion in2005-06. Demand from OEMs accountfor 67% of sales, replacement market

accounts for 19%, while exports accountfor over 14% at about USD 2.0 billion.is is exclusive of tyres, batteries andimported components.

2.3.8 Automotive retail trade and servicecurrently comprising of a network



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of 6500 automobile dealers and theirservice stations form an essential part ofthe automotive business. is segmenthas investment of over Rs. 22,000 crore,provides direct employment to about4,00,000 people and contributes aroundRs, 25,000 crore by way of VAT, CST,service tax, road tax and other levies tocentral and state exchequers. It also hassignificant spin off on insurance, autofinance and oil sector.

2.4 Growth Drivers

2.4.1 Rising per capita Income and thechanging demographic distributionare conducive for growth. India has thehighest proportion of population below35 years, 70%, (potential buyers), whichmeans that 130 million people will getadded to the working population between2003 and 2009. e trends indicate thatsmall and medium cars would remaindominant and a shi towards high endcars is expected at a faster rate. e SUVmarket is expected to develop rapidly

in future. Higher disposable incomescoupled with availability of easy financeoptions have driven the Passenger vehiclesegment.

2.4.2 In the commercial vehicle segment,increased investment in roadinfrastructure and availability of cheaperfinance has led to a growth in multi-axlevehicles. is is expected to be followedby a shi to tractor-trailer combinationson account of operating economics ofhigher power-to-weight ratio vehicles.

Growth in the demand for pick-up truckshas coincided with the growth in multi-axle vehicles. e next growth driver forLCVs is expected to be the introductionof lighter pick-ups.

2.4.3 e two wheeler segment growth is led

by rapid urbanization and resultant risein demand from semi-urban and ruralareas, increasing income levels, widerproduct range available to customers,and easy finance options.

2.4.4 e growth in tractor industry is linkedwith the growth in agricultural outputand exports to neighboring countries.

2.4.5 Auto component industry growthis directly linked to the growth ofautomobile industry since more than

65% sales is to the OEMs. However, inrecent years, component exports arebecoming an important growth driverand it is expected to assume greaterimportance in future.

2.5 Export Trends

Compared to domestic sales, vehicleexports have grown at the rate of 39%CAGR over the last five years, led byexports of passenger cars at 57% andtwo wheeler exports at 35%. Last year

however, overall exports registered agrowth of around 28%. In value termsexports crossed USD 2 billion. e keydestinations are the SAARC countries,European Union (Germany, UK,Belgium, the Netherlands and Italy),Middle East and North America. MarutiUdyog, Tata Motors and Hyundai MotorIndia are key exporters for passengercars; Mahindra & Mahindra and TataMotors for light commercial vehicles,medium and heavy commercial vehicles,Mahindra & Mahindra for MUVs, Bajaj

Auto for two and three wheelers andMahindra & Mahindra and TAFE fortractors. A 3% growth in global demandis anticipated over the next five years andit will be led by Asia (mainly by China,India and ASEAN). Also global autocompanies are increasingly sourcing



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components and vehicles from low costcountries. e outsourcing pie is slowlyextending to services like engineeringdesign and other business processes.India is well positioned to take advantageof the outsourcing opportunities.

2.6 Growth potential of IndianAutomotive Industry

2.6.1 Automotive Industry offers huge growthpotential in terms of sales volume(including exports) and also immenseemployment opportunities. e likelyfuture volumes of different vehiclecategories were estimated on the basis ofprojections made by iMaCS, NCAER andAT Kearney. Value of projected domesticoutput was computed based on historicalaverage vehicle prices. Export potentialwas estimated on the basis of currenttrends and possible opportunities in

major export destinations. Demand foraer-market auto components and exportoutput was also included in computinggrowth potential of the industry. eunit value of different vehicle categoriesin 2016 have been estimated keepingin view the need for compliance with

emissions and crash standards.

2.6.2 It is expected that the world productionof Auto-Components would reach USD1.7 Trillion by 2015. About USD 700billion worth of auto-components shallbe sourced out from low cost countries(LCCs) by 2016. If India targets to geta 10% share of this potential, it would

mean USD 70 billion, nearly five timescurrent total size of the industry in India.However, this Mission Document hasset a modest target of USD 25 billion by2016 for export of auto components.

2.6.3 e projected size in 2016 of the Indianautomotive industry varies betweenUSD 122 billion and USD 159 billionincluding USD 35 billion exports. istranslates into a contribution of 10-11%to Indias GDP by 2016, that is, doublethe current contribution. is would

mean a domestic vehicle market of USD82 billion to USD 119 billion by 2016,USD 12 billion exports of vehicles andtractors, USD 20-25 billion componentexports and more than USD 5 billionaer market of components. AnotherUSD 2 2.5 billion in engineering


Figure 01: What does the output mean in term of investments?

Four-Wheelers : 1.5-2 (1)

Auto-components : 1.1-2.4 (1)

India transportation sector : 0.86 (2)

Implies (3)

$ 35-40 billion

(Rs. 160,000 - 180,000

crores) incremental

investments by 2015

Fixed asset turnover

Note:(1) Sales/Gross Block for FY 2002 - Source: IMaCS analysis(2) ASI - 2002(3) Assuming a fixed asset turnover of about 2 - 2.25

Source: SIAM & ACMA


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services outsourcing opportunity isexpected to develop. e total size ofthe auto component industry in India isexpected to become USD 40-45 billionby 2016. is calls for a major focus andpolicy initiative to market India as anattractive Manufacturing Destination.

2.6.4 e output estimated would requireincremental investment of USD 35-40billion (Rs 160,000 -180,000 crores) by2016 as indicated in Figure 01.

