Infrastructure to boost auto boom

PTA News Bureau

As a renowned Asia watcher, what is your take on the growth prospects of China and India in the coming five years, particularly in the automobile sector?

Both markets are excellent opportunities, and especially for Indian manufacturers. China’s middle class consumer market is expected to rise to 600 million by 2020 from 250 million now, and India’s middle class consumer market is also poised for significant growth. However, at the luxury end Indian companies such as Tata with Land Rover and Jaguar are making giant strides into the Chinese market, whereas Chinese manufacturers have not been so adept at selling overseas except at the low end. Indian manufacturers in the sedan and luxury markets have great opportunities both domestically, throughout ASEAN via the India-ASEAN Free Trade Agreement and in China as well.Devonshire-Ellis300

Do you think urbanisation in China and India would accelerate in view of higher investment in infrastructure such as roads, highways and rail systems?

Yes, and especially so in India where there is an element of catch up needed. But it was only 15 years ago since China built its airport expressway in Beijing, before then I used to see horses and carts on the old road. China got there first in terms of infrastructure development for many reasons, but now it is India’s turn. Urbanisation is inevitably driving this.

Do you find any perceptible change in the manufacturing sector in China and India? Do you think the rising wage cost would dampen foreign direct investment? Will other low-cost Asian countries, such as Vietnam and Cambodia, witness higher FDI flows?

Large scale workforces are generally better disciplined in China than in India. But the worker salary demographic is in India’s favour – a shop floor worker in Mumbai is 22 per cent of the cost of his counterpart in Guangzhou for example. But India and Asian productivity tends to be lower, partly due to the infrastructure gap. However, this is narrowing, and as a rule of thumb, if you can get your production in India or elsewhere in Asia up to 70 per cent of that achievable in China, it is generally worth placing additional manufacturing capacity in the non-China locations. The ASEAN Free Trade Agreements with both China and India are the key in this point; they reduce tariffs to practically zero on 90 per cent of all bilaterally traded products. Vietnam especially, and also Indonesia, Malaysia, Thailand and Philippines are set to boom as a result of lower wages, improving infrastructure and the FTA. But ASEAN nations like Cambodia, Laos and Myanmar are still way too far behind at this moment to be able to offer sustainable productivity at this moment. They are still another decade behind.

Do you think the automobile industry would become a major economic growth driver with individual mobility proliferating in China and India?

Yes. As we saw in China, the large global manufacturers moved in and then started looking for local partners for producing all the component parts of a vehicle. With tens of thousands of different parts in each single vehicle being needed, auto manufacturing gives a downstream boost to smaller manufacturers specialising in specific areas. Some will need to partner with other foreign firms to help them upgrade their capabilities, but the end result is labour and wealth creation. New engine and power technologies are also now coming onto the market so auto will also help usher in newer green technologies and cleaner fuel. So the impact is felt across multiple industry sectors, both auto-traditional and innovative.

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