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Deep salary cuts and job losses in India’s auto components industry

Deep salary cuts and job losses in India’s auto components industry

Deep salary cuts and job losses in India’s auto components industry
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By Parikshit Luthra  Jun 10, 2020 6:27:18 AM IST (Updated)

India’s auto component industry which was already reeling under stress in FY20 is headed for tougher times. The sector which registered a 13-15 percent de-growth last fiscal, is likely to operate at 50 percent capacity in FY21.

India’s auto component industry which was already reeling under stress in FY20 is headed for tougher times. The sector which registered a 13-15 percent de-growth last fiscal, is likely to operate at 50 percent capacity in FY21.

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India’s auto components sector has an annual turnover of around USD 57 billion and employs 50 lakh people. Two months of lockdown have severely hit demand and the components industry has initiated deep salary cuts and a majority of temporary workers have been laid off, said Vinnie Mehta, Director General, Auto Components Manufacturers Association.
The government’s economic relief package did not address the auto industry’s key demand – a fiscal intervention to boost demand. “It is disheartening that the auto & auto components industry which together contribute to nearly 50 percent of the country’s manufacturing GDP and create millions of jobs upstream & downstream, have received zero direct or indirect demand stimulus”, says Ashok Taneja, MD and CEO, Shriram Pistons and Rings. Taneja argues that without a fiscal stimulus the recovery would be slow and thousands would be left jobless.
The auto industry, in its deliberations with the government, has been emphasising on a GST reduction and a scrappage policy to boost demand.
Nirmal Minda, Chairman and Managing Director of Uno Minda group said, “To support demand revival, we would urge the government to reduce the GST by 18 percent for at least the next 6-9 months to support demand revival. We would also request the government to provide a 4 percent interest subvention for the current financial year”.
He also urged the government to impose anti-dumping duty, in order to protect the domestic components industry. Ram Venkataramani, Managing Director of IP Rings has also called for a demand stimulus. “A demand stimulus is what is required to revive the auto industry. The government should look at stimulating demand through greater fiscal measures,” he said.
The auto industry has come to terms with the fact that FY21 will be a year of disruptions and industry experts are not ruling out another lockdown due to the massive spike in COVID-19 cases.
Deepak Jain, the President of the Auto Component’s Manufacturer’s Association feels that Unlock 1.0 does bring a glimmer of hope. “We are seeing green shoots in the rural and agriculture sectors. We hope the demand will revive by the festive season. June and July will be the real litmus test”, he said.
Industry veterans Ashok Taneja and Nirmal Minda also expressed confidence about the long term growth of the auto sector, even though the next several months may be challenging. “We anticipate a progressive pick-up in demand.  Two-wheelers and tractors have already started seeing some revival and four wheelers are expected to follow shortly. I am of the firm view that long term growth is intact”, said Minda.
Prime Minister Narendra Modi while unveiling his vision for an Atmanirbhar Bharat said that he wants India to play a bigger role in the global supply chain. Recently, while addressing the Confederation of Indian Industries the Prime Minister said, “The country now needs to manufacture products which are Made in India but are Made for the World”.
India’s auto components industry’s share in global components exports is less than 1.5 percent. Can India’s component industry increase its export footprint? Yes, say industry experts but subject to an enabling environment. COVID-19 has forced multinationals to explore a China+1 strategy and even auto companies are looking for alternate supply chains.
ACMA President Deepak Jain confirmed that there has been an increase in inquiries from Europe, USA and Japan but it is still early to judge whether this will have a significant impact on export orders.
Ashok Taneja said that China’s component industry does not have to fail for India’s to grow. “OEMs want a second footprint, a reliable second source of auto components to de-risk from over dependence on China. India can get a share of this pie but it will only be possible if we become more cost competitive than at present”, he said.
Taneja added that exports from the components industry could increase but the government would also have to neutralize the high cost of capital, power and logistics. “We know that countries like China are providing direct & indirect incentives to their component manufacturers to increase exports”, he added.
Approximately 27 percent of India’s component imports come from China, 14 percent from Germany and 10 percent from South Korea. The Indian industry is hugely dependent on imports for electronic parts and semi-conductors.
“Government can encourage setting up of electronic manufacturing through Public Private Partnership, as it requires huge investment, to ensure scale and quality. This will have long term benefits for the country in terms of job creation and reduction in imports in a number of sectors including automobiles”, Minda said.
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