2.6.5 e automotive industry also promisessignificant employment opportunities.Large number of workers, both skilledand unskilled, will be required to sustainincreased level of production. A large partof the employment would also be indirect,for sales, finance, insurance, mechanicsand other aer-sales personnel for bothsemi-skilled and unskilled workers inrural and semi-urban areas. While directemployment is by way of workers engagedin the production of automobiles andauto components, indirect employment is

generated in feeder and supplier industriesto the automotive industry, such as thevehicle financing and insurance industry, vehicle repair, service and maintenanceoutfits, automobile and auto componentdealers and retailers, vehicle drivers, tyreindustry, amongst others. It is estimatedthat, on a conservative basis, 5.3, 13.3,0.5 and 3.9 units of direct and indirectemployment are generated per unit of car,CV, 2-wheeler and 3-wheeler producedrespectively. is translates into anadditional employment generation of 25

million by the automobile industry by2016.

2.6.6 Specialists in the areas of R&D,technology, product development,logistics and operations would also berequired. Availability of such requirements

will not only be an opportunity, butgetting adequately trained personnel willbecome a major challenge.

2.7 Areas to Focus

e future challenge for Indianautomobile industry would be to developa supply base with emphasis on lowercosts and economies of scale, developtechnical and human capabilities,overcome infrastructural bottlenecks,stimulate domestic demand and exploit

export and international businessopportunities. e key to success is toachieve the critical mass that wouldmake India competitive and profitablefor sustained investments. Keepingthese in view, the identified challengesand interventions are in the areas ofcompetitiveness in manufacturing andflow of technology; demand, brandbuilding and infrastructure; export andinternational business; environmentaland safety standards, and humanresources development. A key deficiency

that needs to be addressed for attainingthe vision is to improve competitivenessin manufacturing. Systemic deficienciescould be overcome through a long-termand stable policy regime that will supportthe industry to fulfill its potential.

2.8 Competitiveness inmanufacturing

2.8.1 e share of manufacturing sector(within the Industry sector) has shownonly a marginal improvement from

16.6% in 1991 to 17% of Indian GDP2003. In comparison, in some East Asianeconomies the share of manufacturinghas ranged from 25% to 35% of theirGDP. It is known that stagnation ofmanufacturing as a proportion of GDPhas adverse impact on employment



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generation. erefore it is imperativeto boost manufacturing given the hugeanticipated increase in the workforceover the next 15 years.

2.8.2 As observed by the National

Manufacturing CompetitivenessCouncil in its national manufacturingstrategy, the challenges faced by Indianmanufacturers raise important questionsfor both Industry and Government ....this calls for breakthrough and boldthinking on the part of all stakeholders.

Only bold aspirations can enable Indiabenefit from emerging opportunities inthe manufacturing sector.

2.8.3 In a Global Competitiveness Survey of104 countries India ranked only 55th. Interms of macroeconomic environment,public institutions and technology, Indiaranked 52, 53 and 63 respectively. Onlocation attractiveness for manufacturing,India ranked 43 while other regionalcountries like China, Singapore and HongKong ranked 39, 11 and 6 respectively.

e productivity in automotive industryin India is substantially higher thanother sectors and it has a huge potentialfor further improvement, which in turnwill pull up the competitiveness of entiremanufacturing sector. Hence it becomesimperative to identify factors that makemanufacturing in India un-competitiveand address these and improve ourcompetitiveness.

2.8.4 e National Manufacturing

Competitiveness Commissions National

Manufacturing Strategy lists the followingfactors impacting manufacturingcompetitiveness:

(i) Higher import duties includinginverted duty structure on rawmaterials

(ii) Higher incidence of indirect taxes(iii) Sub-optimal levels of operations(iv) Lower operational efficiencies and

Higher transaction costs(v) Lower labour productivity and

Higher cost of capital(vi) Inadequate infrastructure

2.8.5 In a survey of corporates, the followingfactors were ranked on the basis of theresponses:

(i) Flexibility in labour laws

(ii) Scale of operations(iii) Cost of capital(iv) Cost, availability and quality of raw

materials(v) Technology gap with international

levels(vi) Power costs(vii) Cost of compliance to government

regulations(viii) Quality of transport infrastructure

2.8.6 e key factors that contribute tocompetitiveness of a country or a

location can be summarized as shown inthe Figure 02.

e availability of low cost qualitymanpower and presence of a sizeableauto industry, availability of raw material,and stable economy contribute to Indiasstrengths.

2.8.7 But manufacturing in India suffers fromdisadvantages as was stated earlier.As a result, auto sector in India is lesscompetitive as compared to competing

countries like China and ailand.

2.8.8 In a study commissioned by SIAM,ICRA Advisory Services evaluated theIndian and Chinese economies from anautomotive manufacturing perspective.e following policy initiatives from



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the Chinese Government have beenidentified as driving its manufacturingand investment leading to stupendousgrowth:

(i) Creating world class physical

infrastructure road networks,ports, railways and airports

(ii) Government responsiveness tobusiness needs (administration thatfacilitates business)

(iii) Reduction and simplification ofdirect and indirect taxes

(iv) Lowered rate of income tax(v) 17% uniform VAT, ensuring no

cascading taxes or duties(vi) Ensuring no location based tax

exemptions and barriers to inter-state movement of goods

(vii) Creating flexible and investorfriendly labour laws

(viii) Companies can retrench labourand pay productivity-based wages

(ix) No trade unions in SEZs(x) Employers can prolong work

hours due to needs of production

or business but work time to beprolonged should not exceed 36hours a month.

(xi) Low interest rates(xii) Availability of reliable and quality

power; no need to invest in DG

sets(xiii) Large capacity additions annually

that keep pace with growth(xiv) Requirement of minimum

investment in industry and R&D.

