Executive Interview: Mr. Rattan Kapur, President, ACMA and Chairman

 In August 2017, Mr. Rattan Kapur, President, ACMA and Chairman & Managing Director, Mark Exhaust Systems Ltd was interviewed by a MarkLines India representative in the ACMA office in New Delhi about the organization’s plans, the impact of electric vehicles on the Indian auto component industry, new emission standards, Make in India, and growth for the industry as a whole in the country.

Mr. Rattan Kapur, President, ACMA and Chairman & Managing Director, Mark Exhaust Systems Ltd.

With new OEM's venturing into India, what are the prospects for Indian Auto Components manufacturers?

 According to the Automotive Mission plan, which represents the Indian Government’s comprehensive roadmap, the Indian automotive industry is set to become the third largest in the world by 2026. It will grow to a scale of USD 262 to 302 billion by 2026 with passenger vehicle sales increasing to a range of 9.4 to 13.4 million units, commercial vehicles between 2.0 to 3.9 million units, two-wheelers to 50.6 to 55.5 million units, and tractors to 1.5 to 1.7 million units. At the same time, the auto component industry aims to achieve USD 200 billion in revenue by 2026, with exports in the region of USD 70-80 billion. To realise this, the industry requires USD 25 to 30 billion in investments.

 These targets are big, indicating the huge scope for expansion and new investments. All of this can be achieved if new OEMs venture into India and introduce the new kinds of technology necessary for the Indian auto component industry to remain globally relevant. The prospect of having new OEMs setting up shop in India will help the  industry to access new export markets, as well as competencies such as organizational, managerial, and marketing skills. These intangible benefits will also play an important role in increasing efficiency and competitiveness in both global and domestic markets.

 Growth of global OEM sourcing from India and the increasing localization of their production there has turned the country into an attractive design and manufacturing base. The Indian Auto Component industry is expected to grow by 8 to 10% in FY 2017-18, thanks to higher localisation by OEMs, higher component content per vehicle, and rising exports from India. Also, India is emerging as a sourcing hub for engine components with OEMs increasingly setting up engine manufacturing units in the country.

How will the Goods and Services Tax impact the future of Indian automotive components manufacturers?

Mr. Rattan Kapur, President, ACMA and Chairman & Managing Director, Mark Exhaust Systems Ltd.

 The implementation of the Goods and Services Tax (GST) has created a unified Indian market. It will result in a reduction in the overall compliance burden and increased efficiency in operations. Beside this the auto component industry has benefited for various reasons:

  • India as one market for tier-1 suppliers: Earlier, supplying to OEMs from across state lines was uncompetitive because companies had to pay the 2% Central Sales Tax (CST), which could not be paid on a credit basis. Under GST, there will be Integrated Goods and Services Tax on such interstate supplies, leading to a level-playing field with local suppliers.
  • Under the GST, credit for input taxes paid on vendor tooling (that consists of moulds, dies, jigs, and fixtures) can be taken advantage of even when these tools are shipped directly to a tier-1 supplier without going through a middleman, and companies are therefore likely to derive benefits from logistics-related efficiencies. This will then result in a reduction in short-term working capital burdens.
  • The GST allows for the seamless flow of goods and services between states. With no embedded tax costs(CST or creditable entry taxes) on the inter-state movement of goods, automakers now have greater flexibility to redesign their supply chains, thus, resulting in goods arriving in the market faster and reducing the freight time of consignments made for exports.

 The only concern for the auto industry is tier 2 and 3 suppliers, which have always remained a weak link in the component value chain. Therefore, Tier-1 component manufacturers will need to ensure that downstream players comply with the GST.

With BS IV regulation compliance and strict BS VI implementation deadlines, how do you think the auto sector should move ahead with these updates?

 Everyone has to prepare themselves to meet the deadline. If they don't do it, speaking in terms of components, the OEMs will then have to import (BS-VI) compliant technologies. In order to survive and remain relevant they have to prepare themselves to change in a short span of time. Moreover, it is a very big challenge because we are not only skipping a generation of technology (BS-V) but also squeezing the timelines rather radically. To keep pace, the Indian auto component manufacturers will be required to develop capabilities for in-house design, harness scarce engineering resources, and create product differentiation through innovation. The industry will be required to focus more than ever on quality and innovation to graduate from being 'build to print' makers to 'art to part' type companies. We have just three more years left until BS-VI implementation. I think the industry has to get on war footing as there is no room for complacency.

With the shift towards improved emissions and e-mobility, how will this affect Indian auto industry growth?

 On one hand we must appreciate the government's efforts to curb pollution and clean up the environment. At the same time, it would be valuable to confirm whether pure electric mobility is the only solution, or if there are viable solutions that already exist in the market. Our industry, which has deployed $13 to 14 billion in capital expenditures over the years, employs 3 million people. 40 to 50% of ACMA members could be said to have a stake in current IC-engine-powertrains. The domestic component industry doesn't have the technologies needed for zero-emission vehicles. We at ACMA believe that the logical progression will be to move from IC-engines to hybrids, and finally pure electrics. That will give the local industry an opportunity to develop and acquire technologies for electric mobility. In short, technological progression should be evolutionary, not disruptive.

Do you foresee the future development of technology tie-ups for the development of e-mobility future in India?

 A recent study from Niti Ayog and the Rocky Mountain Institute suggests that there will be a large-scale shift to electric vehicles by 2030, and that every commercial and personal vehicle on Indian roads will be powered by electricity by that time. Therefore, what we see today is that each OEM seems to be pursuing multiple technologies such as CNG, bio-fuel, hybrids, fuel cells, and plug-ins or electric vehicles. They are essentially hedging their bets as they have no idea which technology will eventually prove successful. The government must bring manufacturers on board and finalize a long-term blueprint for the introduction of greener vehicles. While technologies such as CNG/dual fuel vehicles and electric/hybrid vehicles exist, in the end it should be up to the market to decide which will succeed.

How do you see the growth of the Indian automotive market at the global level?

 India is emerging as a global hub for auto component sourcing. A cost-effective manufacturing base lowers costs by 10 to 25% relative to operations in Europe and Latin America. Compared to competitors, India is geographically closer to key automotive markets like the Middle East, Africa, and Europe. Global auto component players are increasingly adopting a dual-shore manufacturing model, using overseas facilities to manufacture some types of components, and Indian facilities to manufacture the others.

 ACMA has played a pivotal role in supporting its members in the discovery of new market opportunities. Currently the industry exports to more than 160 countries. ACMA has been facilitating export development for its members in both developed and emerging economies. Last year, ACMA participated in the Automechanika Frankfurt, IAA Commercial Vehicle Show in Hannover and the 11th International Autoparts Exhibition in Iran. It also organised a buyers and sellers meet in Indonesia, undertook a CEO's mission to South Korea, and held an aftermarket show in Nigeria among other events. To further boost exports, ACMA, which is recognized as an export promotion council, has been working closely with the Indian government’s Ministry of Commerce and Industry to ensure incentives are offered for a very wide component base under the official foreign trade policy for the period 2015-20.

 To curb illegal and substandard imports, ACMA is partnering with the Ministry of Road Transport and Highways to facilitate standards for aftermarket products. Currently, a significant proportion of goods sold in the aftermarket are counterfeit.