By Rajesh Nath, Managing Director, VDMA India Services Pvt. Ltd.
The automobile industry is key sector for every major country’s economy. Indian automotive industry has been often called as the ‘sunrise sector’ for the Indian economy. A robust automotive industry in India can help Indian economy from being an emerging nation to a developed one. Growth in Indian automobile sector gained momentum post liberalization, when many multi-nationals automobile OEMs entered in India and the industry has grown leaps and bounds since then.
India is one of the leading countries for manufacturing of vehicles and a growing automotive market. Ranked 6th in the world, it manufactures approximately 24 million vehicles of which 3.6 million vehicles are exported. India is the world’s number one market for two-wheelers, number three for the passenger car market, and number five for the commercial vehicle market.
As far as jobs go, it is estimated that the industry supports employment for 13 people per truck, 6 people per car, four per three-wheeler and one per two-wheelers manufactured in the country, across the value chain. Further, the total estimated employment is 32 million, directly and indirectly, which is approximately 2.4% of the total population.
Production of Two Wheelers, Passenger Vehicles, Commercial Vehicles and Three Wheelers reached 24.50 million, 4.03 million, 1.11 million, and 1.27 million in 2018-19. This huge manufacturing allows India to be a leading exporter of vehicles. Automotive exports are worth almost Rs 150,000 crores and translate to 8% of the overall commodity exports from India. Almost 19% of passenger vehicles, 11% of commercial vehicles, 37% of three-wheelers and 12% of two-wheelers produced in the country are exported across the globe to more than 150 countries.
Indo German Trade
The Indian auto-components industry has experienced healthy growth over the last few years. The auto-component industry of India has expanded by 18.3 per cent to reach at a level of US$ 51.2 billion in FY 2017-18. It is expected to register a turnover of US$ 100 billion by 2020 backed by strong exports ranging between US$ 80- US$ 100 billion by 2026.
The total value of India’s automotive exports stood at US$ 13.5 billion in 2017-18 as compared US$ 10.9 billion in the year 2016-17. This has been driven by strong growth in the domestic market and increasing globalisation (including exports) of several Indian suppliers.
India exports its auto components to almost every part of the world, the major markets being developed countries such as the USA, Germany and the UK. Some of the important Asian markets for auto components include Sri Lanka, Bangladesh and Thailand. Germany was the 2nd most important destination, after USA, with a share of 7% of the total exports from India.
Indian imports of auto components stood at US$ 15.9 billion in 2017-18 as compared to US$ 13.5 billion in 2016-17. Germany was the 2nd most important supplier to India also, after China, with a share of 14% of the total imports.
German investments to India
Automotive industry witnessed investment upsurge due to the policy of Government of India that encouraged investment over trade. Between April 2000 and March 2018, nearly 5% of the total FDI inflows in the country, around Rs. 105,680 crores, came into the automobile sector. Now, there are around 13 foreign passenger vehicle manufacturers in India, 5 foreign commercial vehicle manufacturers and 6 foreign two-wheeler manufacturers. These numbers are also rising steadily.
India is emerging as global hub for auto component sourcing. A cost-effective manufacturing base keeps costs lower by 10-25 per cent relative to operations in Europe and Latin America. Relative to competitors, India is geographically closer to key automotive markets like the Middle East and Europe.
Some of the recent investments made/planned in the Indian auto components sector by the German companies are as follows:
- In April 2019, Durr, a German automotive painting and sealing company, entered into a partnership with Patvin to provide automated painting solutions for two or three-wheelers and agricultural machinery for the Indian markets
- As of December 2018, German automotive major Continental has planned investments of Rs 180 crore (US$ 25.65 million) for setting up a premium surface materials facility in Pune. The facility will have an initial capacity of five million square metres and is expected to start production in 2020.
- Bharat Forge entered in an JV with a German co. for developing electrical vehicles by investing Rs 89 crores and is planning to cut down on CAPEX to invest more Rs 1250 crores.
- Schaeffler India, the Indian arm of Germany’s automotive and industrial parts maker, is planning to invest Rs 300 crore (US$ 46.66 million) per annum over FY18-19.
