Making India a world
class automotive
manufacturing hub
6 February 2016
Contents
F o rew o rd
0 3
I ndian auto m o tiv e industry : current
scenario and o utlo o k
0 4
W h at w o uld it tak e fo r I ndia to b eco m e a w o rld- class
auto m anufacturing h ub ?
1 . Enabling regulatory environment
2 . Developing talent and skills
3 . Fast-tracking infrastructure development
4 . Incubating R& D and innovation
5 . Enhancing supply chain competiveness
1 1
1 2
1 7
2 1
2 4
2 8
A p p endix
3 2
A b o ut E Y and C I I
3 3
Foreword
The Indian automotive industry is witnessing testing
times. The market continues to ex perience volatility and
we are waiting to see clear signals of revival in growth.
W ith the government and the judiciary taking steps to
make transport cleaner and safer, there is some degree
of uncertainty for automakers, especially regarding the
fuel mix and the necessary investments for technology
upgrades. W e believe that these are just short-term
challenges as the long-term growth story for the
automotive industry in India remains intact.
The Government’ s Automotive Mission P lan (AMP )
2 0 1 6 – 2 6 envisions the industry to grow around four
times by FY2 6 with approx imately 1 0 % CAGR for vehicle
sales volumes. The Government’ s push to manufacturing
through the “ Make in India” initiative has garnered
considerable attention from the industry and brought the
spotlight back on the manufacturing sector. According to
the EY’ s India Attractiveness Survey 2 0 1 5 , the country
was ranked as the most attractive investment destination
and 6 2 % of respondents suggested “ manufacturing” as the
nature of business activity they are planning in India.
As the country looks to establish its credentials as a
manufacturing destination, there are some gaps that we
need to address. These include an enabling regulatory
environment, developing the req uisite talent and skills,
fast-tracking of infrastructure development, incubating
R& D and innovation culture, and enhancing supply chain
competiveness.
The Indian automotive sector, given its potential
contribution to GDP and employment, presents a
significant opportunity to be one of the biggest growth
drivers for the economy. W hat we do need to emerge
as a “ world-class automotive manufacturing hub” is a
concerted effort from the Government and the automotive
industry to create an enabling ecosystem. The country’ s
key strengths such as a large domestic consumption base,
a cost competitive value chain (that includes low design,
testing and validation costs, frugal engineering capabilities
and low labor costs) and strategic geographical location
would go a long way to develop the country as a world class
automotive manufacturing base.
R ak esh B atra,
A uto m o tiv e and
Transp o rtatio n
L eader, E Y I ndia
M M S ing h,
E x ecutiv e A dv iso r,
Maruti S uz uk i
I ndia L td
R ajeev W asan,
S r V ice P resident
Manufacturing,
H o nda C ars I ndia
L im ited
Indian Automotive
Industry:
current scenario and outlook
I ndia h as em erged as an im p o rtant auto m o tiv e m ark et and o ffers h uge gro w th
p o tential due to lo w v eh icle p enetratio n and im p ro v ing eco no m ic fundam entals
The auto sector is one of the most important contributors to GDP
and employment in India, with huge potential for growth. The
sector accounts for 7 % of India’ s GDP , 4 5 % of manufacturing GDP
and employs about 1 9 million people both directly and indirectly.
Further, the sector contributes around 4 . 3 % to India’ s total
ex ports and 1 3 % to the country’ s ex cise revenues.
O ver the years, the Indian auto industry has emerged as one of
the world’ s largest, with annual sales of 1 9 . 8 million vehicles in
FY1 5 . It is also one of the fastest growing auto markets, with
production of 2 3 . 4 million vehicles in FY1 5 and a leading position
in several sub-segments.
W o rld’ s largest
Tractor manufacturer
W orld’ s 2 nd largest
W orld’ s 5 th largest
Heavy truck manufacturer
W orld’ s 6 th largest
P assenger vehicle (P V ) manufacturer
W orld’ s 7 th largest
C urrent rank ing ( F Y 1 5 )
Two-wheeler (2 W ) manufacturer
Commercial vehicle (CV ) Manufacturer
P assenger v eh icle density ex p ected to b eco m e 1 . 5 tim es
b y 2 0 2 0
India has the largest population of young people in the world,
with around 6 6 % of population under the age of 3 5 . The country’ s
low vehicle penetration (3 2 vehicles per 1 0 0 0 people in 2 0 1 5 )
makes it one of the world’ s most attractive auto markets. O wing
to its uniq ue demographic dividend, the Indian auto industry
has immense growth potential. India’ s passenger vehicle parc of
around 2 9 million during 2 0 1 5 is ex pected to grow to more than
4 8 million vehicles by 2 0 2 0 .
W o rld p assenger v eh icle density ( P erso nal v eh icles p er ‘ 0 0 0 driv ing p o p ulatio n)
7 6 5
8 0 1
6 1 1
5 4 5
3 5 0
1 6 9
1 9 2
1 5 9
3 9 3
3 2 6
1 8 4
2 0 1 5
Brazil
3 6 9
1 8 4
3 2
W orld
6 2 4
5 4 7
Russia
4 8
India
1 0 2
China
2 0 2 0
Japan
North
America
W estern
Europe
Eastern
Europe
Sources: Automotive Mission Plan 2016–26 (AMP 2016–26), LMC Automotive, EY analysis
Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b | 5
Mo st glo b al O E Ms h av e an estab lish ed p resence in th e m ark et alo ng w ith I ndian
p lay ers; J ap anese p lay ers acco unt fo r aro und h alf o f th e p assenger v eh icle sales
O E Ms and sup p liers co ntinue to inv est in I ndia
suppliers towards building/ ex panding capacity and research and
development. The P V industry has witnessed a revival in new
investments after three years of weak investment climate with the
anticipation of a recovery in demand.
The Indian auto industry has witnessed on-going interest with
several global players entering the industry post liberalization
through technical tie-ups and minority investments. The industry
has seen investments from both global and local O EMs and
I nv estm ents in th e auto m o tiv e industry during th e 2 0 0 6 – 1 5 ( I N R b illio n)
~ I N R 6 , 0 0 0 b illio n
1 ,0 8 0
A uto m o tiv e
O E Ms
V alue of planned investments by automakers
over the nex t few years
4 8
4 9 5
C o m p o nent
sup p liers
Number of automotive FDI projects in 2 0 1 4
H igh ly co m p etitiv e m ark et landscap e
of the market share. However, with the increasing intensity of
competition and new model launches, market shares are ex pected
to realign over the nex t few years.
Despite the presence of several Indian and global players, each
segment has a dominant player commanding more than 4 0 %
Mark et sh are ( F Y 1 5 )
P assenger v eh icles
4 5 %
Maruti Suzuki
Hyundai
Mahindra
4 0 %
ero
1 6 %
2 7 %
Honda
9 %
Honda
C o m m ercial v eh icles*
Tw o w h eelers
1 3 %
TV S
7 %
Tata Motors
4 7 %
2 5 %
Mahindra
1 5 %
Ashok Leyland
1 1 %
Bajaj
V ECV
Tata Motors
6 %
Yamaha
Toyota
5 %
Suzuki
2 %
oyal nfield
2 %
Ford
GM
3 %
2 %
Mahindra
1 %
* Daimler India Commercial V ehicles data not available
Sources: Society of Indian Automobile Manufacturers (SIAM), AMP 2016–26, EY analysis
6
| Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b
6 %
4 %
Force
Isuzu
P iaggio
3 %
2 %
1 %
Th e industry w itnessed a slo w rev iv al during 2 0 1 5 o w ing to lo w fuel p rices, declining
interest rates and an up tick in th e eco no m y
To tal sales ( do m estic + ex p o rts) b y segm ent, F Y 0 9 – 1 5 , m illio n units
P assenger vehicles
CAGR
9 .1 %
P V sales witnessed a slow down over the last couple of
years due to economic uncertainty and high interest
rates.
