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Auto-part firms rev up for level-playing field

Samata Dhawade

Auto component manufacturers, nailed down by demand slowdown and the lifting of quantitative restrictions, is craving for support in a bid to ensure a level playing field.

The Auto Component Manufacturers Association feels that the continuation of the localisation policy for at least five years, till 2005, could be a major boost.

One of the key constraints in achieving a high degree of local value addition has been a large scale fragmentation in the vehicle industry and low per model volumes. This makes local development of components uneconomical in many cases, specially in the high tech areas.

Acma argues that, left to market conditions, a high degree of localisation will become economically viable only at volumes of 150,000 cars and above. However, with so many players in the country, the current volumes of any company (except Maruti) is only in the range of 5,000-20,000 numbers. Such low volumes make localisation costly compared to imports.

The sector, traditionally, had been highly vertically-integrated with vehicle manufacturers used to source out small, single components from the component industry and manufacture all large systems, such as the engine, transmission, dashboard etc, inhouse.

Consequently, the auto ancillary industry developed more as small parts suppliers and not as systems suppliers. Even the production patterns have been heavily weighted to engine parts that accounts for 33 per cent of the total production, transmission parts 20 per cent and suspension and braking parts to 17 per cent.

Industry observers argue, "most developed and developing countries have converted or are in the process of converting their localisation norms to regional rules of origin. The objectives of the rules are to provide adequate development opportunities to that region. India, being a huge region, should strengthen the localisation policy on this ground".

Acma also suggests that with the continuation of uniform import tariff of 40 per cent, using excise duty mechanism to promote local development and incentives through R&D subsidies, there could be few other mechanisms that could put it on a smooth path.

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