Society of Automobile Manufacturers (SIAM) cutting vehicle sales projection for the ongoing fiscal for the second time due to demand slump comes as a blow to Indian auto parts industry. According to Vinnie Mehta, Executive Director of Automotive Component Manufactures Association (ACMA), the nodal agency for the Indian auto component industry, SIAM data is of “serious concern” to the industry. However, ACMA remains bullish about growth in exports despite stabilisation of Rupee at around 52-53 levels. In an interview to Probal Basak, Mehta speaks about challenges faced by the industry and ACMA's assessment of the domestic and export market in the current scenario. Edited excerpts:
The auto industry is yet to show any signs of recovery as is evident by the cut down of the growth forecast by Society of Automobile Manufacturers (SIAM). How worrying is the situation for the auto parts industry?
The recent cut down of the growth forecast by SIAM for the vehicle industry for 2012-13 from the earlier 10-12% to 5-7% is of serious concern to us as we grow in tandem with the vehicle industry. Certain sectors of the vehicle industry have not performed upto expectations. In this scenario, our growth estimate for the auto component sector in 2012-13 is 8-10%.
What is the impact of the Centre's recent reform initiatives on the industry?
While the first two quarters of the current fiscal have not been very encouraging, we are hopeful that with the recent reform announcements made by the Government, which have somewhat uplifted the general market sentiments as also ensuing festival season, vehicle sales will do better and the industry will gather momentum. Having said that, we believe the long-term growth story for India, which is driven by the aspirations of its youth, remains intact and we are confident that the industry turnover will be $115 billion by 2020 from the current size of $43.4 billion.
Indian auto component industry has seen some silver lining with exports, which continues to grow at 15-20%. However, some of the domestic players say, although the first quarter was good for exports, there are signs of slowdown in the international market too, especially in the Asia-Pacific region. Can you please throw some light on this?
We are glad that exports in 2012-13 continue to be robust despite the global economic turmoil. Our exports stood as $6.9 billion in 2011-12, growing 33% over $5.2 billion in 2010-11. We expect exports to continue to grow at around 15% this year, which is somewhat slower than that of the last year. Europe, especially Germany, with 35% share continues to be our largest export destination followed by the US with 23% share. Interesting, 80% of our exports are to the OEMs, which is a testimony to the global acceptance and recognition of India manufactured auto components.
Rupee depreciation was one of the major boost to export growth. As the Rupee seems to be stabilising now around 52-53 levels, how do you see the impact on exports?
While fluctuations in the exchange rate does impact our exports, what should be noted is that while theoretically depreciation of rupee should aid exports, but our input raw material prices are linked to the London Metal Exchange so some of the advantages that could accrue do get neutralised. The industry today is competent to export on its own strengths rather than depend on such vagaries and this is pretty much evident from the current growth trends.
What is your take on the recent changes in Foreign Trade Policy (FTP), which has added some more auto component products in the product focus scheme?
The thrust given by the government to the automotive sector in the last supplement of the FTP is truly commendable. Twenty three new items were included under the Market Linked Focus Product Scheme (MLFPS) and another five new items were introduced under the Focus Product Scheme (FPS). This is indeed very encouraging. However, to sustain the growth momentum it is essential that there be long term stability in export incentives.
There is talk about mandating standards to combat the counterfeit market. Given the nature of Indian market, how hopeful are you about that?
The aftermarket is growing fast but unfortunately it is plagued by counterfeits. The size of the aftermarket in 2010 was Rs 33,000 crores and 36% of that is counterfeit. ACMA is working with the relevant government agencies to ensure that safety standards are not only mandated but also monitored for aftermarket products so that the menace of counterfeits can be curbed.