3 .1
3 .0
3 .2
3 .1
During FY1 6 , the market has begun to show moderate
growth due to improving sentiment, low fuel prices and
interest rates.
3 .2
2 .4
1 .9
FY0 9
1 .7
FY1 0
FY1 1
FY1 2
FY1 3
FY1 4
FY1 5
1 HFY1 6 *
Compact cars (including compact sedans and premium
hatchbacks) and compact SU V s continue to outperform
overall P V sales on the back of increased consumer
preference and successful new launches.
Two-wheelers
CAGR
1 4 .0 %
1 3 .3
8 .4
FY0 9
Two-wheeler (2 W ) sales growth slowed during FY1 2 – 1 4
and recovered in FY1 5 driven by strong rural demand and
the rising popularity of scooters.
1 5 .4
1 5 .8
1 6 .9
1 8 .5
Scooters continued to witness strong growth due to a strong
surge in urban demand.
1 0 .5
FY1 0
9 .5
FY1 1
FY1 2
FY1 3
FY1 4
FY1 5
1 HFY1 6
A decline in motorcycle sales due to shrinking rural demand
has again weakened growth in the current
fiscal year
Commercial vehicles
CAGR
8 .5 %
CV sales declined during FY1 2 -1 5 due to the economic
slowdown and stalled infrastructure projects.
0 .8
0 .4
FY0 9
0 .9
During FY1 6 , demand is reviving, driven by economic
recovery, urbanization and infrastructure development.
0 .9
0 .7
0 .6
0 .7
0 .4
FY1 0
FY1 1
FY1 2
FY1 3
FY1 4
FY1 5
1 HFY1 6
Medium and Heavy CV s are witnessing strong growth on the
back of pent-up demand and an anticipated increase in
infrastructure spending.
* 1 HFY1 6 refers to April — September 2 0 1 5
Sources: SIAM, EY analysis
Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b | 7
Th e auto co m p o nent industry is ex p ected to w itness do ub le- digit gro w th o v er th e
nex t decade o w ing to h uge dem and fro m b o th do m estic and ex p o rt m ark ets
A uto co m p o nent industry grew at 1 1 % during F Y 1 5
The Indian auto component industry comprises around 7 0 0
organized players and a few thousand unorganized players, with
its size estimated at U S$ 3 8 . 3 billion in FY1 5 . After a challenging
FY1 4 , the industry has rebounded during FY1 5 , growing at 1 1 %
due to a recovery in domestic demand and ex ports.
Turno v er trends in I N R b illio n ( U S $ b illio n) , F Y 1 0 – 1 5 E
2 ,0 4 6
(4 2 . 2 )
1 ,8 8 3
(4 1 . 3 )
2 ,1 6 1
(3 9 . 7 )
2 ,1 1 8
(3 5 . 1 )
E ntry o f glo b al O E Ms strength ening cap ab ilities o f
I ndian sup p liers
uto component manufacturers in India have benefited from
the entry of global O EMs through ex posure to global standards
and technology by forming tie-ups with foreign suppliers. As a
result, many global O EMs have also managed to achieve a fairly
high level of localization in India.
S h are o f m ark et segm ents ( F Y 1 5 E )
2 ,3 4 0
(3 8 . 3 )
O EM
6 6 %
1 ,3 8 6
(3 0 . 8 )
3 0 1
(6 . 7 )
1 9 9
(4 . 2 )
FY1 0
5 2 9
(9 . 7 )
4 2 3
(8 . 8 )
Ex ports
6 9 0
(1 1 . 3 )
6 1 4
(1 0 . 2 )
After market
FY1 2
FY1 1
Total turnover
FY1 4
FY1 3
2 2 %
1 2 %
FY1 5 E
Ex ports
Turno v er do m inated b y engine p arts and sup p ly to P V segm ent
In FY1 5 , engine parts dominated the overall turnover of the Indian auto component industry with a share of 3 1 % , followed by other
categories; while 4 5 % of the supply was made to the P V segment.
A uto co m p o nents: sh are o f to tal turno v er ( F Y 1 5 )
3 1 %
Engine parts
1 9 %
Drive transmission
Suspension & Braking
1 2 %
Body & chassis
1 2 %
4 5 %
P V
2 2 %
Two wheeler
8 %
Tractors
8 %
Heavy CV
Eq uipment
1 0 %
Electrical parts
O thers
9 %
7 %
8
Sources: Automotive Component Manufacturers Association of India (ACMA),
SIAM, AMP 2016–26, EY analysis
| Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b
LCV and SCV *
5 %
Medium CV
5 %
O thers
4 %
Three wheelers
4 %
* SCV s (max imum mass): U pto 2 tonnes; LCV s (max imum mass): 2 to 7 . 5 tonnes
Th e I ndian G o v ernm ent’ s A uto m o tiv e Missio n P lan 2 0 1 6 – 2 6 env isages fo ur- fo ld
gro w th b y F Y 2 6
The Indian auto sector has the potential to generate up to
U S$ 3 0 0 billion in annual revenue by 2 0 2 6 , create around
6 5 million additional jobs and contribute more than 1 2 % to
India’ s GDP , according to the Automotive Mission P lan 2 0 1 6 – 2 6
prepared jointly by the SIAM and the Government.
Mark et siz e o f I ndian auto m o tiv e industry , I N R b illio n ( U S $ b illio n)
1 3
%
C A
G R
2 0 ,1 0 0
(3 0 0 )
1 ,8 7 3
(4 7 )
1 ,7 9 5
(3 9 )
FY0 8
FY0 9
2 ,3 4 7
(5 0 )
FY1 0
2 ,8 3 3
(6 2 )
3 ,3 6 7
(7 0 )
4 ,7 0 1
(7 7 )
FY1 1
FY1 2
FY1 5 E
A MP 2 0 1 6 – 2 6 fo recasts v eh icle sales to gro w at a C A G R
o f aro und 1 0 % o v er th e nex t decade
According to the AMP 2 0 1 6 – 2 6 , vehicle sales are ex pected
to touch 6 6 million units by FY2 6 . To achieve the projections,
the auto industry will req uire additional investment of
Do m estic v eh icle sales o utlo o k
FY2 6 F
INR4 . 5 trillion-5 . 5 trillion. The growth of the automotive market
will translate into huge potential for the auto component sector. It
is ex pected to grow at a CAGR of 1 3 % from U S$ 3 8 billion in FY1 5
to more than U S$ 1 5 0 billion by 2 0 2 6 .
A uto co m p o nent turno v er sp lit, I N R b illio n ( U S $ b illio n)
1 0 ,6 0 5
(1 5 8 . 3 )
5 3 .4
1 7 %
4 3 %
1 9 .5
8 3 5
(1 8 . 9 )
9 .4
3 .2
2 W
+ 3 W
CV (incl SCV and LCV )
FY1 5
FY1 5 2 6 (F)
CAGR
2 .0
0 .7
P V
2 ,3 4 0
(3 8 . 3 )
1 .5
0 .6
Tractors
FY2 6 F
1 5 %
6 9 %
4 2 %
1 7 %
2 9 %
1 6 %
FY0 6
5 3 %
FY1 5
Domestic O EM sales
FY2 6 F
Ex ports
Aftermarket
US$/INR at 67.0 for forecasts; average historical rates used for historical data
1 0 %
1 0 %
1 0 %
9 %
Sources: ACMA, SIAM, AMP 2016–26, EY analysis
Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b | 9
Th e industry is w itnessing a sh ift fro m
“ access to m o b ility ”
th e traditio nal “ o w nersh ip ” m indset to w ard
In line with other global markets, India is also witnessing the
proliferation of technology-driven mobility service providers (such
as cab aggregators and ride-sharing companies). This is driven by
factors such as high cost of vehicle ownership, rising congestion,
growing connectivity and mobile penetration. Conseq uently, the
Indian consumer is being drawn toward the idea of “ access” from
“ ownership,” as these technology-intensive business models
provide short-term access to vehicles.
