Interview with Vinnie Mehta, Executive Director, Automotive Component Manufacturers Association of India (ACMA)

The Automotive Component Manufacturers Association of India (ACMA) is the nodal agency for the Indian Auto Component Industry. Its active involvement in trade promotion, technology up gradation, quality enhancement and collection and dissemination of information has made it a vital catalyst for this industry’s development. Its other activities include participation in international trade fairs, sending trade delegations overseas and bringing out publications on various subjects related to the automotive industry.

ACMA is represented on a number of panels, committees and councils of the Government of India through which it helps in the formulation of policies pertaining to the Indian automotive industry. For exchange of information and especially for co-operation in trade matters, ACMA has signed Memoranda of Understanding with its counterparts in Australia, Brazil, Canada, Egypt, France, Germany, Iran, Italy, Japan, Malaysia, Pakistan, South Africa, South Korea, Spain, Sweden, Thailand, Tunisia, Turkey, UK, USA and Uzbekistan. ACMA represents over 600 companies, whose production forms a majority of the total auto component output in the organised sector.

It is a known fact that the Indian auto component industry has evolved since the turn of the millennium. Keeping that factor in mind, how prominent is ACMA amongst its counterparts globally?

I think ACMA is very well known internationally. We have close to about 30-odd MOUs signed with our counterparts across the globe. As the Indian auto component industry grows in stature, the importance of the Indian market becomes increasingly significant by each passing day. Our counterparts are now engaging with us proactively. I think we had a very fruitful relationship with most of our partners like VDA, OESA etc.  Our relationship has been very cordial with them.

There has been a lot of buzz that in the auto ancillary industry, fresh investments are projected to decline to a four-year low of less than US$1 billion in 2012-13. Could you confirm this development? If yes, please can you cite reasons?

I think the automotive industry in India is definitely going through a bad patch. The commercial vehicles, especially the medium and heavy segments, have been struggling for sometime now. The construction equipment industry has also been struggling. The tractor industry is also under stress. The passenger vehicles sales have been almost flat. The two-wheeler and motorcycle segments have also not seen any robust sales growth. I think with these developments, the Indian component industry definitely comes under pressure. Having said so, I am still of the view that the medium to long term growth story of the Indian economy is intact.  Hopefully, the RBI will cut down the interest rates that will bring in some cheer in the market. This is because one of the biggest problems that the automotive industry is grappling with is the higher rates of interest. I hope that should be addressed a little bit.  Moreover, with the 2014 elections coming in, this year should see a lot of developmental project announcements by the government. So things should look up in the medium term.

What about investments? Have the companies reduced that too?

The auto component industry has invested around US$ 6-7 billion in the past four years at the rate of US$ 1.7 billion in 2009-2010, US$2-2.5 billion in 2010-11, US$1.6-1.9 billion in 2011-12 and an estimated under US$1 billion in 2012-2013.

Very recently, Prime Minister Manmohan Singh has announced the National Electric Mobility Mission Plan 2020. So do we expect the Indian auto component industry redrawing its strategies to develop parts for zero-emission and hybrid vehicles?

It’s like this. The emission norms and hybridisation of vehicles are all done by vehicle manufacturers. We meet their component requirements. We are aware that the government has announced a policy on electric mobility and are also happy that such a move has been taken. Such a policy has already been implemented world over, including China. With the state of affairs like pollution, incentivising emission less vehicles will be very beneficial in the long run. Having said that, we need more concrete plans like localistion of these ‘XEVs’ as the government calls it.  The component industry has to fall in line and the opportunity has to be communicated to us by the vehicle manufacturers. So at this juncture, I guess it’s is important for the industry to have a clear roadmap.  Let us see how things shape up in the long run.

It’s all over the media that the Auto Expo’s venue has been shifted to India Expo Mart, Greater Noida. So what has ACMA decided about it?  Are you open to jointly host the exhibition with SIAM and CII? Or are you going for your own course of action? And are you actively looking at hosting the show simultaneously?

Well, a lot of such plans are still on the drawing board. SIAM has gone ahead with its plans to shift the venue from Pragati Maidan in 2014.  ACMA has always maintained that we will jointly host the show with SIAM. Let’s see how things pan out. It’s also a question of the availability of a presentable venue. So we are working towards it. So no decision has been taken from our end. At the end of the day, the Auto Expo is a wonderful brand that has been built over so many years. And I believe that both the vehiclemaking and its allied industries should jointly leverage and strengthen it. So with CII, we will develop a strategy that ensures we don’t let the show down. But I can confirm that the India Expo Mart will not have enough space accommodating both vehicles and the components together. We are constrained and forced to look at an alternative venue.

ACMA, in association with Messe Frankfurt, has decided to host Automechanika at Pragati Maidan. How is it benefiting the Indian industry per se? Could you shed some light on that?

