Indian auto component industry turnover seen at USD 110 billion by 2020
According to the Automotive Component Manufacturers Association, Indian auto component industry, consisting of a large number of small and medium enterprises, is expected to achieve an annual turnover of USD 110 billion by 2020. To maintain this growth the industry is expected to invest around USD 35 billion.
However, the rising cost of labor and other inputs, and the non availability of capital and technology are becoming speed breakers for the industry.
Mr Srivats Ram president of ACMA and MD of Wheels India Limited said that the industry is expected to contribute 3.6% of India's GDP by 2020, up from the current 2.1%.
Mr Ram said the industry could create employment opportunities for over one million people, especially in tier II and tier III cities, where the major chunk of component makers that supply to original equipment manufacturers is located.
However, the industry faces several challenges, according to Mr Ram, rising auto fuel prices, interest rates, input costs and non availability of capital. These factors have been hitting company bottom lines and bringing down operating margins and return on capital for the last five years.
Mr Ram said that the major costs, labor, power and fuel, have almost doubled over the last three years. However, productivity has not increased, due to power shortages and technology limitations. The other challenge is raising capital financial institutions are not ready to lend these units, since their balance sheets carry no credibility.
He said the withdrawal of Duty Entitlement Passbook with effect from June 30th 2011 will hurt automotive component manufacturers, and particularly SMEs, which cater to the export market. He added that "With no Value Added Tax in place, the removal of DEPB will make the industry uncompetitive in the global market. Withdrawal of the scheme without accompanying tax reforms designed to ensure that domestic taxes are not exported will leave exporters handicapped in the global markets."
In 2010-11, the domestic market for auto components was estimated at USD 30 billion as compared to USD 26 billion in 2009-10. Exports increased to USD 5 billion in 2010-11, from USD 3.8 billion in 2009-10, an increase of 31%. Imports are also growing, and are currently about USD 10 billion.
The growth was due to the surge in vehicle production in the country. According to a study by ACMA and the professional services firm Ernst & Young, India's passenger vehicle market will grow to about nine million units in 2020, while the commercial vehicle market will cross 2.2 million units.
The size of the passenger vehicle market is currently about two million units, and the commercial vehicle market is about 530,000 units. The two wheeler and three wheeler market is expected to double to 22 million units by 2015 and reach 30 million units by 2020, driven by the low penetration level, expanding rural sales and growth in exports.
(Sourced from www.business-standard.com)
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