B usiness m o dels o p erating in th e sh o rt- term
h ire sp ace
Despite being a very young market, the advanced mobility space
is gaining ground in the country, with a multitude of business
model variants. Some of these have been listed below.
Technology-driven companies moving away from the traditional
asset-heavy business model and providing access to vehicles
(with drivers) by aggregating cab operators (individual/ small
fleet through digital apps
V alue p ro p o sitio n o ffered b y tech no lo gy - intensiv e, sh o rtterm h ire co m p anies
Ride-sharing connects people traveling long distances (in the
same direction) and seeking a cost-effective, eco-friendly
mode of transit
Easier access to vehicles
Some automakers are testing car sharing models in niche
pockets such as corporates, students and small businesses
Real-time booking process
Digital payment options
U sage-based pricing model
(per minute/ kilometres)
The current models in India have a different market positioning
compared with developed markets — in particular, they are more
of an alternative to the tax i and other shared transport options
rather than peer-to-peer sharing.
These businesses have been able to scale-up faster as they rely on
higher vehicle utilization and are able to spread fixed costs of car
ownership among many consumers.
I m p act o n auto m o tiv e industry
Ex pected to affect two segments — entry-level car and 2 W
2
2 nd and 3 rd car buyers in urban cities — allows them to
defer/ cancel investments in a new car
3
Traditional rental and tax i business models under pressure,
thus calling for reinventing value proposition
4
1
Sources:
1 0
report
ew category of fleet buyers for the industry
rban mobility redefined
analysis
| Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b
The concept of access to
mobility is catching up
q uickly, and the traditional,
manufacturing driven profit
model will be challenged.
Automakers would, therefore,
need to take notice of these
new-age mobility providers,
and prepare relevant offerings
for customers.
Enabling
regulatory
environment
Enhancing
supply chain
competitiveness
Incubating R&D
and innovation
Developing
talent and skills
Fast-tracking
infrastructure
development
What would it take
for India to become a
world class automotive
manufacturing hub?
1
E nab ling regulato ry
env iro nm ent
E nab ling
regulato ry
env iro nm ent
E nh ancing
sup p ly ch ain
co m p etitiv eness
A stab le and sup p o rtiv e regulato ry env iro nm ent is
critical to driv e gro w th in th e I ndian auto m o tiv e industry
I ncub ating
R&D and
inno v atio n
Regulations and government initiatives will play a critical role in driving the Indian
automotive industry’ s growth. W e have seen a lot of activity in this space especially in the
recent past. The Government has launched many new programs such as “ Make in India”
and “ Skill India,” along with undertaking measures to improve the ease of doing business
and the likely rollout of the GST. In addition, we are seeing an unprecedented thrust on
addressing concerns around pollution, congestion and safer transport.
Dev elo p ing
talent and
sk ills
F ast- track ing
infrastructure
dev elo p m ent
W hile the Government’ s initiatives to improve the business environment and make
transport cleaner and safer are welcome moves, there is a need to provide clear
guidelines and a road map for regulations. The automotive industry is capital intensive
and req uires long-term planning on regulatory issues. Thus, a stable policy regime is
critical to drive growth.
K ey go v ernm ent p ro gram s/ regulatio ns ex p ected to affect th e industry
G o v ernm ent p ro gram s/ initiativ es to b o o st
m anufacturing and ease o f do ing b usiness
Mak e in I ndia
K ey auto m o tiv e regulatio ns to w atch o ut fo r
0 1
Advancement of BS V I norms
S m art cities
Likely rollout of the “ End of life” policy
FAME-India scheme
Digital I ndia
S k ill I ndia
0 2
Sources: SIAM, and EY analysis
1 2
| Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b
S afer transp o rt
U pcoming Road Transport and Safety bill
International safety standards from 2 0 1 7
S tartU p I ndia
L ik ely ro llo ut o f th e G S T
C leaner transp o rt
0 3
A dv anced m o b ility
Regulations for new mobility initiatives
Th e im p lem entatio n o f “ Mak e in I ndia” and initiativ es to im p ro v e th e ease o f do ing
b usiness w ill driv e th e I ndian auto industry ’ s gro w th
The “ Make in India” initiative has an aggressive ambition to
transform India into a manufacturing and technology hub. It has
garnered considerable attention from the industry and turned the
spotlight on the manufacturing sector.
I m p licatio ns o f “ Mak e in I ndia” fo r th e auto secto r
utomotive has been identified as a top priority under this
program. The implications for the industry are as follows:
m o tiv e F DI and R
t to auto
&D
B o o s
s
•
•
•
•
Create new
employment
opportunities
Focus on building
technical skills
I nf
ras
tru
ct
ur
e
Facilitate investment and
technology inflow
Build best-in-class
manufacturing infrastructure
P romote R& D investment and
protect intellectual property
•
•
Boost domestic CV
sales, and drive rural
demand for vehicles
Drive vehicle ex ports
nt
m e
lo p
ve
de
L a
b o
rl
aw
rm
fo
re
•
MA K E I N I ND I A
I nitiativ es to im p ro v e th e ease o f do ing
b usiness in I ndia
The Government has taken a series of actions to support “ Make in
India,” including those outlined below.
1
2
N ew trade p o licy
N ew lab o r law s
Ex port and import tax es on small
volumes of goods have been
abolished, and incentives have been
introduced for ex port-oriented units
and ex port processing zones.
These include a “ single-window”
labor compliance process for
companies, simpler P rovident Fund
(compulsory employee insurance
and pension) procedures and a new
inspection scheme.
O th er initiativ es: The Government has also launched several
other initiatives such as “ Smart Cities,” “ Skill India,” “ Digital
India,” etc. , that will support India’ s development as a world-class
manufacturing hub.
3
4
i pli
ion o re
o pli n e
l or
To make doing businesses easier,
companies can obtain environmental
approvals and licenses online.
prove en o reso r e
n e en pro r
The Government is taking steps to
ensure that resources are used
more efficiently such as opening
coal blocks to companies through
auctions while encouraging solar
and wind power generation projects.
Sources: EY analysis
India’ s rank in the W orld Bank’ s Ease of Doing
Business index has improved from 1 4 2 in 2 0 1 5
to 1 3 0 in 2 0 1 6
Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b | 1 3
Th e “ S tartU p I ndia” p ro gram and th e lik ely ro llo ut o f G S T w o uld also h elp im p ro v e
do ing and estab lish ing new b usinesses in th e co untry
“ S tartU p I ndia” to b o o st entrep reneursh ip and
create j o b s
The objective of the Government’ s “ StartU p India” program is to
reinforce commitment toward creating an ecosystem conducive to
the growth of startups.
There are immense opportunities in the Indian automobile
industry for technological innovation and new solutions. The
growing digitization in the country is driving innovation in
advanced mobility (with initiatives such as technology-based
cab aggregation and, ride sharing), vehicle and component retail,
connected car, etc.