2.8.9 A cost comparison study between Indianand Chinese automotive manufacturingcompanies to identify factors andtheir magnitude that impact automanufacturing in India vis--vis automanufacturing in China reveals that thecost of manufacture of a passenger vehicle

in China is 23% lower than in India withthe principal difference owing to highertaxes and their cascading impact in India.Higher labour productivity and lowerinfrastructural costs makes China morecompetitive. e study also revealed thatsince design and engineering capabilities


Resource Availability

Figure 02: Key factors

Efficiency factor

Ability to attract

Investment

Proximity to Markets

Labour Productivity cost

Labour Flexibility

Capital efficiency / other production factors

Quality Manpower

Infrastructure

Raw Materials

Economic Policies & Stability

Incentives

Domestic / Exports

Auto clusters

Source: IMaCS Limited Study for SIAM & ACMA


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in India have not been as strong therewould be a disadvantage of 30% highercosts for products manufactured in India.While some of the above issues like scaleof operations and labour productivityare industry or company related, othersare identified for improvement andstrengthening by the Government.

2.9 Prescriptions for Industry in theNational Manufacturing strategy

2.9.1 e National Manufacturing Strategy

has indicated that Industry would notonly need to think big in terms of scalebut also need to:

(i) Invest in R&D and technology(ii) Have a continuing commitment for

skills development and education(iii) Benchmark their performance

against best in the industry(iv) Adopt best manufacturing practices

and production techniques(v) Deliver on globally acceptable quality

levels

2.9.2 In light of the above scenario and goalof making India a hub for small cars,MUVs, two & three wheelers, tractors andcomponents, it becomes essential to focuson the automotive sector and develop apolicy specific to the sector which addressesall the constraints. Investment in R&D fortechnology development will become oneof the most important aspects of futurestrength of this industry. Given Indiasstrength in having the skill sets requiredto promote technological development,

the industry needs to invest in researchand development to increase innovativebreakthroughs for vehicle design as wellas in manufacturing technology andincentivisation of such investments will beneeded on the part of the Government.

2.10 Demand creation, brand buildingand infrastructure

2.10.1 In order to raise the contribution ofautomotive industry to GDP from 5.2%to 10%, there has to be a focus both onthe domestic market as well as exports.Domestically the focus should be ondeveloping and selling appropriateproducts for the large population of thecountry. ese products could includecost effective small carriers, strong,rugged, low cost vehicle for the rural

market, USD 300-350 motorbikes andsmall, safe four wheelers for familytransport. For exports, the focus shouldbe on new geographies for growthbeyond traditional markets.

2.10.2 Indias GDP is expected to grow fromUSD 650 billion to USD 950 billion in2010 and USD 1390 billion in 2016.Automotive industrys contribution inthese years is expected to rise from USD 34billion to USD 69 billion and to USD 145billion respectively. ese translate into

a contribution to GDP to grow from thecurrent 5.2% to 7.2% and 10.4% in 2010and 2015. Secondly, the challenge lies indeveloping appropriate infrastructure tosustain this growth. Also, important wouldbe to establish brand image not only inthe domestic market but internationallyalso. An appropriate policy for attractinginvestment would ensure realization ofthe potential. Government is aimingfor creating suitable stable, predictable,and sustainable policy environment andpartnering with industry to look beyond

borders.

2.11 International Business (Exports)

Export opportunities for four wheelerswould lie primarily in the small carsegment as Indian companies have gained



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expertise in manufacturing vehicles in thissegment and enjoy an advantage over otherlow cost countries. India should capitalizeon this expertise and target becoming amanufacturing hub for A/B class vehicles.is is already being leveraged by OEMslike Hyundai with Santro, Suzuki withMaruti 800/Alto and Tata Motors withIndica. e exports in respect of MultiUtility Vehicles, ree wheelers and Twowheeler are expected to become substantialin the coming years. Export of other vehicle categories will be largely driven

by strategies of individual companies.Incentivising the exports, encouragingdevelopment of domestic competitiveness,establishing Made-in-India brand aresome of the initiatives required to promoteInternational business.

2.12 Environment and SafetyRegulations

Emission norms came into force withthe Idle Emission Norms in 1984. MassEmission Norms were introduced in

1991 for petrol vehicles and in 1992for diesel vehicles. ese norms havebeen progressively made stringentand India has followed the Europeanemission standards and test procedures.Environment concerns led to Indianarrowing the gap with Euro norms at arapid pace and currently BS-II or Euro IIequivalent norms are in force throughoutthe country and BS-III or Euro-III normsin eleven cities. Two Wheelers which playthe unique role of family vehicles in Indiacomply with stringent emission norms

while at the same time satisfactorilymeeting the Indian customer demandfor fuel efficiency. Idle emission normsapplicable to in-use vehicles have also beentightened. e need is for an appropriatein-use vehicle management policy. Also,a long term emission roadmap needs to

be developed as the current roadmapis only up to 2010. Alternative fuelslike Hydrogen and bio fuels need to bepromoted to ensure sustainability of theindustry over the long term.

2.13 Human Resource Development

2.13.1 Employment is always a major factorwhen measuring the significance ofany economic activity. e automotiveindustry, on account of its backward andforward linkages, is a significant generator

of employment - both direct and indirect.While direct employment is by wayof workers engaged in the productionof automobiles and auto components,indirect employment is generated in feederand supplier industries to the automotiveindustry, such as the vehicle financing andinsurance industry, vehicle repair, serviceand maintenance outfits, automobile andauto component dealers and retailers,vehicle drivers and cleaners, tyre industry,amongst others. us steps are needed toensure that demand supply gap, both

quantitative and qualitative, in terms ofhuman resources, does not arise.

2.13.2 e need of engineering and managerialmanpower is being met by IIT and IIM.e setting up of a specialized institute forindustry will add to the competitivenessof the Industry. e institute, besidesdeveloping as a repository of knowledgein the field, will also take up marketresearch and analysis within and outsidethe country. It will also develop trainingmodules and will disseminate them

through ITIs and ATIs. e InvestmentCommission has also identified thisinput as requirement for the industry.e adoption of existing traininginstitutes by OEMs and setting up ofnew training institutes by them will bepromoted.



