The Indian automobile and auto component industry are often described as the sunrise Industry. The Auto sector has seen an overall average growth rate of approximately 15% over the last five years during 2001-02 to 2006-07.

The automotive industry has already attained a turnover of Rs 2,21,507 crores in 2007-08. In 2008-09 the turnover of the auto sector (automobiles and auto components) was slightly less at Rs. 2,18,966 crore.

Today India is the world’s second largest manufacturer of two wheelers and ninth largest car manufacturer. The Ministry of Heavy Industry and Public Enterprises is taking a number of steps to give a fillip to the growth potentials of the automobile sector in the country.

Commercial Vehicle Sector

The Indian automobile Sector is presently going through a phase of slowdown for the last two years i.e. 2007-08 and 2008-09.  The sector witnessed a net decline in production in 2007-08 of (-) 2.29% and in 2008-09 the sector posted a modest growth in production at 2.96% over 2007-08. The worst affected segment in the auto sector is the Commercial Vehicle (CV) segment, which has witnessed a production decline by almost 24% in 2008-09 over the previous year.

The Medium & Heavy Commercial Vehicle (M&HCV) category has been the hardest hit which has seen a decline in production by 35 % in 2008-09. The exports of CVs have also plummeted. The Department of Heavy Industry, has taken the initiative to ensure that under the Stimulus Package-II announced by the Government, the State governments will be allowed to buy transport vehicles (buses) under the JNNURM Programme.  In May, 2009, Commercial Vehicle segment posted a negative growth of (-)27% on year to year basis. While other segments in the auto industry have shown improvement, the commercial vehicle segment still lacks demand.

The Department of Heavy Industry has recommended that the states should be advised by the Ministry of Urban Development to increase the procurement of buses with floor height up to 900 mm. Apart from giving a boost to the Commercial Vehicle segment, it would help augment the transportation system in the urban areas. It will ensure that the existing vast capacities are adequately utilized (and do not remain idle) and the intended purpose of the scheme is achieved within the targeted time frame.

Setting up of the National Automotive Design Institute (NADI)

In order for the Indian auto Industry to grow and become truly globally competitive, it is essential that adequate investment take place in auto R&D and auto designing.

There exists a cost disadvantage of 30% for products manufactured in India vis a vis China. This is due to lack of design and engineering capabilities in India. Planning Commission had recommended setting up of an auto design centre at National Institute of Design (NID), Ahmedabad.  This was to ensure that India become the destination of choice in the world for design and manufacture of automobiles and auto components.

With the growing automotive market in India, the customers are always looking for newer vehicle styling. Automobile designing therefore has become as much important as the fuel efficiency or the safety and ergonomics. The setting up of indigenous auto designing capabilities through a National Automobile Design Institute is therefore essential for the growth of Indian auto Industry. This will be an important initiative as currently the designing capabilities within the country are highly limited and the automobile manufactures are currently out sourcing this from international design centres. Such an Institute in India will also go a long way to make India the manufacturing hub for small cars. DHI shall take initiative for setting up of this institute.

Setting up of the Auto Component Development Fund

The Indian auto component industry has been hit hard by the slowdown in domestic sales and exports. The imports in the recent past have increased manifold. A large number of Indian auto component companies have witnessed sharp decline in profitability and are also facing severe problem of non-availability of working capital etc.

The Indian auto component industry which is the supply chain for the automobile vehicle manufactures in India needs to be supported especially the Small and Medium Enterprises, (SME), which have been hardest hit. Otherwise the closure of these companies will disrupt the supply chain and may also adversely impact automobile manufacturing.

With a view to achieve the targets, and keeping in mind the need for encouraging investments, upgradation of technology, modernization of manufacturing systems and processes, especially in case of the SME auto component companies, DHI has recommended the creation of a modernization/automotive development fund.

This is important since the auto-component industry is capital and technology intensive industry and also because of the fact that the auto component SMEs are facing stiff competition from companies in other developing countries like ASEAN countries.

