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Auto policy needs a concerted rethink

Auto policy needs a concerted rethink

By Rajiv Budhraja

Auto Industry is on crossroads in India and in dire need of right policy push. As the data for recently concluded Financial Year 2015-16 is compiled and dissected, some interesting insights come to the fore both in terms of domestic sales and exports.

Importantly, Indian automobile industry crossed the coveted milestone of domestic sales of over 20 million units for the first time ever during the year. This achievement is making India shine brighter on the Auto map of the world. Domestic production had breached the 20 million mark a few years ago. It took some time for domestic sales to catch up but eventually it did.

Exports also zoomed ahead and reached 3.6 million in FY 2015-16 including export of 0.65 million passenger vehicles. However what gives an interesting twist to the Auto story is the fact that some of the marquee international auto majors exported more passenger vehicles from India than what they sold in the country. If there was any doubt about India emerging as a passenger vehicle manufacturing and R&D base (especially small cars), the same has been adequately put to rest. At least four passenger vehicle manufacturers namely Nissan Motors, Ford India, Volkswagen India and General Motors had their exports from India far exceeding domestic sales. The numbers may not be very high but as a trend it is significant enough to go unnoticed.

Both Nissan Motors and Ford India had total exports exceeding 0.1 million. In fact Nissan is the third highest exporter of passenger vehicles after Hyundai and the domestic market leader Maruti Suzuki. Interestingly, the exports are led by select models . For instance, the biggest chunk of Ford India’s export comes from EcoSport. For VW mid-size sedan Vento was the most exported car. Similarly, Beat is the only model exported by General Motor from India. Experts have us believe that India manufactured products are more price competitive leading to this trend helped by rupee depreciation.

Current fiscal year 2016-17 has begun on a promising note and is expected to be better in terms of overall performance of the auto sector as it consolidates on the gains of FY 2015-16. A number of new models and refreshes planned by passenger car makers are energizing the market. With Met forecasting a better monsoon, the demand for motorcycles, small cars and Light Commercial Vehicles is also likely to grow as rural economy gets a fillip.

New Automotive Mission Plan (AMP) 2016-26, a collective  blueprint of the Government and Industry regarding growth of Auto sector in India is already work-in-progress and is likely to launched soon. The new AMP aims to put India’s automobile industry in the league of top three nations in engineering, manufacturing and export of vehicles and auto components.   The new AMP has set an ambitious target of increasing the value of output of Auto sector to Rs 18.89 lakh crore (about USD 300 bn). The AMP looks to propel India’s auto sector to be the engine of the Make-in-India programme, potentially contributing in excess of 12% of the country’s GDP.

Unfortunately, it is the famed ‘Make-in-India’ programme in the automobile sector which is facing a crisis of sorts following a series of regulatory  and legal rulings by the courts in respect of fuel preference, emission norms etc.

Mercedes-Benz recently stated that it had  put on hold investments in India in view of a ban imposed by Supreme Court of India on sale of large diesel vehicles. Making a large point the iconic car maker has stated that the issue had put a question mark on the country’s credibility as an investment destination for automobile companies.

It is clear that the ban on diesel vehicles has led to uncertainly in the market and will discourage further investments if the issue is allowed to linger on for a long time without any clear policy. Many auto majors have invested in diesel technology in India.

Without going into the merit of the issue of diesel vs petrol or old vehicles vs new vehicles (which is the subject matter of another discussion), it needs to be strongly emphasized that Policy uncertainties have the potential to throw in a spanner in the desired growth of any sector.

At a time when Indian auto sector is coming out of the recession (while other economies are still struggling) it is certainly desired that long term policy is articulated unambiguously. Investments which are in accordance with the law should not be made hostage to sudden regulatory changes.  It is hoped that the Government with a pro-investment agenda will certainly ensure that India’s growth story in Automobiles is not derailed.

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