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Indian Automotive Industry:An overview


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Indian Automotive Industry:An overview

3.1 Automotive Industry, globally, as wellin India, is one of the key sectors ofthe economy. Due to its deep forwardand backward linkages with several keysegments of the economy, automotiveindustry has a strong multiplier effect andacts as one of the key drivers of economicgrowth. e well-developed Indianautomotive industry produces a widevariety of vehicles: passenger cars, light,medium and heavy commercial vehicles,multi-utility vehicles such as jeeps,scooters, motor-cycles, mopeds, three

wheelers, tractors and other agriculturalequipment etc. e sector has highpotential for providing employment.is will increase the present level ofemployment in manufacturing sectorwhich presently is quite low at 12% ascompared to the countries like Malaysia(50%); Korea (62%) and China (31%).

3.2 Installed capacity: e automobile

industry, especially over a period of time,and particularly aer liberalization, hasinstalled a robust capacity. e installedcapacity in different segments ofautomobile industry is given in Table 02.

3.3 e production of all categories ofvehicles has grown at a rate of 16% perannum over the last five years. e last5 years production figures are given inTable 03.

3.4 Export of Vehicles: Indian automotive

industry is now finding increasingrecognition worldwide. While abeginning has been made in export of vehicles, the potential in this area stillremains to be fully tapped. Significantly,during the last two years the export in thissector has grown specifically in export ofcars and two / three wheelers. e table04 indicates the performance during lastsix years.

e automobile exports crossed USD1 billion mark in 2003-04 and reached

USD 2.28 billion in 2005-06.

3.5 Indian auto component industry is quiterobust with around 500 firms in theorganised sector producing practicallyall parts and more than 10,000 firms insmall unorganised sector, in tierized

3

Table 02 Installed Capacity in Different

Segments in nos.

S.No. Segment InstalledCapacity

1. Four Wheelers 1,590,000

2. Two & ree Wheelers 7,950,000

Grand Total 9,540,000


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format. e auto component sectorhas been one of the fastest growingsegments of auto industry. e Industryalso sustained a high growth rateand could achieve growth of 20% in2001-02, 18.20% in 2002-03, 19.92%in 2003-04, 25.65% in 2004-05 and18.08% in 2005-06. e industry, overthe years, developed the capability ofmanufacturing all components required

to manufacture vehicles, which is evidentfrom the high levels of indigenisationachieved in the vehicle industry as wellas the components developed for the

completely Indian made vehicles likethe Tata Indica, Tata Indigo, MahindraScorpio, Bajaj Pulsar, TVS Victor andTVS star. e component industry hasnow holistic capability to manufacturethe entire range of auto-components e.g.Engine parts, Drive, Transmission Parts,Suspension & Braking Parts, Electricals,Body and Chassis Parts, Equipment etc.e component-wise share of production,

is Engine parts-31%, Drive andTransmission Parts-19%, Suspension &Braking Parts-12%, Electricals-9%, Bodyand Chassis Parts-12%, Equipment-10%.

INDIAN AUTOMOTIVE INDUSTRY: AN OVERVIEW

Table 03 Automobile Production (in nos.)

Category 2001-02 2002-03 2003-04 2004-05 2005-06

Passenger Cars 564,052 608,851 842,437 960,505 1,045,881

Multi Utility Vehicles 105,667 114,479 146,103 249,149 263,032

Commercial Vehicles 162,508 203,697 275,224 350,033 391,078

Two Wheelers 4,271,327 5,076,221 5,624,950 6526,547 7600,801

ree Wheelers 212,748 276,719 340,729 374,414 434,424

Total 5,316,302 6,279,967 7,229,443 8,460,648 9,735,216

Percentage growth 11.70 18.60 15.12 16.80 15.06

Source: SIAM

Table 04 Automobile Export (in nos.)

Category 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Passenger Cars 22,990 50,088 70,828 126,249 160,677 170,193

Multi Utility Vehicles 4,122 3,077 1,177 3,067 5,736 5,579

Commercial Vehicles 13,770 11,870 12,255 17,227 29,949 40,581

Two Wheelers 111,138 104,183 179,682 264,669 366,724 513,256

ree Wheelers 16,263 15,462 43,366 68,138 66,801 76,885

Total 168,283 184,680 307,308 479,350 629,887 806,494

Percentage growth 09.74 66.40 55.98 31.40 28.03

Source: SIAM


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3.6 Over the last few years the Indian AutoComponent Industry has created arobust capacity base and all of the worldsmajor manufacturers have set up theirmanufacturing units in the country.e high quality of the componentsproduced by the component industry inthe country is recognized by the fact that,out of the 498 ACMA members, 9 areDeming Prize winners, 4 are JIPM awardwinners and 1 is Japan Quality Medalwinner.

3.7 Growth Trends: e turnover of autocomponent sector has grown from alevel of USD 3.1 billion in 1997-98 toUSD 9.8 billion in 2003-04. Low laborcosts, availability of skilled labor andhigh quality consciousness amongIndian vendors have spurred the growthof auto component exports from India.During 2003-2004, the exports of auto-components crossed the magic figureof USD 1 billion aer having recordeda healthy growth of 25%. During theyear 2004-2005, the exports grew by

40% thereby taking the direct exports ofcomponents to a level of USD 1.4 billion.In the year 2005-06 exports grew by 28%and reached the level of USD 1.8 billion.It is pertinent to mention here that thisfigure is still very low against the volumeof world trade of 185 billion USD in autocomponents.

