By Priya Saraff
We talk agriculture, we talk IT. But somewhere along the way, India has pulled ahead in the race to become the sixth largest automobile producer in the world. That’s around 3.8 million cars per year. Could this be indicative of unrecognised potential in the broader manufacturing industry?
It’s a sector that suffers from the ailments of poor infrastructure, red tape, and strict labour laws. But it could be the cure for our country’s drastic unemployment and poverty as well.
Moving from strength to strength
India’s auto story really took off in 1981 with the collaboration of Maruti Udyog and Suzuki. Their joint venture remains India’s most popular brand. After the New Economic Policy of 1991, foreign manufacturers entered the game. By the late 2000s, Indian automakers started acquiring foreign entities. Tata Motors acquired Jaguar Land Rover in 2008. Mahindra and Mahindra acquired Ssangyong Motor in 2011 and Pininfarina S.p.A. in 2015. India also came to be known for its auto components, supplying to global giants. In the last decade, the auto industry has created 25 million jobs and provided seven percent to the GDP. This sector is a job creator by nature. One auto job in the US created seven other non-manufacturing jobs. India is not just an able manufacturer, but an encouraging market, the third largest in the world. Consumer preferences are leaning towards cars now. An increasing middle-class income has only widened the target market.
So where exactly is India lagging? A detailed study by AT Kearney lists the challenges of the Indian manufacturing sector. India has not yet reached international standards of automation. The need for employment is too high and focus on Research and Development (R&D) too little. The solution to this is to continually update manufacturing processes and make structural changes (like smart automation).
India’s labour force is not up to the mark. There is a shortage of good quality vocational training and rigid labour laws. Graduate level engineers are trained in analytics. But they are not introduced to concepts of waste-reduction and management like kaizen. On the job engineering training is more management based than technical. Such a system creates an imbalance between skills needed and skills available. This has to be tackled by bettering labour quality overall. Industries can work closely with training institutions to produce quality workers. Manufacturers can individually take up the responsibility of training employees at all levels.
India finds itself burdened with inefficient supply chains. The supply chain organisations themselves should have more control of the process. They should also update their tools and technology. The industry also faces problems of low component quality. Companies must focus on making the whole value chain lean (reducing waste and increasing efficiency). This can be done through incentives and by working with suppliers to better their processes.
A comparison with our big neighbour
A World Bank blog post similarly reviews the automobile industry. To compare a few statistics with our neighbour, India’s levels of auto production are a third of China’s. The industry standard of scale is 1,00,000 units per model. Out of 18 OEMs (Original Equipment Manufacturers, who assemble the car) in India, only four operate at this level. In China, 25 out of 27 OEMs operate at this level. Only 43 percent of Indian non-production workers are formally trained, compared to China’s 70 percent. Internationally accepted quality certification has been given to only 47 percent of Indian auto enterprises. In China, it’s 83 percent. Policy reforms can bring changes that the industry dramatically requires. This can be through lowering import tariffs (so importing countries lower theirs). Moving towards international environmental and safety standards could bring the industry in line with international standards. It is also important to boost R&D programmes. To strengthen the supply chain, connecting Small and Medium Enterprises (SMEs) to OEMs is necessary.
There is the possibility of premature de-industrialisation (manufacturing declines in developing countries before they reach the income levels of developed specific). One of its causes is intense Chinese competition. Other concerns similarly discuss threats from automation and 3D printing, asking the question: “Will India be able to catch up?” But agencies like McKinsey believe that India will enjoy a few decades before automation takes over. This gives India time to use its manufacturing industry to create more jobs.
Ideas for the future
With the Budget coming up for FY18, here are some interests of the auto sector. The Society of Indian Automobile Manufacturers (SIAM) has suggested providing incentives for R&D through weighted tax deductions. When it comes to taxation, Shekhar Vishwanathan, vice chairman of Toyota Kirloskar Motor, mentioned that there were no expectations regarding GST. Instead, he recommended cutting logistics costs through improved river or rail transport. He urged the government to focus on long-term policy. Tata Motors, on the other hand, suggested only two tax slabs be applied to passenger vehicles. Another topic of discussion is the interest in e-mobility (Electro-mobility). India is aiming for 100% e-mobility by 2030. There are recommendations of income tax rebates for those buying EVs and incentives to Indianise components. There are also demands for preferential treatment for specific electric vehicle components through lower import duty.
To reach China’s levels, India must plan for the long-term growth of the manufacturing industry. It may not be able to ever reach such levels. It is a good benchmark to keep, an ambitious goal to strive for. However, it cannot be the end unto itself. Our country needs manufacturing for reasons bigger than a competitive neighbour, and that is, for employment. Amidst all this, the automobile sector is a quiet success story that is gaining pace, setting the stage for bigger things to come.
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