I m p licatio ns o f G S T fo r th e auto secto r
3 y ears
Duration of income tax rebate for startups
under the “ StartU p India” program
I N R1 0 0 b illio n
Fund size committed by the Government
to support upcoming startup enterprises
over the nex t four years
The tax reform is likely to change the transportation scenario, and
industry players must start thinking about realigning their supply
chain specifically the distribution networ
his single reform
will impact vehicle pricing, sourcing strategies, distribution costs
and dealer profitability
1
R ed u c tion in
l og istic s c ost
reater flexibility to
redesign supply chains and
thus lower costs due to
elimination of embedded tax
costs on inter state
movement of goods and a
shift in the point of taxation
to the consumer
ignificant reduction
in tax costs for the
mid size and luxury
segments li ely
L ow er tax b u rd en
on vehic l es
2
Sources: EY analysis
1 4
| Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b
3
Greater
transp arenc y
uto industry li ely to
benefit from the ease of
tax compliances and
administration and
reduced litigation under
a simplified
regime
emoval of the cascading
effect of taxes especially
for automotive distributors
R ed u c tion in c ost
of d oing b u siness
4
A uto m o tiv e regulatio ns are lik ely to fo cus o n m ak ing transp o rt cleaner and safer
The automotive regulatory space is witnessing increased activity
and some bold decisions by the Government and judiciary to
battle the high pollution levels in Delhi and other metros. In the
medium term, we ex pect heightened regulatory activity in order
to make transport cleaner and safer.
C leaner transp o rt
S afer transp o rt
A dv ancem ent o f B S V I no rm s: The
government recently decided to skip
the BS V norms altogether, and adopt
the BS V I norms from April 2 0 2 0 .
Automakers and the oil companies will
need to ma e significant investments
to meet these deadlines. W e ex pect a
continued thrust toward cleaner fuels
in the policy formation and some
possible announcements in the 2 0 1 6
U nion budget.
C o m p liance w ith internatio nal safety
standards: The Government has
announced O ct 2 0 1 7 as the deadline
for automakers to ensure
international standards in terms of
vehicle safety. Mandatory crash tests
will be implemented from O ctober
2 0 1 7 for new models (O ct 2 0 1 9 for
ex isting models). To conduct the
tests, India is likely to have seven
world-class automotive design and
testing centers (being set up by
NATRiP * * ) by the end of 2 0 1 6 .
F A ME - I ndia* sch em e: The scheme,
launched in April 2 0 1 5 , provides
incentives for the purchase of green
vehicles. W hile the scheme has pushed
electric vehicle (EV ) sales, efforts need
to be undertaken in areas such as
setting up of charging infrastructure,
launching compelling EV models, and
reducing battery costs.
“ E nd o f life” p o licy : The Government is
likely to introduce a policy promoting
scrappage of old vehicles. This is a
welcome move and is likely
to reduce pollution and drive new
vehicle sales.
A dv anced m o b ility
Regulatio ns fo r new m o b ility
initiativ es: The Indian market has
recently witnessed a slew of advanced
mobility offerings and new mobility
initiatives such as technology-based
cab aggregation and ride sharing. A
regulatory environment conducive to
promote innovation for these new
mobility initiatives is needed. The road
transport ministry has issued some
guidelines, which could be the starting
point for states to establish
regulations.
N ew ro ad transp o rt and safety b ill:
The bill seeks to drive faster
clearances, stricter road and vehicle
safety norms and define the recall
policy. It focuses on transparency and
computerization, heavy penalties for
traffic violations and incorporates
global best practices for issues
related to vehicle regulation and
road safety.
I m p licatio ns:
he recent government policies reflect
the beginning of a gradual shift in the
Government’ s focus on cleaner
transport. The industry should brace
itself for more policy interventions in
this aspect. The market is likely to shift
in favor of petrol cars, and the industry
needs to prepare accordingly, while also
bringing in flexibility in production
capacity. In addition, automakers need
to work towards improving fuel
efficiency of their products and ma e
investments towards developing cleaner
vehicles (hybrid and electric vehicles).
There is an urgent need for the
industry to make investments and
offer safety features (across all vehicle
segments) to ensure that vehicles
meet global standards — something
that has been lacking so far.
In the medium to long term,
automotive companies will need to
assess the competition from mobility
aggregators and come up with
mobility-service-oriented strategies
and offerings vs. product offerings to
remain competitive and relevant
* FAME-India: Faster Adoption and Manufacturing of Hybrid and Electric vehicles in India
* * NATRiP : National Automotive Testing and R& D Infrastructure P roject
Sources: SIAM and EY analysis
Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b | 1 5
ei p
o overn en ini i ives is s r in
gro w th in m anufacturing inv estm ents
F DI gro w th turns p o sitiv e fro m
2 0 1 4
F DI cap ital ( U S $ b )
3 1 .1
2 0 1 2
si ni
n
I ndia em erges as th e # 1 F DI destinatio n in 1 H 1 5
W e have seen a sharp turnaround in FDI in 2 0 1 4 . After declining
for two successive years, investment in India has bounced back
with
growth to
b significantly ahead of the
growth in FDI seen globally. This was driven by an improvement in
India’ s macroeconomic indicators — in part, helped by declining oil
prices — and ongoing government efforts to revitalize growth and
improve the business environment.
1 8 .7
o s o res l s i
2 5
4 %
+ 3
urther with DI capital inflows of
b during the first half
of calendar year 2 0 1 5 , India has emerged as the number one FDI
destination in the world.
+ 1 3 5 %
H igh ligh ts 1 H 1 5
Jump in FDI capital
2 0 1 3
2 0 1 4
+ 2 2 1 %
FDI capital increase
in manufacturing
U S $ 9 1 m
Highest-ever FDI capital per project
S p lit o f F DI cap ital b y segm ent ( % )
3 %
3 %
1 4 %
3 %
1 5 %
2 3 %
4 6 %
4 6 %
3 7 %
3 8 %
3 7 %
2 0 1 2
3 7 %
2 0 1 3
Services
Manufacturing
2 0 1 4
Retail
Strategic
S h are o f th e auto secto r in o v erall F DI in 2 0 1 4
1 6 3 %
1 2 %
A fter a steep fall in 2 0 1 3 , F DI in m anufacturing
grew at its fastest in sev en y ears. The upsurge
coincided with the launch of the “ Make in India”
program to promote manufacturing in the country.
The program has also enhanced transparency by
auctioning coal and power licenses, and has relax ed
constraints on FDI in key sectors. Meanwhile, several
states are moving ahead with labor law reforms.
y-o-y jump in auto
sector FDI during
2 0 1 4 to reach
U S$ 3 . 1 billion
W h at is th e nature o f th e b usiness activ ity y o u are p lanning
in india?
(open-ended q uestion — multiple responses)
6 2 %
Manufacturing
Sources: EY’s India Attractiveness Survey 2015 and EY analysis
1 6
| Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b
4 2 %
S erv ices
2 1 %
S ales and
m ark eting
Source: EY’s India Attractiveness Survey 2015
(total respondents: 265 with overseas expansion plans, who are considering entering
or increasing existing operations in India over the next year).
2
Dev elo p ing talent
and sk ills
E nab ling
regulato ry
env iro nm ent
E nh ancing
sup p ly ch ain
co m p etitiv eness
A n ab undant lab o r p o o l and lo w lab o r co sts are h elp ing
I ndia b eco m e an attractiv e m anufacturing destinatio n
I ncub ating
R&D and
inno v atio n
SIAM’ s Automotive Mission P lan 2 0 2 6 aims to propel the auto industry to become
the engine of the “ Make in India” initiative. The automotive sector is ex pected to create
1 5 million direct jobs by 2 0 2 2 .