3.8 More than 60% of the exports of auto-components go to USA and Europe, whichconstitute high AQL (Accepted QualityLevel) countries. Moreover, over the last

5 years, the structure of the customer basein the global markets has also undergonea major change. In the 1990s more than80% of the exports were made to theinternational aermarket. In 2005, morethan 70% of the exports to the globalOEMs and Tier 1 companies and only

30% was to the aermarket. is signifiesthat the Indian component industry hasnow reached a high degree of maturityin terms of quality and productivity andhas also developed capabilities in thearea of design and engineering, whichare critical requirements for being a partof the global supply chain.

3.9 Indian auto component manufacturing,currently constrained by lack of largecapacities, is slowly but steadily workingon expanding capacities and automation

levels. As the users increasingly becomediscerning in their buying behavior,new model introduction by the automanufacturers has become the trend.Greater variety in vehicle is offeringchallenges to the manufacturingcapabilities and economies of scaleof component suppliers. Hence thecomponent industry is constantlylooking at maintaining lean andefficient manufacturing systems. Havingestablished themselves in the domesticmarket, tapping opportunities abroad

was a natural step for the auto componentmanufacturers in their growth path.e Indian auto component industryis targeting a bigger share of the exportmarket and is in the process of rampingup its manufacturing capabilities to meetthe capacity and quality requirements.During 2004, the auto componentindustry increased its investment by17% while the automation processes inthis industry registered a growth of over40%.

3.10 e Indian Tractor Industry: India is oneof the largest manufacturers of tractors inthe world. e tractor industry reacheda production of 2,48,000 units in 2004-05 and increased up to 2,93,000 units in2005-06. e government focus on theagricultural economy, with increased



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rural lending ensuring availability ofcheap finance, led to this growth. eexports stood at 20,000 units in 2004-05and 28,000 in 2005-06. Indian market isdominated by 31-40 HP tractors followedby 41-50 HP. e tractor industry has 14players, including three MNCs, and isled by Mahindra & Mahindra Ltd. eindustry is growing at the rate of 5% to6% a year. e demand for tractors islikely to be driven by thrust on increasein area under irrigation, increased ruralconnectivity, and enhanced farm credit

facilities.

3.11 e Indian Tyre Industry: India is one ofthe few countries which has attained self-sufficiency in tyre production barringthe production of few special types of vehicles tyres, air-cra tyres, and snowtyres. India has constantly been exportingtyres to almost 65 countries. e totalinstalled capacity is 850 lakh units againstwhich 650 lakh units were produced inthe year 2005-06 of which 620 lakh unitswere consumed domestically. In tonnage

terms the production in the year 2005-06was 11.17 lakh metric. tons. e industryis expected to grow at an average rate of7% per annum during Eleventh Five-Year Plan period. e total turnover ofthe tyre industry is Rs. 13,500 crores outof which tyres worth Rs. 2300 cores wereexported in the year 2005-06.

3.12 Major Challenges:

3.12.1 Sustaining the growth rate: ere is apotential for much higher growth in the

domestic market due to the fact that thecurrent car penetration level in India is just 7 cars per thousand persons. eincrease in purchasing power at the topechelon of about 300 million people inthe country, where the per capita incomeis over USD 1000, implies that passenger

car growth in the domestic market ison the verge of a major and sustainedboom. It is expected that the passengercar market which was 1 million in 2003-2004 can easily cross the 3 million markby 2015. is can lead to an increase inthe size of the domestic auto-componentmarket from the current level of USD9.8 billion (2005-06) to at least USD 15billion by 2015.

3.12.2 Need for innovation: e competitivenessin the sector will largely depend on the

capacity of the industries to innovate andupgrade. e industry will also benefit ifit has strong domestic competition, homebased suppliers and demanding localcustomers. ere is no denying the factthat the factors like labour cost, duties,interest rate and economies of scale arethe most important determinants ofcompetitiveness. But productivity is theprime determinant of the competitivenessand also impacts the national percapita income. e globally successfulOEMs and auto makers will ultimately

make their base in places which arehigh on productivity factor and whereessential competitive advantages of theenterprise can be created and sustained.It would also involve core productsand process technology creation apartfrom maintaining productive humanresource and reward for advanced skills.e OEMs also look for the policies ofthe state which stimulates innovationsin new technologies.

3.12.3 Enhancement of share of auto

component in global trade: e globalauto component industry is estimated tobe USD 1.2 trillion in value and is likelyto increase to USD 1.7 trillion by 2015.Sourcing from low cost countries is likelyto increase from USD 65 billion in 2002to USD 375 billion by 2015. Although



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Indias exports are still small (USD 1.8Billion in 2005-06), it has opportunityto leverage this trend by expanding itssupply base to build dominant positionamongst auto component low costcountries by 2015. A position in thetop two would enable India to achieveexport of USD 20-25 billion by 2015.is would increase Indias share ofworld auto component trade from 0.9percent in 2005-06 (Provisional) to 2.0-2.5 percent by 2015, inclusive of domesticconsumption. Such a high growth in

the Auto component Sector is expectedto lead to an additional 750,000 direct jobs in tiny sector alongwith indirectemployment of 1.8 million people overthe next 10 years. In addition to creatingincremental employment of about 2.5million people in direct and indirect jobs, it is also expected to result in anincremental revenue of USD 3.8 billionto the exchequer. Investments in thissector would also grow by USD 15billion from the current level of USD 3.1billion.

3.13 Recent initiatives of the Government

3.13.1 In order to give a boost to the growth inthis sector, the Government has takenseveral initiatives. Some of them are asunder.

(i) e Finance Bill 2006 has given afurther boost to the AutomotiveIndustry by reduction of the exciseduty on the small motor vehicles,the reduction in the duty for raw

material which is now between 5 to7.5% as compared to the previouslevel of 10%, and the thrust oninfrastructure development.

