In the Top Gear

The Indian automotive industry has come a long way making rapid strides and providing a fillip to other industries along the way. However, there remain challenges to be surmounted for the industry to leverage significant opportunities that await it.

The Automotive industry has created mobility on a scale that might have never been thought of, and the effect it has on the lives of people is still incalculable. It is, by nature, a well-knit web that encompasses many other industries, and is among key contributors to the economy of a country. Its forward and backward linkages are so well developed that a minuscule percentage of growth in the auto sector proliferates to bring significant improvements in the economic indicators.

Fillip to Other Industries

The auto industry is globally worth over $2.4 trillion. Its effect on other industries is remarkable. A major share of products from steel and rubber industries go to this industry. It is also one of the largest consumers of machine tools and has cast a profound influence on the design and development of highly specialized machine tools. Moreover, the special requirements of automotive mass production have stimulated technological advances in steelmaking, paint and plate-glass manufacturing, petroleum refining and other industrial processes.

The rise in efficiency and productivity in the automotive sector helps accelerate the efficiency of other sectors as well. Therefore, the industry has come to be recognized as one of the key drivers of economic growth, contributing significantly to the overall GDP of a nation. Hence, a competitive auto industry reflects on the productivity of a nation’s factors of production (labor, land, and capital) employed during production processes. Prize-winning economist Paul Krugman once aptly quoted: ‘Productivity isn’t everything, but in the long run it is almost everything’. Competitiveness is one of the byproducts of higher productivity that we tend to achieve by using our resources well.

Indian Auto Picture

India has some great advantages in this changing automotive landscape. What differentiates India from developed nations is its strong emerging market and more than a billion consumers with their increasing purchasing power. At this juncture, the critical thing is keeping pace with the rapidly changing technologies. How well can we adopt and adapt to them will decide our future.

With the country being on every major global automotive player’s radar, the Indian auto industry has witnessed a slew of investments in recent years. Several global manufacturers have set up their bases in India. The industry is also fast becoming an outsourcing hub for automobile companies worldwide, as indicated by the zooming automobile exports from the country.

For the first time, India has made it to the Top 100 in World Bank’s ‘Ease of Doing Business’ global rankings due to sustained business reforms as a result of supportive government policies and thrust. Additionally, the customer base of the industry comprises the world’s youngest population with increasing disposable income. This scenario is further supported by factors such as the availability of skilled labor at low cost and low-cost steel production. Demand is linked to economic growth and a rise in income levels. Further, it is inversely related to the interest rates and fuel prices as 85 percent of the total vehicles are bought on credit. Per capita penetration at around 22 cars per 1,000 people is itself an indicator that India serves as a red hot destination for global players. With all the above factors in its favor, India is slated to attract more investment and influx of new technologies. It’s now up to the industry to leverage this opportunity.

Coping with Challenges

With all the optimism breeding in the Indian automotive industry, it does face new and pressing challenges such as globalization, individualization, digitalization and increasing competition. Increasing safety requirements and voluntary environmental commitments by the industry also add to the lot. Size is no longer a guarantee of success; only those companies that can explore new ways to create value will prosper in the future. Upcoming challenges like Quick changeover from BS IV to BS VI emissions, Hybrid vehicles, EVs, CAFE norms and various safety regulations are forcing auto manufacturers to enter into an Eco space that is more collaborative to develop a conducive infrastructure and ensure sustenance at large.

What is more important in this scenario, compared to other big markets such as China and the US, is how Indian businesses adopt and adapt to the changing environment, and boost their competitiveness to offer superior products for exports and domestic consumption. How things unfold in the next few years will indicate the direction of the third wave of generational shift — how fast India’s middle class widens, the pace at which India’s economy goes electric, and how soon the country’s auto emission norms match global standards.

We need to use the nation’s factors of production – labor, land, and capital – to drive competitiveness in the auto industry. The entire value chain including part manufacturers, logistic suppliers, core auto sector and dealers have to be competitive. High focus on localization and export of vehicles and spares can also help create skilled labor across the country. Increasing software content in automobiles is a new field that is coming up with technological disruptions. India is already proving its worth here and emerging as one of the largest exporters of connected and software solutions for automobiles. In this regard, a number of manufacturers are setting up their backend for research and development in India to support their global markets.

Hence, we must be competitive not just in using our resources for volume production, but also for building flexibility as the core strength. Being productive ensures we can serve the demand, but the true test is in being productive while managing a volatile environment.

Things Indian auto units must do for being productive:

Learn, unlearn and re-learn;
Put the maximum effort in creating flexible processes and equipment;
Design the processes in such a way defects are not generated and if they are process defects, they must be filtered out from the value chain;
Cost advantage is directly proportional to competitiveness. It’s time to switch from the lowest cost mindset to a maximum value over a lifecycle concept. This is the way one can make their entire systems much more efficient and systematic;
It’s highly important to work towards saving our environment. Irrespective of whether a company is polluting or non-polluting, protection of the environment should be the concern of every socially responsible organization;
Last but not the least, one must design processes around their people since they are the ones who will make them win.

What differentiates India from developed nations is its strong emerging market and more than a billion consumers with their increasing purchasing power.