Dev elo p ing
talent and
sk ills
F ast- track ing
infrastructure
dev elo p m ent
A uto co m p o nents segm ent co ntrib utes 5 0 % to th e secto r’ s direct em p lo y m ent
D irec t emp l oy ment ( in mil l ion)
2 0 1 3
S u b - S ec tor
2 0 1 7 F
2 0 2 2 F
O EM
1 .9
2 .0
2 .2
Auto component manufacturers
4 .8
6 .0
7 .3
Service centers
2 .8
3 .1
3 .4
Dealerships
1 .5
1 .7
2 .0
1 0 .9 8
1 2 .8 1
1 4 .8 8
Overal l sec tor
B reak - up o f w o rk fo rce in th e auto m o tiv e secto r
•
•
The majority of O EM and auto component segments’
employees are engaged in manufacturing.
•
The workforce in tier-I auto components is similar to auto
s in terms of educational ualifications and s ill levels
•
W hile attrition is a concern at lower-tier auto component
manufacturers and contractors, the attrition in auto O EMs and
large auto component manufacturers is very less.
•
According to the EY-SIAM HR study, attracting talent from
the available pool is not a significant challenge for
s and
tier-1 suppliers. However, ready employability of the workforce
req uires additional efforts from them.
Tier-2 / 3 manufacturers, service centers and dealers have
much larger workforce req uirements and they also face a
multitude of challenges, such as attracting talent, developing
skills and managing industrial relations
L ab o ur co sts in I ndia draw fo reign inv esto rs to th e co untry
India’ s most lucrative feature for foreign investors is the
abundance of labor. In addition, labor costs in the country remain
far below those of advanced and other developing economies.
India is the most competitive in terms of both average monthly
wages and minimum monthly wages, compared with its Asian
peers. This gives it an advantage in low-value-added, laborintensive manufacturing.
G lo b al w age co m p ariso n ( co st o f lab o r, U S $ p er h o ur)
4 6 .4
3 8 .3
3 5 .4
3 5 .4
2 1 .9
1 7 .7
1 2 .0
Germany
Canada
U S
Japan
Singapore
South
K orea
Brazil
9 .2
Taiwan
2 .8
China
0 .9
India
Sources: EY-SIAM report: Make in India — Leveraging human capital, National Skill Development Corporation — Auto Sector Report and EY analysis
Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b | 1 7
S k ill dev elo p m ent o f th e large talent p o o l is seen as th e m o st critical lev er in
deliv ering m anufacturing ex cellence
The Indian automotive industry is likely to witness an increased
demand for skilled labor in the coming years, as the economic
environment improves and investments are made as part of the
“ Make in India” initiative.
W ith reduction in product life cycles and the evolution of
automotive technology, we ex pect an increase in product
development, manufacturing and supply chain complex ity for
both O EMs and suppliers. The industry, is therefore, faced with
certain key considerations for skill development.
K ey co nsideratio ns fo r sk ill dev elo p m ent
2
Are there any new skills that have emerged as
critical for the industry?
re government and industry initiatives sufficient
to bridge the skill gap?
C ritical sk ill gap s in th e industry
India s abundant talent reserves appear sufficient to meet the
overall manpower req uirements of the automotive industry.
O E Ms and auto co m p o nent
m anufacturers
S taff/ m anagem ent
N o n- m anagem ent
S erv ice centers
• U nderstanding of local geographical
dynamics and customer req uirements
• Concepts related to q uality and
manufacturing ex cellence such as
5 S, TQ M etc.
• Customer need diagnostic skills
• Fitters, machinists, welders,
painters, etc.
• Advanced electrical, CNC
operations, automation skills
• Soft skills, work discipline
3
However, the industry is faced with certain key challenges with
respect to skill development. According to the EY SIAM HR study,
the industry faces a gap in the following areas:
• Civil engineering and project
management to build plants
• P roduction operations such as Total
P roductive Maintenance
1
W hat percentage of the available resource pool is
industry-ready? Does it have the req uisite skill-set
to help organizations deliver?
Dealers
• P roduct knowledge
• Customer handling and
communication skills
• Regular maintenance
• Selling and communication skills
• Automotive service
• Automotive and accident repair/ body
repair/ paint repair, etc.
A ddressing th e gap
B uilding talent
p ip eline
Institutions are unable to meet the industry’ s req uirement of skilled manpower due to a
gap in the technical curriculum and the lack of the faculty’ s ex posure to technology
changes. Industry participants need to work together to address this gap.
Dev elo p ing
co m p etency w age grid
he lac of commonly accepted standards to define competency levels and correlating to
an ideal wage has increased complexity of hiring planning and developing employees
according to req uired capabilities.
E stab lish ing a
centraliz ed
certify ing agency
Sources: EY-SIAM report: Make in India — Leveraging human capital
1 8
| Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b
he sector needs an industry recognized centralized certifying body laying out
clear standards and certifying s ill levels on defined competency levels
W h ile th e G o v ernm ent h as intro duced suitab le p o licy m easures, th e industry to o is
also p lay ing an activ e ro le in b ridging th e sk ill gap
The Government and industry have undertaken various initiatives
to help develop the skillset of the current and potential employee
base. O ne of the key government initiatives is the development
of the ational ills ualification ramewor
which lays
down the competency framework and standards with respect
to competency levels for many trades in the industry. The
Government also launched the “ Skill India” mission, which aims
to converge and monitor skill development schemes across the
country and provide subsidized loans to students for vocational
training.
Details o f th e “ S k ill I ndia” p ro gram
‘ S k ill I ndia’
p ro gram
•
•
O b j ectiv es
F eatures
Create opportunities to develop talent of Indian youth
Aims at providing training and skill development to
5 0 0 m youth by 2 0 2 0 .
•
•
•
•
Difference fro m
Training for traditional occupations (eg. carpenters);
emphasis on new areas (eg. transportation)
Hallmark — ‘ Rural India Skill’ , to standardise and
certify training process
Tailor-made, need-based programs would be initiated
(eg. management skills)
Course methodology will be innovative — games,
group discussions, etc.
I ndustry p articip ants co llab o rate w ith academ ia, and
inv est in training to address sk ill gap s
lthough the supply of engineering students is sufficiently
high to meet the combined req uirement of auto O EMs and auto
component manufacturers, they are not adeq uately trained
to be industry fit arallel to government initiatives to address
E arlier
•
Emphasis on traditional jobs
Responsibility divided among various ministries
•
N o w
•
•
Eq ual emphasis on all jobs
Responsibilities clubbed under ministry of skill
development and entrepreneurship
the skill gaps, industry participants are also taking measures to
help build a stronger talent pipeline. According to the EY-SIAM
HR study, O EMs are increasingly viewing investments in skill
development as core to the business and integrating them as
part of their people agenda.
Collaborate with universities to run
employability-skill enhancement
programs
Collaborate with universities to
set-up training centers/ labs and
offer joint certification
Invest in ex ternship programs
and provide funding for various
university curriculums
p rev io us p o licies
I ndustry
p articip ants tak e
m easures to
address sk ill gap s
India has the advantage of a
vast and young talent pool.
In order to build a strong
workforce, the skill demand
and supply gap needs to be
bridged by investing in critical
initiatives.
Set up their own dedicated
training academies with
programs focusing on
technical and soft skills
P artner with government
agencies to provide vocational
training to students
Training investments to leverage
virtual classrooms to supplement
classroom and on-the-job training
Sources: EY-SIAM report: Make in India — Leveraging human capital
Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b | 1 9
B esides augm enting sk ills, fo stering h ealth y industrial relatio ns are k ey to dev elo p
I ndia’ s m anufacturing ex cellence
armonious industrial relations is a significant driver to develop
India’ s manufacturing ex cellence. This necessitates a change
in industrial relations within the automotive sector in line with
the evolving scenario. EY’ s India Attractiveness Survey 2 0 1 5
indicates that labor costs labor s ills and flexibility of labor laws
are critical parameters for driving investment in India. Due to the
intertwined nature of business, importance of industrial relations
2
3
L ack o f
fo cus in th e
eco sy stem
O utdated
lab o r
law s
•
The changing times call for a mutual appreciation for ease of
doing business and maintaining the cost competitiveness of the
organization while treating the larger workforce with fairness,
trust and eq uity. However, the industry is faced with the following
challenges with respect to managing the industrial workforce.
al l eng e
y c h
s
e
K
1
•
in the auto sector does not stop with the O EMs, but is critically
dependent on the partners in the ecosystem.