(ii) As a result of constant persuasion bythe Department of Heavy Industry,

some of the objectives like impositionof excise duty on body buildingactivity of Commercial Vehicles,lower excise duty on the smallcars, extension of 150% weighteddeduction on R&D expenditure tothe automotive sector, increasedbudgetary allocation for R&Dactivities in the sector and movingtowards a lower duty regime havebeen achieved and steps are beingtaken to further strengthen thecapability of the sector.

(iii) National Automotive Testing and R&DInfrastructure Project (NATRIP):e most critical intervention ofthe Government thus far in theautomotive sector has come in theform of an ambitious project onsetting up world-class automotivetesting and R&D infrastructurein the country to deepenmanufacturing, encourage localizedR&D, boost exports, convergeIndias unparalleled strengths in IT

and electronics with automotiveengineering sectors to firmly placeIndia in USD six trillion globalautomotive business. NATRIP aimsat facilitating introduction of world-class automotive safety, emission andperformance standards in India andalso to ensure seamless integrationof Indian automotive industry withthe global industry. e projectaims at addressing one of the mostcritical handicaps in the overallgrowth of automotive industry

today, i.e. major shortfall of testingand pre-competitive common R&Dinfrastructure. National AutomotiveTesting and R&D InfrastructureProject envisages setting up of thefollowing facilities:-



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(a) A full-fledged testing, certificationand homologation centre within thenorthern hub of automotive industryat Manesar in the State of Haryana;

(b) A full-fledged testing, certification

and homologation centre within thesouthern hub of automotive industryat a location near Chennai in the Stateof Tamil Nadu;

(c) Up-gradation of existing testing,certification and homologation

facilities at Automotive ResearchAssociation of India (ARAI), Pune andat Vehicle Research and DevelopmentEstablishment (VRDE), Ahmednagar;

(d) World-class proving grounds ortesting tracks on around 4,000 acresof land at Pithampur in MadhyaPradesh;

(e) National Centre for Testing of Tractorsand Off-Road Vehicles together withnational facility for accident dataanalysis and specialized drivingtraining at Rae Bareilly in the State ofUttar Pradesh; and

(f) National Specialized Hill Area Driving

Training Centre as also Regional In-Use vehicle management Centre atDholchora (Silchar) in the State ofAssam.


t t t t t


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e Automotive Mission Plan


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e Automotive Mission Plan

4.1 e necessity of this Mission Planarises in the background of a newfoundstrength and resurgence in the Indianmanufacturing sector. For most of thedecade of the 1990s, post economicderegulation in 1991, growth in theIndian economy has been led by growthin the service sector, a growth thathas overshadowed the growth in themanufacturing sector. In the past fewyears, several industries in the Indianmanufacturing sector have becomeinternationally competitive and have

acquired a new energy to grow. Severalindustries, including the automotiveindustry, genuinely believe that they canbecome world-beaters.

4.2 In developing a Mission Plan forIndias automotive sector, answer to thefollowing questions has been sought:

(i) Where is automotive sector in Indiatoday? What linkages does theautomotive sector have with otherfacets of the Indias economy?

(ii) What do we want the automotivesector of India to look like in 2016? Inother words, what is the potential ofthe automotive sector to grow alongall segments of its value chain, andwhat can be the maximum positive

impact on the stakeholders?

(iii) How do we attain the vision? Whatpolicy interventions will facilitatethe attainment of this potential?

4.3 Vision for the Future: e opportunitylandscape for the Indian auto industrywould encompass manufacture of vehicles and components for domesticsales, manufacture for exports (both vehicles and components), and exportof services in areas such as design,

engineering, and back office operations.It is estimated that the total turnover ofthe automotive industry in India wouldbe in the order of USD 122-159 billion in2016 (a substantial increase from the sizeof USD 34 billion in 2006).

4.4 It is expected that in real terms, Indiawould continue to enjoy its eminentposition of being the largest tractorand three wheeler manufacturers in theworld and the worlds second largest twowheeler manufacturer. By 2016, India

would emerge as the worlds seventhlargest car producer (as compared to theeleventh largest currently) and retain4th largest position in world truckmanufacturing sector. Further, by 2016,the automotive sector would double itscontribution to the countrys GDP from

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current levels of 5% to 10%.e share ofindustry in GDP is expected to go up toaround 35% from current level of 24% by2016.

4.5 Implementing AMP 2006-2016 wouldneed an incremental investment inthe order of USD 35-40 billion in theIndian auto industry over the next tenyears (2006-2016). It is anticipated thatthe bulk of this investment will comefrom expansion of capacities by existingmanufacturers operating in India and

remaining from global multinationalcorporations (MNCs) seeking tomake India their manufacturing base.Competition for attracting investmentsin India would come from countries suchas China and ailand.

4.6 Currently the automotive industryemploys 200,000 persons in vehiclemanufacturing, 250,000 in componentcompanies and 10 million at differentlevels of the value chain both throughbackward and forward linkages. e

expected growth in investments andoutput of Indias automotive sectorduring the next 10 years will createfurther employment opportunities in thecountry. Additional 25 million jobs arelikely to be created by way of both directand indirect employment in automotivecompanies and in other parts of the vehicle value chain such as servicing,repairs, sales and distribution chains.

4.7 Vision Statement: Based on the abovescenario, the Vision Statement for Indias

automotive sector will be as follows:

To emerge as the destination of choicein the world for design and manufactureof automobiles and auto componentswith output reaching a level of US$ 145billion accounting for more than 10%

of the GDP and providing additionalemployment to 25 million people by2016.

4.8 e Way Forward: e future challengesfor the Indian automobile industryin achieving the targets defined inthe Automotive Mission Plan wouldprimarily consist of developing a supplybase in terms of technical and humancapabilities, achieving economies ofscale and lowering manufacturing costs,overcoming infrastructural bottlenecks,

while at the same time stimulatingdomestic demand and exploitingexport and international businessopportunities.