The single most important factor inhibiting technology up-gradation/ modernization has been the high cost of capital, especially for an industry that is squeezed for margins. Given the significance of this industry to the Indian economy, its employment potential and the huge backlog of technology up-gradation, a modernization fund for the auto component industry would provide the necessary impetus to enhance its viability and competitiveness in the domestic and international markets.

The Department of Heavy Industry has recommended a Rs. 1,000 crore Automotive Development Fund. It will help in financing the modernization of the auto-component industry through a system of Interest Subsidy on loans on purchase of new plant and equipment. The fund would offset the loss incurred on interest earnings by the financial institution by way of reimbursing them for the difference in interest.

Auto Parks and Auto Clusters

Better infrastructure facilities are a sine qua non for creating a competitive environment for attracting investment in the automobile sector. What better way can be there than a dedicated park for automobile sectors with state of the art technology and facilities.

The Department of Heavy Industry will take the initiative for setting up such parks across the country for augmenting and facilitating the existing auto clusters for providing to the Indian automotive industry a facelift.

Intelligent Transport System Project

The Department of Heavy Industry (DHI) had provided Rs. 3 crore to TIFAC for undertaking the Chennai Intelligent Transport System (ITS) Project.  The project aims at leveraging Information technology to provide live up-to-date information on the movement of buses being run by the State Transport Undertakings.  The system uses GRS Technology to give up-to-date information to the passengers and the transport undertaking on the running of the buses.  The project has been successfully implemented and will be transferred to the State government of Tamil Nadu shortly. The DHI will replicate the system in Mumbai & Delhi as well.

Formulation of Skill Development Plan

The Department of Heavy Industry is concerned with the development of the engineering industry viz. machine tools, heavy electrical, industrial machinery and auto industry and administers 32 operating Central Public Sector Enterprises (CPSEs).  The CPSEs under the Department are engaged in manufacture of engineering/capital goods, consultancy and contracting services. Apart from above, there are small, medium and large enterprises also operating in the private sector. There are various industry associations which are taking care of these enterprises operating in the private sector. To ensure proper, streamlined and high growth rate during the current fiscal and in future, the availability of adequately trained manpower for these sectors would be an absolute necessity.

Ensuring the availability of skilled and trained manpower is a sine qua non for generating employment opportunities in the capital goods sector.  Apart from this, it will also help in the creation of a reservoir of human talent to work in capital and labour intensive sectors which are the prime movers of the economy.  The initiative of the Department of Heavy Industry to draw up a comprehensive skill development plan is to provide the necessary fillip to help these sectors emerge as globally competitive hubs apart from creating our own global giants in these fields.

Commissioning of EMC lab at VRDE Ahmednagar, Maharashtra

The testing facilities at Vehicle Research Development Establishment, Ahmednagar (under DRDO, Ministry of Defence) has been upgraded with assistance from National Automotive Testing and R&D Infrastructure Project (NATRiP). One of the key projects of upgradation is the setting up of the state of art Electromagnetic Compatibility (EMC) lab.

This lab is first of its kind in the country with an investment of Rs.31.75 crores. This lab is one of the biggest in the world and the test facility would cater to the needs of the automotive Industry and the Defence Sector.

It caters for wheeled and tracked vehicles platform level testing and subsystem level testing as per the National and International Automotive Industry Standards. This facility is now ready for commissioning and use by automotive industries.

Forging Industry Research Institute of India

The automotive industry has strong backward linkages with the forging industry.  In the absence of adequate facilities, a strong need was felt for setting up a dedicated institute exclusively for the testing, validation, R&D services and training of human resources in the forging industry.  The Department of Heavy Industry in collaboration with Automotive Research Association of India (ARAI) and Forging Association has set up a state of the art facility, ARAI-Forging Industry Division at Pune in Maharashtra at a cost of Rs. 22 crores.  The complete funding for the project has been made by the Department of Heavy Industry. The project is on the verge of completion. The Centre has already started getting testing orders from the industry and is also starting its training programmes.  The institute is to be registered as an independent body and renamed as Forging Industry Research Institute of India (FIRII).

Note:

* S. Subramanian is Deputy Director (M & C), PIB, New Delhi.
* The views expressed by the author in this feature are entirely his own and do not necessarily reflect the views of SME Times.