Labour laws have remained unchanged
over the years: Cumbersome and
lengthy laws for setting up and scaling
down operations, slow and bureaucratic
approaches for dispute resolution
O rganizations are resorting to contract
labor and this is skewing the workforce
composition towards temporary
employees
•
L ab o r
relatio ns
Tier 2 / 3 suppliers and dealers
especially lack enhanced focus on their
IR philosophies and build maturity in
their IR practices
•
•
Absence of regular personal
connect with the workforce
and unions
Difficulty in managing
increasing wage and career
aspirations of workforce
I mp l ic ations f or b u il d ing p ositive ind u strial rel ations
A uto m o tiv e industry
•
Regular and improved communication between
management and employees
•
teps towards simplification and consolidation of
labor laws
•
Investment in skill building of workforce and providing
career opportunities
•
Reforms related to upscaling/ downscaling of
workforce numbers
•
More inclusiveness in interactions with employees
•
New inspection scheme
•
Active Engagement with unions
•
•
Focus on maturity of IR practices internally as well as
for partners in the ecosystem
E enablement for all returns and availability of
information
Sources: EY-SIAM report: Make in India — Leveraging human capital
2 0
G o v ernm ent
| Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b
3
F ast- track ing infrastructure
dev elo p m ent
A stro ng fo cus o n dev elo p ing transp o rt infrastructure is
essential to dev elo p I ndia as a m anufacturing h ub
I ncub ating
R&D and
inno v atio n
India has the world’ s second-largest road network (4 . 7 million km), with highways
constituting only 1 . 7 % of this network. The railway network is spread across 6 4 ,6 0 0 km
and is also among the world’ s largest. India is the 1 6 th largest maritime country in the
world, with a coastline of about 7 ,5 1 7 km.
Transp o rtatio n m ix in I ndia h eav ily sk ew ed to w ard ro ads, w h ile w ater transp o rt
rem ains underutiliz ed ( 2 0 1 4 )
1 %
1 %
1 %
8 %
4 8 %
2 3 %
4 6 %
6 0 %
3 7 %
3 0 %
1 0 %
India
China
W ater
Air
Rail
U S
1 8 k m
Europe
Road
Decades of underinvestment in infrastructure development have resulted in major
infrastructure bottlenecks, slowing down the pace of India’ s economic growth.
Globalizing trade is ex erting pressure on India’ s ex isting infrastructure. Thus, investment
in developing railroad, port network and hinterland connectivity is imperative for the
growth of the manufacturing sector in India.
G o v ernm ent initiativ es fo r infrastructure dev elo p m ent
The Government is making concerted efforts to develop the transportation
infrastructure. Some of the key initiatives include:
1
I nv estm ent p lans
o f U S $ 1 5 0 b illio n
in h igh w ay s and
sh ip p ing b y 2 0 1 9
• 5 9 9 highway projects
covering around 1 2 ,9 0 3 km
of national highways have
been sanctioned
• Development of 6 6 ,1 1 7 km
of roads under different
programs such as National
Highways Development
P roject (NHDP ), Special
Accelerated Road
Development P rogramme in
North East (SARDP -NE) and
Left W ing Ex tremism (LW E)
• Target of laying out new
roads in India increased to
1 5 0 ,0 0 0 km/ year from 2 0 1 6
as against the ex isting
9 6 ,0 0 0 km/ year
2
I nv estm ent p lans
o f U S $ 1 4 0 b illio n
to m o derniz ing
railw ay
3
I nv estm ent p lans
o f U S $ 2 7 . 1 b illio n
fo r p o rts and
sh ip p ing under
1 2 th F iv e Y ear
P lan
F ast- track ing
infrastructure
dev elo p m ent
India’ s rank on infrastructure
competitiveness by the
W orld Economic Forum
in 2 0 1 5
4 3 %
4 6 %
Dev elo p ing
talent and
sk ills
8 1 / 1 4 0
1 %
1 4 %
3 1 %
E nab ling
regulato ry
env iro nm ent
E nh ancing
sup p ly ch ain
co m p etitiv eness
Average length of highway
added every day during
2 0 1 5 , compared with 8 km
during 2 0 1 4 ; Government
target to add 3 0 km per day
by 2 0 1 6
• P rojects worth
U S$ 1 . 5 9 billion have
been sanctioned
•
• 1 0 0 % FDI approved in railway
infrastructure
ine corridors identified for
developing high-speed rail
network
• U S$ 1 0 . 5 billion investment
in 1 2 major ports in the
next five years under
“ Sagarmala” initiative
• Convert 1 0 1 rivers across
India into waterways to
promote water transport
Sources: Analyst reports, Planning commission
Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b | 2 1
5 4 / 1 6 0
India’ s rank on the Logistics
P erformance Index 2 0 1 4
Th e G o v ernm ent and industry are co llab o rating to
im p ro v e th e transp o rtatio n and lo gistics eco - sy stem
I n additio n to th e p o o r infrastructure, m ultip le gap s in th e sup p ly ch ain
le
o lo is i s ine ien
o po n in os s or
n
rin
co m p anies in I ndia.
n efficient logistics networ forms the bac bone of a strong economy lin ing all the
elements of the supply chain – transportation, warehousing, integrated communication
networks and logistics service providers (LSP s). Compared with the developed nations,
the Indian logistics network is below par on all major aspects – infrastructure, customs
and q uality of services. This has resulted in India having very high logistics costs for the
manufacturing sector, including automotive.
I ndia’ s lo gistics co sts are do ub le th at o f th e dev elo p ed natio ns
8 .8 %
Germany
Singapore
8 .5 %
Japan
8 .5 %
U SA
8 .5 %
India
1 3 %
Maj o r ch allenges fo r th e lo gistics secto r in I ndia
L im ited interm o dal and last- m ile co nnectiv ity
Inefficient supply chain lin ages induce systemic wastages of already scarce resources resulting
in sub optimal operations delays and unreliability of services
S k ill sh o rtage*
Increasing demand for integrated
s is widening the re uired s ill gap ma ing the unavailability
of a productive wor force a critical issue
Regulato ry b o ttleneck s
omplex customs regulations non uniformity of toll charges and multiple taxes lead to a high
level of compliance disparity resulting in operational inefficiencies
S h o rtage o f w areh o using
here is limited warehousing capacity in India as the ma ority of operators in the warehousing
sector are small to mid sized companies with limited investment appetite
* According to a study by the National Skills Development Corporation, the logistics sector will face incremental
skill req uirements of 1 7 . 7 million people by 2 0 2 2 .
G o v ernm ent and industry p articip ants tak e m easures to address ch allenges
Tax breaks and incentives to
infrastructure investors
P P P and privatization measures to
develop infrastructure
Sources: EY analysis, Armstrong & Associates
2 2
| Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b
A uto m o tiv e industry
Increasing government investment on
infrastructure development
G o v ernm ent
P otential GST roll out
Collaborating with the government for
infrastructure development
Long-term partnership with specialized
third party logistics providers to invest in
technology, assets, employee training, etc.
Focus on continuous skill development
through dedicated programs for logistics
professionals, training drivers, etc.
