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Monday, May 17, 2021

Auto industry has a major role to play in India’s economic growth

The industry has the potential to compete with global leaders. It must work with the government to grow by 10-12 per cent per year for the next 10 years, and more importantly, grow responsibly.

Written by Pawan Goenka |
Updated: April 16, 2021 8:52:22 am
auto industry, india auto industry, indian economy auto industry, auto sales, automobile sector sales, covid 19 auto industry, auto results covid 19, Indian express opinion, Pawan Goenka writesThe auto industry does a lot of good for the MSME sector which is a big employment generator for India and an important cog in the Indian economy.

The Indian IT industry has been hailed as a star industry of India, and rightfully so. But a question I often find asking myself is: Is the automotive industry far behind? From the time I joined the Indian auto industry 27 years ago to now, as I retire (only formally), the transformation in the sector has been well beyond my imagination. Interestingly, the Indian auto industry and Mahindra’s own automotive business have grown in tandem, and I take some personal pride in this. Let’s look at a few numbers. In this 27-year period, passenger vehicle volumes have grown by 15 times; the SUV 24 times; and the two-wheeler 12 times. These impressive growth numbers have pushed the global rank of the industry from 16th then to 5th now, poised to increase to 3rd in the current decade.

Numbers aside, the very nature of the industry has transformed during this time. The star products of that time will probably not find a single buyer today. The technology features, the safety, the comfort, the emissions, and the energy consumption have all improved by several orders of magnitude.

Even beyond these tangible changes, there are three advancements that I am most proud of. First, the advancement of the supplier ecosystem in India. I remember how rudimentary the supplier base was when we were developing the Scorpio at Mahindra. Today, our suppliers — both homegrown as well as the MNC offshoots — can rub shoulders with the best in the world. Second, the build-quality of our products. Quality defects have reduced by a staggering 90 per cent and now compare favourably with most advanced markets. Third, and perhaps the most important, is our ability to design, engineer and develop world-class products completely in India. Scorpio, Indica, XUV500, Nano and Pulsar brought respect to India’s engineering capabilities. Today, every major carmaker has an engineering centre in India, and many have complete product development capability here. The frugality in product development also gives India a competitive edge.

The auto industry does a lot of good for the MSME sector which is a big employment generator for India and an important cog in the Indian economy. The MSME share of value-addition to a car is 35 per cent. Further, the automotive aftermarket provides economic opportunities to thousands of MSMEs. While no official count is available, one estimate puts the total number of MSMEs engaged in the auto value chain in the range of 25,000-30,000.

The Indian auto industry truly embodies the spirit of Atmanirbhar Bharat, and perhaps many other industries can take some lessons from it. The industry contributes 6.4 per cent to GDP, around 35 per cent to manufacturing GDP, supports over 8 million jobs directly (OEMs, suppliers and dealers) and as many as 30 million more in the value chain. It accounts for cumulative investments of $35 billion over last 10 years, and generates export revenue of $27 billion that is nearly 8 per cent of the total merchandise exports from India.

The potential of the Indian auto industry, though, is much larger. In countries like Korea, Germany, Thailand, Germany, and Japan — the auto industry contributes more than 10 per cent to the country’s GDP and accounts for a healthy share in exports and R&D expenditure. Why should the Indian auto industry not aspire to reach these levels? The question though, is, what will it take? In simple words — all that it will take is for the industry to be not seen as a “sin” industry, but as an important economic growth driver for the country. If the nation wants to be a $5 trillion economy, it cannot happen without the auto industry making a major contribution. Yes, cars lead to road safety issues, pollution, consume precious crude oil, but over the last three to four years these ills have been controlled thanks to the action taken by the government and the efforts of the industry. The scrappage policy will further help to take polluting, unsafe, gas-guzzlers off the roads. Another opportunity for India is to carve out a niche for itself in EV tech and solutions space — related to first/last-mile mobility and delivery. The global market for such solutions is huge. Rapid localisation of EV tech also offers a big economic growth opportunity for the auto component sector.

The time is right for the government and the industry to work together in a mission mode to grow the industry by 10-12 per cent per year for the next 10 years, and more importantly, grow it responsibly.

Here is what I see as positive signs — significant investment in skill development and R&D is already happening. Indian manufacturing quality is steadily gaining global acceptance. Still, there is work to be done. We need to enhance local value addition and make large investments in capacities. Indian products need to be globally competitive in cost, quality, and technology. India needs to sign bilateral treaties to get favourable tariff regimes for auto exports. The government needs to take a hard look at rationalising the extremely high GST rates on automobiles in a phase-wise manner and be pragmatic about introducing new regulations. Automobile prices have increased significantly because of various new regulations introduced in the last two-three years. Perhaps a pause is needed.

The government had released an Automotive Mission Plan 2026. This plan needs to be revised in the current context jointly with the industry. All stakeholders must treat this as a strategy document and commit to implement it. Done right, a $200 billion industry with exports of $50 billion by 2026 is not out of reach.

Goenka is former managing director and CEO, Mahindra & Mahindra

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