Collaboration & self-reliance...

...learnings for the automobile industry from the coronavirus emergency

The global GDP growth in the beginning of 2020 was estimated at 3.3 per cent compared to 2.9 per cent in 2019 and was being hailed as a silver lining for global industry. The spread of the novel coronavirus (n-CoV) in China was initially not seen to be a major threat. However, as the days progressed, it spread, impacting over 75 countries, putting markets at risk besides affecting international trade and services. According to the World Health Organization (WHO), the n-CoV has now become a global emergency. China is the world’s second largest economy and accounts for 16 per cent of the global exports. The ripples of the pandemic are also being experienced in India, as we import about 18 per cent of merchandise we consume, 67 per cent of electronic components and 45 per cent of consumer durables from China.

The automobile industry imports about 10 per cent of the raw materials and key auto components like enginecomponents, transmission, steering, alloy wheels and interiors from China. Any disruption in the availability of these parts is likely to critically hamper production across all segments — passenger vehicles, commercial vehicles, three-wheelers, two-wheelers and gravely affect electric vehicles (EVs).

In anticipation of the Chinese New Year, the Indian auto industry had maintained some inventory at the beginning of the year, but with the current lockdown in China, the supply of BS VI vehicles is likely to get impacted. The auto industry has invested around Rs 70,000 crore to graduate to BS VI emission levels. With the GDP growth and manufacturing growth slowing, the auto industry is going through a tough time and is depreciating at -15 per cent in F20 year-to-date. The outbreak at this juncture of transition is likely to create additional challenges for the industry.

Manufacturers are exploring alternatives to fulfil their supply chain demands. They would also take a substantial amount of time to reach a stable production scale, as these components would need regulatory testing. The auto industry is grateful to the government for issuing a notification of force majeure for coronavirus and 24x7 clearance of shipments at all customs formations. The government-industry coordination at this critical juncture was extraordinary.

All stakeholders got into a huddle and worked out recommendations, special approvals/waivers to expedite the clearance of the parts at various airports and seaports. Instead of reeling under the outcome of a sudden emergency, we must draw some learnings from this situation and focus on implementing these learnings in the industry to be better prepared for such unforeseen scenarios in the future.

The BS-IV emission regulations were implemented across India in April 2017 and the industry was pushed into upgrading to BS-VI emission standards in just 36 months. In no other country has the automobile industry taken just three years to upgrade two-levels of emission norms. Countries that are Euro 6 (the BS-VI equivalent), have taken typically five-six years to upgrade from Euro 5. That gives the industry enough time to plan sourcing of components, develop new sources of inputs/raw materials inside the country.

We had just three years to develop BS-VI engines and exhaust after-treatment systems. That small window did not allow us to build supply chains in India. Also, as the technology to meet BS-VI emissions are very high-end, the industry had no option but to work with global suppliers. Some parts being capital intensive, it did not make commercial sense to manufacture and source from India. Global suppliers of these parts have capacities in China and sourcing from China makes commercial sense. All this leads to high foreign exchange outflows and dependence on China.

Policymakers need to involve the industry and understand their needs/sensitivity to create a regulatory timeframe that is beneficial to both automakers and the country. Such a collaborative way of working will give a boost to local manufacturers meeting the ambitious "Make in India" programme while also minimising the cost of import.

Improving our logistics infrastructure will play a vital role in achieving the desired growth in the manufacturing sector. The turnaround time at ports, movement of goods across the country through fast rail and road networks will directly result in an enabling and conducive environment for companies in India and abroad to set up manufacturing units in the country.

These learnings will help the auto industry emerge more agile and capable in the future. As India graduates into becoming a global leader in the design and manufacturing of automobiles by making our vehicles cleaner and safer, the industry is committed to the mission of “Building the Nation, Responsibly”.

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The author is president, Society of Indian Automobile Manufacturers