Prime minister Narendra Modi’s vision of ‘Make in India’ was pretty much the buzz word at the well-attended annual SIAM Convention held on September 12 in New Delhi.
15 Sep 2014 | 3927 Views | By Shobha Mathur
Prime minister Narendra Modi’s vision of ‘Make in India’ was pretty much the buzz word at the well-attended annual SIAM Convention held on September 12 in New Delhi.
Taking up the call that invites foreign investors to the country were Japanese vehicle manufacturers who went a step further by ...
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Prime minister Narendra Modi’s vision of ‘Make in India’ was pretty much the buzz word at the well-attended annual SIAM Convention held on September 12 in New Delhi.
Taking up the call that invites foreign investors to the country were Japanese vehicle manufacturers who went a step further by inking an MoU between the Society of Automobile Manufacturers Association (SIAM) and the Japan Automobile Manufacturers Association (JAMA). The agreement will drive exchange as well as sharing of views and technical support between the two countries enabling a safer, more environment friendly and efficient automobile industry.
However, Fumihiko Ike, chairman of JAMA and chairman Honda Motor Company, Japan, while optimistic that India will become an even greater hub for production and export in Asia, pointed out that Japanese automakers encountered certain bottlenecks in India that need to be addressed to give a further boost to local manufacturing and exports from India.
Underlining prime minister Modi’s encouraging words that “the era of red tape has been replaced by red carpet to make it easier to do business in India” to the Japanese business community in Japan last week, he conceded that while currently discussions are underway on the amendment of government policies on the Automotive Mission Plan, National Electric Mobility Mission, fuel efficiency standards and vehicle safety, there are many bottlenecks to doing business in India that still needed to be streamlined.
Ike suggested that India adopt internationally harmonised technical standards suited to local market conditions for producing environment friendly and safer vehicles.
“There are a considerable number of obstacles to doing business in this country. There is an urgent need to improve the general infrastructure, spanning from road, harbours, railways to electric power and water supply. Automakers have pretty much relied on road transport for vehicle distribution nationwide, due in part to the absence of an efficient railway network. But the road conditions, coupled with traffic accidents and transport vehicle breakdowns have led to losses for manufacturers. This is why both the Japanese government and Japanese industry endorse the Delhi-Mumbai and Chennai-Mumbai Industrial Corridor construction projects and look forward to the earliest possible start of these initiatives.”
Among other key challenges is the business environment for investing in India. Many Japanese auto parts suppliers are keen to establish operations in India but along with OEMs encounter issues in obtaining business permits and completing paperwork for acquisition of business property, especially a plant construction permit.
These problems are further compounded by the country’s complex domestic taxation system which varies from state to state impeding investments. He, therefore, called for the speedy implementation of the Goods and Services Tax (GST) and improvement in the permanent establishment tax and other surcharge taxes.
JAMA optimistic on India
Further, the Regional Comprehensive Economic Partnership (RCEP) negotiations for which are currently underway would help India to become an automobile production hub for Asia thereby attracting more foreign investment. The RCEP would provide greater opportunities for India to become a major exporter of motorised vehicles thereby serving as the engine for growth. Because of the steady growth in motor vehicle manufacturing in India, JAMA is optimistic that India will become an even greater hub for production and export in Asia.
Last year two-wheelers built by Japanese manufacturers accounted for 4.3 million units, almost 25 percent of the total 16.4 million units produced in India. For four-wheelers, the number was 1.6 million or 40 percent of the 3.9 million units. Japanese manufacturers have 18 production sites in the country, of which eight are for two-wheelers and 10 for four-wheelers. Also, Japanese manufacturers are strengthening their R&D capabilities besides investing heavily in skilling manpower exporting from India, thereby contributing to the Indian economy.
JAMA promotes the development of the Japanese automobile industry and comprises 14 manufacturers of passenger vehicles, trucks, buses and two-wheelers. Of the 1.6 million Japanese brand automobiles produced last year, 250,000 or 15 percent were exported to other markets. Although the ratio is lower, a total of 350,000 or 8 percent of the 4.3 million Japanese brand two-wheelers produced were for exports. Destinations included Europe, Africa, Middle East and other markets.
At present, Honda subsidiaries Honda Motorcycle & Scooter India and Honda Cars India have limited exports from India catering primarily to the domestic market. Keita Muramatsu, president and CEO, HMSI, told Autocar Professional that due to Honda’s philosophy of being located within close proximity to its customers, Honda globally has at least 30 global manufacturing bases from where it exports in comparison to Hero MotoCorp or Bajaj Auto which have a limited global manufacturing footprint.
Hence, it is currently not mulling big exports from India but leveraging the ‘Make in India’ tagline for producing in and for the local market.
On the other hand, Honda Cars India exports components like powertrain parts to many overseas locales like South East Asia countries, USA and Brazil as well as Europe and mainly the UK. “This year, our plan is to export components worth Rs 600 crore compared to Rs 300 crore last year,” says Jnaneswar Sen, senior VP (marketing and sales).
The carmaker exports its City, Amaze and Brio models to South Africa and Nepal and is studying the viability of exporting the Mobilio MPV as well.
“Regarding Make in India, Honda has been making here since 1997 and has invested Rs 6,000 crore in its car plants. This is in line with our philosophy of being where the market is and secondly also over the years we have focused on localisation and more and more parts are being made in India. We now have almost 90 percent localisation in the Amaze and City. So our cars are made in India,” says Sen.
Maruti Suzuki India, which has been present in India since the early ‘80s, exported 101,352 units during FY’14 with the contribution of non-European markets being around 71 percent. For the future, it is giving a big push to Africa for introducing new models. The new Swift and the Dzire have particularly helped the company step up its export numbers.
Kenichi Ayukawa, managing director and CEO, Maruti Suzuki India, elaborates: “The auto industry has the capacity to fulfil the vision of the new government for India. That is our opportunity and also our responsibility.”
The Renault-Nissan Alliance has achieved greater synergies a regional export hub, manufacturing and R&D centre in India. Takashi Hata, senior VP and chairman for Africa, Middle East and India, Nissan Motor Company, says that the Alliance exports 61 percent of its production capacity rationalising its investments with its Chennai plant becoming a regional hub for select models. The carmaker has increased its exports to 100 countries from India in four years, enabling optimal utilisation of capacity.
Growing components exports
But India is not only a key hub for completely built units but for parts supply as well. Auto part exports from India contribute $9.7 billion, accounting for 4.4 percent with Nissan exporting 1,800 types of parts to 34 plants in 24 countries. India stands second in terms of volumes for part shipments within Nissan. Moreover, India is the key hub for auto engineering and investing in design
and development offering advantages in adopting international technologies, entry level vehicle development and more upstream development in product life cycle, market adaptation, localization, faster product development cycles and time to market, and total delivery cost reduction. In fact, Nissan has found it to be an ideal platform for capitalising on the small car market in other geographies.
The Renault-Nissan Alliance is using the low-cost business model building a limited number of body types based on one platform and leveraging India in developing new products and platforms. For example in the case of the Datsun Go, the new hatchback has been designed, developed and manufactured in India for India. The new CMF-A (Common Module Family), a new platform is being developed by the Indian R&D centre.
The McKinsey report envisioning the auto industry in 2026 forecasts that India can reach the magical $45billion mark in exports from the current $ 8.5 billion, contributing 10 percent of the total and creating an additional 2 million export oriented jobs attracting new investments of $15 billion in automotive exports over the next decade. Truly the race for ‘Make in India’ has begun and as Peter Drucker says ‘Automotive is the industry of industries.’