Let us discuss the practical overview of Automobile Sectors can it be a reality and while choosing this topic there was an idea which is one of the biggest contributions in India comes from Cars, Bikes, Trucks so let me present my raw thoughts, opinions as well as some analysis.
So, let us start with the imports in India in this sector it is around 17 Billion US Dollars or maybe a bit more according to the statistics of last year. In which around 27 % i.e. 4.5 Billion US dollars has been imported from China in 2019. So, if we make a comparison between 2010 we can see that out of total imports it was 10% coming out of China but now it has jumped from 10% to 27% which states that it has been increasing continuously.
So, we can see the increase in the dependency in the Automobile Sector in China whether it is four-wheeler or two-wheeler both are equally dependent some may be more or less but ultimately they are. As we have seen in the lockdown when the Wuhan province was locked, all the manufactures have to stop manufacturing in bulk as they were lacking raw materials and as well as in the supply chain.
Now, if we go in deep what are the components which are being imported from China - Steering Systems, Gearbox parts, Alloy Wheels, Audio Components like touchscreen, Fuel injection Systems & Tyres. So if we go straight to our question that can we stop right by tomorrow to purchase goods from China then we can say no as it is not that feasible at all as per the time right now. We actually look from the top view that there is Maruti, Hyundai, Mahindra, Tata, Honda, Suzuki and we generally consider Hyundai means South Korean and Honda means Japanese and Tata means Indian but the reality is different.
If we take an example here like Mahindra, there are thousands of Components which units to make a car. But actually, we should look into from where all the other manufacturers of the components are coming from because that builds the supply chain. Each company cant make each of the products in the house as they are not experts in all other fields as well, that's the reason most of the manufacturers outsource their parts from other manufactures who are experts in those particular parts. Here as we see Magneti Marelli makes the best AMT so Maruti, as well as Tata both, buy the AMT unit from them.
If we try to manufacture all those 27% in India instead of sourcing from China, it would take at least a decade to set up a plant and start producing the product. But there are also few people who might say let us take those parts from France, the US or Japan as they are also very advanced in the automobile sector. We have recently seen these countries manufacturers are also dependent on China. As the pandemic ends, Japan & US are trying to switch and set up plants in their own country and find an alternate source of raw materials instead of China. But Japan & US are already a developed country whereas India is still developing so its a setback. But this may also incur an increase in price as the cost of production increases and the products may not be available to meet the demand and supply even if we go buy quality form factor to match up the same level it will also require a subsequent amount of time. And as a buyer people prefer the cheap option with the same amount of quality. The cost production of China is very low as they built mass production then it will lead to difficulties to compete with the Chinese product in the international market.
Now, ease of doing business is very simple in China as all the products of various types and quality from A to Z are easily available. Setting up a business in China is also easy because of Land Acquisition and clearing all other formalities required to set up plants can be managed comfortably. Now if we go through some of China's involvement in India's car market it is mainly MG & Volvo as they both are indirectly owned by China. Volvo was basically Sweden based Company till 1999. But it was funded by Zhejiang Geely Holding (Geely Holding) of China. Now, Geely owns it but though you can't tell it to be Chinese totally as research and development as well as manufacturing is done in Sweden. Now, let's go through MG, 75% in MG is locally made according to their reports. They set up their plant and MG benefit Indians much more than Volvo as compared to these companies. MG bring investments and generate revenue in India and also purchase various parts locally from India. But Research & Development of MG is totally based on China. Therefore, from the Indian point of view, MG is more preferable in comparison to Volvo.
If we compare other manufacturers like Maruti, Hyundai and Mahindra. They claim it to purchase 90% to 95% of parts from local vendors in India. But their categorization of local vendors is different as they give bulk orders to a firm who will provide these manufacturers with a certain type of parts. And that local vendors buy the products from china or maybe some other countries and repackages it and further supplies to these manufacturing companies. But ultimately it affects consumers pocket as the local vendors enjoy the share as middle men or earned its share of profit. The company, as well as local vendor's main motto, is to earn profit and rather than being a patriot. Hence, they less bother about from where it has been originated.
Sometimes, it may be beneficial to import certain parts even from China. For ex - Let us consider Bajaj, which exports its products throughout the international market in around 70 countries and earns huge revenue which helps in growth of India. Most of the manufacturing units of Bajaj are in India which also generates employment opportunities in India.
Let's assume that a Japanese company establishes and manufactures in a different country, say Honda establishes a plant in India and exports its car in other countries it will benefit the country where the plant is located(India) rather than the country's manufacturer owns it(Japan). That's why India should open up restrictions, set up such plants and give freedom in labour laws as India's different labour laws for different states is a hurdle which makes hesitation in investor's mind in setting up a new plant. Though the ease of doing business and its documentation and clearance process has improved still we are lacking behind.
Recently, around 200 plants related to mobile sectors have been set up in India. Samsung's largest plant of the world is now in India though there is vast scope yet to be done in this area. Similarly, we can follow up the same approach in Aurombile sectors also.
We are still far behind from our nearby Asian countries like Vietnam that's the reason why most of the manufacturers even if they want to shift plant from China they prefer Vietnam rather than India. As we have made the reforms in taxation by abolishing multiple and various forms of laws for every state by introducing uniform taxation system as GST now we should focus on labour laws, population control, settlement of border disputes and improve Make in India image to attract foreign investments by multinationals and boost up an International Market in India.
Written by Sobhit Kumar
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