Government Initiatives
Government’s focus on electric vehicles is expected to change the face of the sector and lead the world in sustainable transportation. The NEMMP and its successor, Faster Adoption and Manufacturing of Hybrid and Electric (FAME) India launched in 2015 provide a roadmap for all segments, be it two-wheelers, three wheelers, cars, LCVs, buses and all forms of hybrid and pure electric vehicles.India is already one of the path breakers in terms of alternate fuels and stringent emission norms. FAME I policy gave the industry the right impetus to focus on electric and hybrid mobility. The next phase of FAME II is to be launched later in the year and is expected to provide a focussed push to EVs for public transport.
Other favourable government policies such as Auto Policy 2002, Automotive Mission Plan 2016-2026, National Automotive Testing and R&D Infrastructure Projects (NATRiPs), have helped the Indian auto components industry achieve considerable growth. The government has also extended the FAME Scheme from September 2018 to March 2019.
Despite two economic downturns during the period of the Plan, the sector came very close to achieving the ambitious targets. The next phase of the Automotive Mission Plan 2016-26 aims to make India among the top three of the world in vehicle engineering, manufacturing and export; increase industry’s contribution to over 12% of India’s GDP and generate an additional 65 million jobs.
Indo German Cooperation
Germany is considered as the birthplace of automobile. Currently, nearly six million vehicles are produced in Germany. Alongside China, the United States and Japan, Germany is one of the top 4 automobile manufacturers in the world. The Volkswagen group is one of the three biggest automotive companies of the world (along with Toyota and General Motors). The country’s world-class R&D infrastructure, complete industry value chain integration, and highly qualified workforce create an internationally competitive automotive environment.
Germany, is one of the largest exporter of automobiles in the world contributing to more than 20% of world exports. Motor cars and other motor vehicles formed a significant portion of exports from Germany contributing to ~85% of the exports.
The automotive industry is key to the economies of India and Germany. Today, there are 560 passenger cars for every 1,000 inhabitants in Germany. In India, there are about 24 passenger cars for every 1,000 inhabitants. This share is expected to rise substantially and provides great opportunities.
The automotive industry is transforming fast. Around the world, demands are rising for safer cars, lower emissions, and smarter mobility concepts. Standards, regulations, as well as testing, inspection, and certification fulfil essential tasks to meet such demands.
Policy makers have taken up ambitious targets to make mobility in India safer, cleaner, efficient and convenient. By 2030, India aims to reduce its greenhouse gas emissions by 33–35% from 2005 levels and increase forest cover by five million hectares. In addition, initiatives have been taken by the government for reducing the number of road accidents and fatalities in the country by 50% by 2020.
Historically, India has been orienting towards European standards and technical regulations. Adoption of these standards and technical regulations has not only saved a considerable amount of time and effort for India but has also given access to emerging technologies and innovation. In certain cases, India adopts the European standards and how compliance should be assessed after customising them to India-specific requirements leading to a time lag in the adoption of these standards. Hence, Indian standards and technical regulations may not be entirely in line with European or international ones.
Especially with regards to new technology where the United Nations Economic Commission for Europe (UNECE) is taking the lead in developing and implementing regulations for new technologies. For manufacturers from Germany this lack of harmonisation of standards and technical regulations requires them to undertake additional cost and time to comply with India-specific requirements.
Therefore, to facilitate trade and reduce technical barriers between India and Germany, harmonisation of standards and technical regulations becomes important. Technical harmonisation between both countries could further accelerate trade for German companies as well as increase India’s exports to European markets on the other hand. It would provide the necessary boost to local manufacturing, thereby supporting initiatives such as ‘Make in India’.
Germany and India decided to move forward together in the automotive industry. They are working jointly to expand our bilateral economic relations, find innovative solutions, and contribute to safer, cleaner and more efficient transport. Germany and India engage in a political and technical dialogue on standards, conformity assessment, accreditation, market surveillance, and product safety.
This dialogue takes place between the Indian Ministry of Consumer Affairs, Food & Public Distribution, and the German Federal Ministry for Economic Affairs and Energy within the bilateral Working Group on Quality Infrastructure. The Working Group reduces technical barriers to trade, strengthens product safety, and ensures consumer protection. It involves relevant ministries – including the Ministry of Road Transport and Highways, Ministry of Heavy Industries and Public Enterprises, Ministry of Commerce and Industry, and the Ministry of Electronics and Information Technology – as well as regulators, industry associations, companies, and technical and scientific institutions. It will contribute to deepening the Indo-German collaboration in the automotive industry, for the benefit of the citizens in both countries.