Auto industry bodies recommend incentivising localisation

SIAM and ACMA have said the production linked incentive (PLI) scheme should not cannibalise existing exporters by incentivising new players.

New Delhi: Automobile and auto components industry bodies SIAM and ACMA on Friday recommended incentivising enhanced domestic value-addition and localisation to leverage on the $25 billion import substitution opportunity but said the production linked incentive (PLI) scheme should not cannibalise existing exporters by incentivising new players.

In a presentation at the PLI event organised by Department for Promotion of Industry and Internal Trade (DPIIT) and Niti Aayog, Society of Indian Automobile Manufacturers (SIAM) President Kenichi Ayukawa and CII Manufacturing Council Chairperson Baba Kalyani stressed that PLI scheme is required for Indian auto component and auto industry as the sector is not sufficiently globally competitive today.

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In their presentation, Ayukawa, who is also the MD & CEO of Maruti Suzuki India Ltd and Kalyani, the Chairman & MD – Bharat Forge Ltd, said the aspiration of the sector is to achieve two-fold growth in exports by 2025-26 with automobile manufacturers achieving exports of $19 billion and auto component makers touching $30 billion.

In order to achieve that, they said it is imperative to enhance competitiveness of the Indian auto-component sector, which can be achieved by reducing various costs of land, labour, capital, logistics and regulation. Besides, there is the need to develop industrial infrastructure and availability of skilled resources along with setting up of high-technology automotive clusters, including for MSMEs. They recommended incentivising of “enhanced domestic value-addition/ localisation to leverage the large ($25 billion) imports substitution opportunity that exists”.

While pitching for incentivising investments in technology Development, R&D and innovation, they also mooted giving support to large auto component MNCs (Tier-1s) to establish their mother plants and sourcing hubs in India and, make India integral part of their global value chains. However, the PLI “scheme should not cannibalise the existing exporters by incentivising new players”, their presentation said.

Stating that MSMEs are the backbone of the entire automotive value chain, they said the PLI scheme should enhance their competitiveness and incentivise technology development. The “eligibility criterion of this scheme could be moderated to allow larger set of players to benefit in accordance with ACMA (Automotive Component Manufacturers Association of India) recommendations”, they said, adding the “base year for eligibility criteria should be FY19-20 instead of FY 18-19 as currently envisaged”.

In terms of approach towards the scheme for the auto sector, they said the “government and industry have to jointly apply correctives so that PLI scheme is not needed after five years”. The auto and component industry is very sensitive to volumes and sustained high growth of domestic demand will significantly help competitiveness and attract MNC investment, they said adding component manufacturing MNCs will shift to India if manufacturing here becomes more competitive.

“Component exports are presently under 1.5 per cent of global trade. The target of increasing exports by three times can be achieved if MNCs shift to India and Indian companies become competitive and are able to develop appropriate technology,” the presentation said. They said the reasons and areas causing non-competitiveness, including higher costs and lack of technology need to be quickly identified, while SMEs in this sector need to be enabled to grow in size and become globally competitive.

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