4.9 Interventions envisaged are requiredat two levels Industry and theGovernment. e Government wouldplay a key enabling role in facilitatinginfrastructure creation, promote thecountrys capabilities, create a favourableand predictable business environment,attract investments and promote R&D.

e role of Industry will primarily be indesigning and manufacturing productsof world-class quality standards,establishing cost competitiveness,improving productivity of both labourand capital, achieving scale and R & Denhancing capabilities and showcasingIndias products in potential markets.Attaining Vision 2016 for the automotivesector in India is a goal for bothGovernment and Industry to strive for.

4.10 e path of implementation of the Vision

2016 calls for some decisive action onpart of State and Central Governments.e challenges for industry essentiallycall for a matching vision and action toattain global standards in operationalefficiency. Given the commitmentof the Government of India, and the

THE AUTOMOTIVE MISSION PLAN


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fundamental competitiveness of theIndian automotive industry, achievingthe targets defined in the Mission Plan

is a doable challenge and would berewarding for all stakeholders.

THE AUTOMOTIVE MISSION PLAN

t t t t t


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Recommended Interventions


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Recommended Interventions

5.1 Investment

5.1.1 Appropriate Tariff Policy

It has been observed world over that anappropriately designed tariff structureattracts investors. High tariffs may restrictflow of trade but may attract investmentif domestic market is big enough andgrowing.

Over the last few years Indias tariffpolicies and conditions of import of

vehicles have served the purpose ofattracting investments. Industry is keenthat the existing tariff structure roadmapand conditions of import of vehiclesare retained without any modificationsbecause of certain systemic deficiencieswhich make manufacturing less costcompetitive in India as compared tosome of the neighboring countries likeChina, ailand, Indonesia, etc., andalso that lowering of tariffs would notattract investment from global OEMs. Itis important to recognize the difference

of the MFN rates of tariff and thepreferential rates of tariff. e MFN ratesin India are currently equal or lower thanthat of neighboring countries.

Commercial vehicles (Trucks and Busesfalling under tariff headings 8702, 8704

and 8706), and MUVs falling under8702 already have bound rates of 40 %.e current tariff is 12.5 %. e tariff inadvanced countries is higher than that ofIndia, e.g. tariff on trucks is 25% in USAand 22% in EU. e Government wouldexamine the tariff rate for commercialvehicles and MUVs in this perspective.

India is currently negotiating FTAs/PTAswith several regions and countries likeASEAN / ailand / Singapore / Malaysia,China / Korea / Japan / BIMSTEC /

Bangkok Agreement, SAFTA / Sri Lanka/ Mauritius, MERCOSUR / Chile, SACU/ Egypt / Gulf Cooperation Council.While negotiating the agreements, carewould be exercised in deciding whichtariff lines would be included.

In agreements such as SAFTA andPTAs with countries like Chile, GCC,etc., attempts would be made to includeautomotive tariff lines. At the same timefor FTAs with ailand, BIMSTEC,ASEAN, China, Korea, Japan, etc., the

industry has identified 77 automobileand engine product lines and auto-component lines for inclusion in thenegative list. ere is a need to keepthese 77 items in the negative list forFTAs with ailand, BIMSTEC, ASEAN,China, EU, Korea, Japan, etc., for which

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no duty concession should be extendedhas been focused. In the case of the auto-component industry, the negative listcould vary depending on the country/trading block. Any trade negotiation willtake into account these sensitive itemswhich are outside the purview of theconcessions.

A clear definition of Rules of Origin forFTAs/PTAs is to be attempted to put inplace in a manner to prevent:

Pass through imports from non-participating economies Trade deflection, that may result from

differential duty structures

As such it is felt that the automotivesector needs a robust definition of Rulesof Origin, which may be defined in termsof the following:

Change of Custom tariff classification atthe 4 digit level (from import to export)PLUS

Value Addition (Transaction ValueBuild Down method) Minimum at 50%,(including value of sub-componentimport of parent assemblies) PLUS

Minimum operation at country of origin(weld + paint + assembly) PLUS

Non-qualifying processes: Packaging,Re-packaging Polishing, finishing,mere assembly or disassembly,Inspection, Internal Transport, freight,anti-rust applications, oiling etc., ora combination of the above Rulesof Origin may be certified only by

Government Authorities for partnercountries.

Unrestricted Import of Vehicleslikely to have adverse impact on localmanufacturing, GDP and employment.

erefore these issues will be kept inforefront while negotiating FTAs/RTAswith other countries.

Government will discourage importof used/ remanufactured vehicles andcomponents and remanufacturedautomotive products may not be treatedlike new.

Government will incentivize themanufacture of automobiles suitable tobe driven by the physically handicapped

persons.

5.1.2 Investment Support

In order to spur further growth,the Industry has requested that theautomotive industry may be broughtunder the purview of existing incentivestructure (which exist for other sectorsof the economy or which are available insome of the competing countries). Someof the specific policies, that Industry hasrequested for consideration includes:

Tax holiday for Automotive Industry forinvestment exceeding Rs.500 crore (asgiven to power projects, firms engagedin exports, EOUs, infrastructureprojects, etc.)

One-stop clearance for FDI proposalsin automotive sector including thelocal clearances required for setting upmanufacturing facilities

Tax deductions of 100 per cent of exportprofits.

Deduction of 30 per cent of net (total)

income for 10 years for new industrialundertakings.

Concession of Import duty onmachinery for setting up of new plantor capacity expansion

Deduction of 50 per cent on foreign

RECOMMENDED INTERVENTIONS


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exchange earnings by automotivecompanies (like Constructioncompanies, hotels, etc.)

