The Telegraph
Since 1st March, 1999
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Auto industry gears up for consolidation

New Delhi, Sept. 3: The Indian automobile industry is fast progressing towards a period of consolidation as an aftermath of economic recession. Global acquisitions and mergers are inevitable and the same trend will be visible in India as well.

“With the Indian auto industry facing excess capacity, tightening regulatory norms, shrinking model life cycles, product proliferation and rapid penetration of technologies, Indian emission and regulatory norms will have to converge with those of the developed markets,” Boston Consulting Group senior vice-president George Stalk Jr said.

This could also lead to global endgame strategies in India for all the local players. Stalks reckons there are four scenarios here: take-over by a multinational company, alliance with an MNC, creation of a global player, and the creation of a global niche player.

Speaking at the fourth annual convention of the Society of Indian Automobile Manufacturers (SIAM) here today, SIAM president R. Seshasayee, said, “The domestic industry has shown a growth of 22 per cent in the first four months of the current fiscal. Moreover, exports grew 60 per cent during this period. However, decline in the passenger car volumes by 4 per cent is a major cause for concern.”

Industry feels it has to comply with WTO norms and its design for a global trade regime. Globalisation and supporting the WTO will eventually lead to a reduction of tariffs, if not its total elimination. Industry experts believe that trade and technology have an inverse relationship to tariffs. When tariffs are high, trade does not flow but technology is forced to flow in order to gain market access.

India has an observer status at the UN forum, Working Party-29, which is currently formulating global technical regulations for the automotive industry covering safety and emission standards. It will help India participate in formulating the rules it has to play sooner or later. This is an imperative step towards being heard in the global forum for dialogue. This will not only help the automotive industry to look at the challenges but also enable them to look outwards.

The industry also feels that India has three major tasks to undertake. First, build a consensus to couple tariff and technology transfer and place it on the WTO centre stage. Secondly, recognise inseparability of tariff reduction and internal reforms, as the tariff level is an inverse measure of the efficiency of the operating environment—fiscal and infrastructural procedures.

The third task is to make the best of India’s obvious competitive advantages which lie in manufacturing efficiencies. Indian automobile strength lies in its market size, market diversity, traditional integration levels, skilled manpower, all of which provide cost and quality advantages.

“India’s export potential is far in excess of its current performance pertaining to cars, two-wheelers and commercial vehicles. We would like to see MNCs acknowledging the cost and quality advantages that India offers as a manufacturing base. By affixing the ‘Made in India’ label on products that roll out of India, Indian exporters will further their own cause,” Seshasayee said.

The auto industry also felt the need to address the issue of intellectual capital not in an incremental way, but with a leap. There lies a consciousness about the opportunities in the field of telematics.

Speaking at the annual convention, Union minister for heavy industries and public enterprises Balasaheb Vikhe Patil said, “Support for research and development needs to be strengthened and encouraged. I will pursue the matter with the finance ministry very soon.”

“The government has already permitted 5 per cent blending of ethanol with petrol, but this has to be enhanced to at least 10 per cent to save scarce fossil fuels and reduce pollution. My vision is also to make ‘Made in India’ products globally recognised and accepted as technically sound,” he added.

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