Th e lik ely ro llo ut o f G S T w ill result in a p leth o ra o f o p p o rtunities to re- engineer
sup p ly ch ains and o p tim iz e m anufacturing co sts in I ndia
Logistics companies in India have evolved from freight forwarding
companies to integrated LSP s providing a complete package of
services. Complementing this, the Government is also focusing
on improving the regulatory environment. The anticipated
GST rollout is a major initiative in this direction, which will help
optimize logistics costs and bring in efficiencies
I m p licatio ns o f lik ely G S T ro llo ut fo r th e lo gistics secto r
1
2
3
I ncreased o p eratio nal
e ien
n re
e
distrib utio n co sts
L arge centraliz ed
w areh o uses
E v o lutio n o f h ub
and sp o k e m o dels
Reduced compliance
req uirements at toll checkpoints
will minimize transportation
hassles and optimize delivery
times. This is likely to reduce
distribution costs by roughly
1 0 % – 1 5 % .
Minimized tax ation will lead to
logistics companies
consolidating their warehousing
network by creating large,
centralized warehouses, instead
of the ex isting multiple small
warehouses across states.
The supply chain network will
be redesigned with the
objective of ensuring prox imity
to manufacturing locations and
consumption centers, leading to
the emergence of hub and
spoke models.
4
E m ergence o f
o rganiz ed p lay ers
The logistics industry is highly
fragmented, with organized
LSP s constituting less than 5 %
of the total market. P ost
rationalization of tax es, the
share of organized LSP s is
ex pected to increase.
I m p licatio ns o f infrastructure dev elo p m ent fo r th e auto m o tiv e secto r
•
•
trong correlation in stimulating demand for mobility and connectivity
urther opening of the rural mar et for automotive companies
Dem and
stim ulatio n
•
fficient execution of infrastructure
pro ects and minimizing regulatory
bottlenec s will reduce supply chain
and logistics costs for auto
companies
0 1
Reduced
sup p ly
ch ain co sts
0 3
0 2
L o catio n
o f ch o ice
•
ncourage
s to establish their
manufacturing base in India
• India can potentially emerge as a ey
exporting country in the auto sector
Sources: EY analysis
Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b | 2 3
4
I ncub ating R&D and
inno v atio n
E nh ancing
sup p ly ch ain
co m p etitiv eness
Th e co untry ’ s R&D eco sy stem o ffers an o p p o rtunity to driv e inno v atio n fo r
b o th do m estic and glo b al co m p anies
he research and innovation ecosystem in India presents a significant opportunity for
companies across the globe to ex plore the rich talent availability in the country. India
hosts a number of R& D centers, which either serve the local market, or help the parent
companies develop nex t-generation innovative products and introduce them faster to the
global markets.
In 2 0 1 4 , India had the world’ s eighth-largest annual R& D investment (2 . 7 % of global
R& D ex penditure) estimated at U S$ 4 4 billion. The country’ s total R& D spending is
around 1 % of GDP , and the Government’ s spending is two to three times more than that
of the industry’ s
E Y ’ s I ndia A ttractiv eness S urv ey 2 0 1 5
S tro ngly p o sitio ned fo r 2 0 2 0
India is on course to becoming one of the world’ s three leading fast-growth economies and a preferred
destination for manufacturing, as well as a regional hub for operations including R& D/ innovation.
Macroeconomic stability
7 6 %
7 0 %
Stable political and social
environment
7 4 %
5 9 %
A s p er E Y ' s I ndia
A ttractiv eness
S urv ey , b usiness
leaders fo und I ndia
si ni
nl
ore
attractiv e in 2 0 1 5
s o p re
to 2 0 1 4
Research and development
I ncub ating
R&D and
inno v atio n
2 0 1 5
I ndia R&D and
inno v atio n
cap ab ility — current
standing
The W orld Economic
Forum’ s Global
Competitiveness Report
2 0 1 5 – 1 6 puts India at the
4 2 nd place among countries
worldwide in terms of
innovation capacity. India is
strong among the BRICs in
terms of the availability of
scientists and engineers, but
lags on other parameters
such as university-industry
R& D collaboration and
patents granted per head.
2 0 1 4
Improvements in 2 0 1 5
Th e w ay fo rw ard
Accelerating R& D and innovation has a vital role in enhancing India’ s manufacturing
capability and sharpening its competitiveness. The Government is keen on developing
dedicated R& D centers in the manufacturing, agriculture and life sciences sectors. The
robust Indian IT industry will further facilitate the development of the R& D eco-system.
Sources: The World Economic Forum’s Global Competitiveness Report 2015–16, EY’s 2015 India attractiveness survey and EY analysis
2 4
| Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b
Dev elo p ing
talent and
sk ills
F ast- track ing
infrastructure
dev elo p m ent
7 2 %
6 9 %
E nab ling
regulato ry
env iro nm ent
Th e G o v ernm ent is fo cused o n enh ancing I ndia’ s R&D and inno v atio n cap ab ilities to
attract glo b al and I ndian p riv ate secto r inv estm ents
The Government of India has taken several steps to promote the
R& D sector in the country and has declared 2 0 1 0 to 2 0 2 0 as the
National Institution for
Transforming India (NITI)
To increase involvement of
entrepreneurs, researchers to
foster scientific innovations
“ Decade of Innovation. ” The following institutions have been set
up to drive R& D and innovation in India:
National Innovation Council
A think-tank council to discuss,
analyze and help implement
strategies and road map for
innovation
Science, Technology and Innovation
(STI) P olicy Focus on increasing R& D
spend, sharing risk with the private
sector providing new financing
mechanisms
A ddressing th e gap
Regulato ry
incentiv es
• Tax incentives for in-house R& D on chemicals, drugs, automotive, pharmaceuticals, electronics,
computers, telecom, aircrafts and helicopters; investments are eligible for a tax deduction of 1 . 5 X
the amount spent
• Ex emption from imports custom duty to both public and privately funded R& D institutions
• StartU p India initiative: The Department of Industrial P olicy and P romotion is spearheading the
Government’ s efforts to provide impetus to the start-up sector in urban and rural India. It will work
with banks to make funding easier for startups and small ventures.
P artnersh ip s
w ith o th er
co untries,
academ ia
E ntrep reneurial
and inno v atio n
initiativ es
• The Science and Engineering Research Board is implementing the P rime Minister’ s Doctoral Fellowship Scheme with a view to develop human capacity for industrially relevant R& D.
• India has partnered with the U K for bilateral research and innovation via the Newton-Bhabha Fund
contribution of
m each over the next five years
Integrating R& D and innovation initiatives of multiple stakeholders
including Government, R& D labs, universities, sectors, corporates
Th e G o v ernm ent and
industry need to driv e a
m indset ch ange and
create an R&D p ush at
th e grassro o ts lev el,
enab ling co - dev elo p m ent
o f p atents and I P
Streamlining the patents and IP R application and registration process
Incubating entrepreneurial mind-set through funding and policy support
Favorable industrial relations scenario to facilitate improved productivity
and business continuity
Sources: National Portal of India, EY’s India Attractiveness Survey 2015
Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b | 2 5
R&D and inno v atio n in m anufacturing need to fo cus o n rap id tech no lo gy ado p tio n,
w h ich is also critical to th e success o f “ Mak e in I ndia”
Competitiveness of India’ s manufacturing sector
Time to move beyond cost-effectiveness; differentiate
through R&D and innovation
The Government has outlined ambitious targets for the
manufacturing sector in India including a 2 5 % share in GDP and
creating 1 0 0 million new jobs by 2 0 2 2 . Developing an R& D and
innovation eco-system is seen as a critical lever in delivering
manufacturing ex cellence under the “ Make in India” initiative.
Technology needs attention
V aried R&D and
inno v atio n
p ersp ectiv es fro m
m anufacturing and
no n- m anufacturing
secto rs
W hat do you think are the main measures to improve India’ s technology and innovation
capacity?