The aftermarket segment in India has become significantly important. The size of this segment is itself US$ 36 billion. Therefore, it justifies a show which is dedicated for the automotive aftermarket segment. Globally, Automechanica is known for its aftermarket shows. So keeping both the factors in mind, we decided to host this global show in India. Until now, we didn’t have any show of such an international standing. To begin with, we are starting small because it is happening for the first time. It is happening at Hall no 8, 9, 10 and 11 and we are completely sold out in space.  There will be all activities like conferences, seminars, exhibits and a lot of international players are showing interest because of the vibrant domestic automotive aftermarket. We have participants from the UK, Germany, Turkey, Taiwan, China, etc running their pavilions. That is itself very encouraging for us. Apart from giving a platform for the Indian firms, the show will also be having a forum for exchange of technologies between companies. This is because not everybody can have a footprint in the country. So there are various avenues and opportunities that will be explored by international firms at the fair.

Could you also speak a little bit about the Technology Development Fund which the ACMA was proposing? Has it borne any fruition?

We have been talking about it for the last three years. At the 12th five-year plan of the government of India, they have sort of accepted our recommendation principally that there is a need for a technology development and upgradation fund. What we are looking for is a 5pc interest subvention from the market rates. This is because the cost of capital in this country is very huge. So a lot of companies need to access funds in the market for investing essentially in the R&D activities. But that is prohibitively expensive. However, we are very happy that the government has announced in the last budget that a tax break will be offered on the amount that will be spent by a company in its R&D operations. But we think that the automotive industry needs to move up the value chain and has to enhance its role in product development. So we are pushing for the technology development and upgradation fund which incidentally has been echoed very well with our Ministries of Heavy Industries and Micro, Small and Medium Enterprises (MSME).

Last year, your association had orgainsed a plenary session on the burgeoning Indian automotive aftermarket. Why has this vertical picked up so drastically? Is it because the consumers are now getting more brand-conscious?

As the vehicle parc in this industry increases, there is a need for maintenance and servicing of vehicles. There is also a need for the replacement of worn-out parts. As the vehicle parc is getting larger by the day, the incidence of parts replacement is rising sharply. Therefore, the aftermarket segment is getting very vibrant. And I guess the consumer is well aware about aftermarket parts and needs more choice.

Does you association support Free Trade Agreement with Europe?

Very broadly speaking, ACMA has always stood for Free Trade Agreements (FTAs) with various nations. At the end of the day, the trade should be free-flowing and the industries of the respective countries should be benefitted out of it. What we have observed in the FTAs is that the benefit has accrued only to the signatory countries and not India.  So our concern is that if our tariffs get lowered, the other country gets more benefit than us. This is because their tariffs were already lower than us before the proposed deal. So going forward, the government will increasingly be looking at FTAs with counties like Brazil & South America where tariff rates are higher than ours. That will ensure that our exports will increase in those countries. What should also be kept in mind is that these agreements should not lead to any inverted tariff structure like what happened in Early Harvest Schemes (EHS), which was a precursor to the FTA with Thailand. We ran into a problem wherein the government keeps the price of raw material like aluminum and alloys intact. However a finished product was shipped in from Thailand at nil duty. In such a scenario, the domestic industry is at the receiving end as the basic inputs to churn out a component becomes quite expensive.

As a lot of industry players have earlier announced their plans to derisk their business by diversifying into non-automotive domains like aerospace, aviation, defence, etc. So has there been any progress on that front?

Diversification into adjacent domains that you have mentioned have been mulled by various firms since 2008-09 when the industry was first hit by the economic downturn. ACMA, had infact, set up an aerospace and railways committee at that time. But what happened was the magnitude of recession in 2008-09 was less than what it is now. Nearly four years back, the government came in very proactively with across-the-board excise duty cuts for local manufacturers. This plan really worked out for the Indian industry per se. Moreover, the industry was able to come out with recession very quickly. Therefore, the focus required for diversification was lost very quickly because the automobile industry came back with an unprecedented growth of around 40pc. But I guess, over a period of time the industry will look for non-automotive domains because of the cyclicality of its traditional business. Once again, ACMA is focussing on non-traditional segments not only to secure its business from risks, but also to garner higher margins. Having said all that, it’s not so easy to enter certain sectors as there are certain barriers to its entry. Moreover, a lot of well-established players have already made significant sums on hi-end technologies. The bottomline is that the gestation period for diversification into aerospace and other areas is very large. So what ACMA is doing right now is studying in detail to ascertain the business opportunities in such space.

What is the turnover that the Indian auto component industry is expected to clock during this fiscal?  And how much will the exports account for out of the total amount?

In 2012-13 the domestic auto component industry is expected to witness a growth of 8-10pc, while exports are likely to increase by 15-20pc. During the last financial year, the industry had revenue of US$ 43.5 billion, while exports stood at US$ 7 billion. Imports by the component industry were at US$ 10.25 billion, while investment of US$ 1.6-1.9 billion was made in the last fiscal. The first quarter of this fiscal went off very well, but there was a deceleration in the second and third quarters. While SIAM is talking about the overall industry growth in single digits, we would grow pretty much in tandem with them. Exports at this juncture, are definitely a concern for us as certain European countries like Germany are seeing an economic crisis of sorts. A country like Germany accounts for 36pc of our shipment.  So even though the exports will see a massive slash in this fiscal, a revival can be projected in the long term scenario.

Lastly, what is your vision for the industry that you are working for? Do you have any targets in mind?