State Government to be urged to offerthe following:

Preferential allotment of land to

automotive plants as is given to ITsector by different State governments

Ensuring Continuous uninterruptedpower supply as is done by manystates to some sectors

Captive Generation in the sector

could be promoted, for instance, byexemption of Electricity Duty for fiveyears as is done for biotech industryin some states.

e above issues will be appropriatelytaken up with the concerned authorities.

5.2 Infrastructure

Continued investment in infrastructureis essential. Infrastructure should keeppace with growth in the manufacturing

sector and trade. Some of the specificrequirements in this regard, that wouldbe looked into, are given below:

5.2.1 For Road infrastructure:

Further road development to enhancemovement State Highways andInterior village roads

Developing urban transportationsystem, Flyovers, etc with cohesiveintegration of urban transportincluding Bus Rapid Transit systems,

infrastructure and land use policies Arresting delays in completing planned

road development Ensuring need for quality road network

and maintenance of existing roadsincluding a special emphasis on designfor safety

Ensuring last mile connectivity betweenports and auto hubs Better connectivity and streamlining

procedures for border trade

e requirement of roads by theautomobile sector upto 2016 has beenquantified by the Government.

5.2.2 For Rail infrastructure:

Implementation of a comprehensiverailway infrastructure development

program Developing a comprehensive blueprintfor railway development on the lines ofNHAI/NHDP

Implementing north-west freight railcorridor and last mile port connectivityprojects on priority

Following up policy on privatecontainer movement and its speedyimplementation

Develop faster rail connectivity betweendry ports and sea ports.

5.2.3 For Port infrastructure:

Creation of specialized portinfrastructure for handling vehicleexports. is is crucial for India toemerge as a global automotive hub

Creation of three automobile exporthubs near Mumbai, Chennai andKolkata, each equipped to handleoutput of 5 lakh vehicles annually by2015

Earmark space for parking, vehiclerepair at these ports to accommodate at

least 20,000 vehicles at a time Implementation of parking projects

(such as the proposed multi-levelfacility at Chennai port) and last mileconnectivity projects on priority

Expedite implementation of containerterminals in line with the NMDP



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Execution of port connectivity ofthe five automotive hubs with JNPT,Mumbai, Kolkata and Chennai portson priority

Creating/Expanding container handlingfacilities at JNPT, Mumbai, Kolkataand Chennai ports which are criticalfor automotive exports and needs to beaddressed on priority

Development of CFS/ICD facilities in aregulated manner in line with the trafficgrowth

Ensure appropriate port design (viz.,

berth length, equipment and dra)in line with trends in container vesseldesign

Addressing procedural automation andstandardization at all ports on priority

5.2.4 For Power infrastructure:

Power and fuel account for about6% of manufacturing cost and areimportant factors in manufacturingcompetitiveness. Power cost in Indiaseem to be on higher side in comparison

with other manufacturing locations.In addition, it is estimated that theautomobile industry would require anincremental 2100 MW in 2016 from thecurrent consumption requirement of 660MW. e total power requirement of theauto-component industry today is 1300MW, which includes power purchasedfrom the grid as well as captive generation.e auto-component industry wouldrequire 4000 MW of power from the gridsupply. So, total power requirement ofthe automotive industry will be around

6760 MW in 2015.As envisaged in the Tariff Policy, theTariff should progressively reflect the costof supply of electricity. e SERC wouldnotify the roadmap which targets thatby the end of 2010-11, tariffs are withinplus-minus 20 percent of the average

cost of supply. e roadmap will envisagea gradual reduction in cross subsidy. ePolicy also allows for captive generation toenable industries to access reliable, qualityand cost effective power. Electricity Acthas completely decontrolled the settingup of captive power plant. It is expectedthat distribution licensees wouldimprove quality of power to industrialconsumers in order to retain them sincethese are high value consumers. Further,to harness the economies of scale inthe captive power plants, group captive

plants are being encouraged. However,to enhance the grid supply, capacityaddition programme commensuratewith the objective of eliminating allshortages by 2012 is already in place.At present, projects of over 40500 MWat a cost of Rs. 1,86,000 crore are underimplementation. e capacity of NationalGrid is proposed to be increased frompresent about 10,000 MW to 37,000 MWby 2012. is would greatly facilitateopen access in transmission.

Power Infrastructure would be improvedto facilitate a faster growth of theautomotive sector both domestically andinternationally. A special focus needs tobe given to the automotive hubs.

5.2.5 Infrastructure for Testing, Certificationand Homologation:

e world class infrastructure for Testing,Certification and Homologation willbe created under NATRIP in the threemajor auto hubs in the country. e first

phase of the project will be completed bythe year 2008.

5.2.6 Automobile Retail Trade and Service

Infrastructure:

In order to have a planned and



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sustained growth in retail trade sector,the requirements of this sector suchas provisions for allowing compositeactivities of sales, service and spares maybe allowed in industrial areas, and includeprovisions for automobile dealership andparking requirements in town planningand auto clusters. ere is also a needfelt to have auto franchise laws to ensurethe services and supplies of parts tothe customers for a certain period aerintroduction of a new model.

5.3 Expansion of Domestic Demand

5.3.1 In order to facilitate expansion ofdomestic market, following are the set ofinitiatives to be followed by Industry andGovernment:

(i) Industry will strive for the acquisitionof tools for faster product design and validation (IT, rapid-proto, etc.) forenhancing the capability to createand introduce products that areappropriate to the market needs at

a quicker pace and on a sustainablebasis. Support will be extended tointroduce courses on automotivedesign. A styling centre could bea part of the National Institute ofDesign.

(ii) Industry will work towards bridgingthe gap on product quality, aesthetics,features and performance withworld class products. Governmentwill encourage establishmentof Development Centres forSmall and Medium Enterprise

Suppliers providing Training andDevelopment, Consultancy, Projecthandling and Business DevelopmentSupport Services.

(iii) Industry will enhance the costcompetitiveness on a continuousbasis to develop d

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