Manufacturing sector
respondents
Respondents related to
the manufacturing sector
suggest more partnerships
between foreign and local
companies to improve
technology and innovation
capacity. O n the other
hand, non-manufacturing
respondents demand more
incentives for investment in
new technologies.
K ey q uestio ns to b e answ ered:
1
W ill the industry have
the right skills available
to effectively attract
and utilize R& D
investment across
value chain levels?
The manufacturing R& D growth story in India has often centered
on cost efficiencies due to labor arbitrage he stress has been on
driving process efficiencies for cost reduction to compete globally
The need of the hour, however, is to drive R& D and technology
innovation. This will allow Indian companies to move up the
manufacturing value chain and become leading global providers
for product design and IP , while navigating through production
complex ity and supply chain challenges.
Non-manufacturing
sector respondents
3 4 %
Facilitate R& D partnerships
between foreign and local
companies
2 9 %
3 1 %
Increase incentives to invest in
R& D and innovative technologies
3 7 %
2 9 %
Increase government support
1 5 %
2 5 %
Focus on collaborations between
universities and industry
3 7 %
1 9 %
Focus on P P P s in technology
2 1 %
2
W hat is the preparedness
with respect to R& D and
innovation capability at
O EMs, suppliers and
sales & service network
partners?
K ey enab lers to p ut I ndia o n th e glo b al m ap as a
p referred destinatio n fo r m anufacturing R&D:
• Increasing use of automation technologies such
as robotics for the assembly line, infusion of
hi-tech materials and nanotechnology,
developing lighter but stronger and safer parts
• Fast adoption of new technologies in electronics,
sensors, CAD, CAM, 3 D printing etc.
• P romoting corporate investments in
manufacturing R& D with tax holidays and
funding support
Sources: National Portal of India, EY’s India Attractiveness Survey 2015
2 6
| Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b
Th e I ndian auto m anufacturing secto r is set to p lay a p iv o tal ro le in glo b al
auto m o tiv e R&D, inno v atio n and new p ro duct dev elo p m ent
A uto m o tiv e industry transfo rm atio n h inges o n th e success o f R&D and
inno v atio n initiativ es
Mark et indicato rs
8 %
P roduct design and development in the automotive industry globally is gearing for
rapid transformation with changing customer needs and stringent regulations for
safety and emissions ew initiatives around connectivity fuel efficiency electric
vehicles, autonomous, on-demand mobility are driven by cross-sector R& D and
innovation.
India is steadily gaining importance for both domestic and foreign multinational
companies as a strategic hub for R& D and innovation initiatives. The R& D ecosystem in
the country is focused on the three key areas of R& D — fundamental research, designing
and engineering of new vehicle models, and development.
Share of the
automotive
sector in
India’ s R& D
ex penditure
3 0
Number
of private
sector
automotive
R& D centers
in India
o tiv e R&D driv
m
o
er
t
s
A u
G lo b al p lay ers inv esting in
R&D to tap I ndia’ s
engineering b ase and co st
adv antage
ene s
• Influx of global D talent
•
igher indigenization and
localization
• undamental research and
ground up platforms
K ey im p erativ es fo r
auto m o tiv e
stak eh o lders to
p o sitio n I ndia as a
glo b al R&D h ub
Do m estic p lay ers inv esting
in R&D to co m p ete at a
glo b al lev el
ene s
•
trategic build up of local
D eco system
•
D approach moving
closer to global standards
•
lobal D partnerships
Attracting domain ex perts
from mature markets to imbibe
a strong process culture,
improve q uality, increase R& D
capabilities and facilitate
creation of domestic IP
G o v ernm ent sup p o rt to driv e
R&D inv estm ents
K ey initiativ es:
•
i for testing
certification homologation
• ax benefits on D
expenditure
• ech ac uisition fund
• India
partnership
Focus on achieving global
standards in emissions and
safety while also
manufacturing global
q uality products in an
environment friendly way
Developing a network
of industryacademia-government
bodies to build core
R& D skills and training
modules
Developing/ attracting high-end
R& D talent, especially in
electronics, safety, materials,
body engineering, interiors and
powertrain development
ontinuing the fiscal incentives
on R& D ex penditure and
ex tending the scheme to
outsourced R& D
Sources: AMP 2016–26, India Brand Equity Foundation (IBEF), EY-SIAM report: Make in India — Leveraging human capital
Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b | 2 7
5
E nh ancing sup p ly ch ain
co m p etiv eness
Th e auto sup p ly ch ain co ntinues to strength en w ith
th e ev o lutio n o f th e I ndian auto m o tiv e industry
I ncub ating
R&D and
inno v atio n
The automotive supply chain, comprising more than 7 0 0 suppliers (organized sector),
serves as the backbone of the industry and supports the operations of around 3 5
global and Indian O EMs.
S tro ng lo ng- term gro w th w h ile
dem and v o latility co ntinues
F ast- track ing
infrastructure
dev elo p m ent
Indian suppliers are ex panding their
customer base and attaining scale through
global ac uisitions as domestic demand
remained wea during
AMP 2 0 1 6 – 2 6 forecasts the Indian
automotive industry to grow at a CAGR
of around 1 0 %
8 0 % y-o-y growth in number of outbound
deals among automotive suppliers
in FY1 5
S u p p l y c hain
trend s
Suppliers to own development,
manufacturing and assembly of critical
components and become module providers
as O EMs plan to consolidate vendors
I ncreasing v eh icle p ro liferatio n
resulting in a co m p lex sup p ly ch ain
Car models are ex pected to increase with
the introduction of new models/ vehicle
segments
> 1 8 0 m o dels in 2 0 2 0 fro m
~ 1 5 0 in 2 0 1 5
H igh gro w th in co m p o nent ex p o rts and
stro ng rep lacem ent dem and
S up p liers to b ear h igh er R&D o w nersh ip
and ex p ense
Sharper growth in ex ports on the back of cost
benefits and improved uality of components he
aftermarket would witness the release of pent-up
demand, due to delayed replacements over the last
two years
Stricter regulations and higher R& D ownership
necessitate product and process innovation and
a faster response to O EMs’ product launches
Ex ports contributed 2 9 % to revenues in FY1 5 ;
estimated to reach 3 5 % -4 0 % in 2 0 2 0 ; > 1 0 % growth
in replacement demand over FY1 5 – 1 6
Sources: ACMA, LMC Automotive, SIAM, AMP 2016–26 and EY analysis
2 8
Dev elo p ing
talent and
sk ills
I ndian sup p liers acq uiring scale
and cap ab ilities w ith glo b al
acq uisitio ns
In the short to medium term, the industry is
facing headwinds with high demand volatility,
but is estimated to witness double-digit
growth in the long term, necessitating
continuous capacity expansion
O E Ms p lan to co nso lidate direct
v endo rs
E nab ling
regulato ry
env iro nm ent
E nh ancing
sup p ly ch ain
co m p etitiv eness
| Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b
< 1 % R& D/ sales spend of most Indian suppliers,
compared with the global average of ~ 3 %
W ith increasing o p eratio nal co m p lex ity , th e industry needs to address
sev eral ch allenges
K ey ch allenges faced b y th e auto m o tiv e sup p ly ch ain
In addition to regular raids, suppliers/
O EMs should join industry bodies to launch
awareness drives and spread information on
spurious parts
L arge sh are
o f sp urio us
p arts
• Industry to face shortage of strategic and functional
supply chain professionals as supply chain becomes
complex and global
• Constraints in attracting and retaining automotive supply
chain professionals, as they are lured by high-paying
FMCG companies
Companies should focus on innovative/
analytics-driven cost management and
strive to make optimum use of ex isting
resources, while the Government works
toward building the necessary
infrastructure
H igh lo gistics
co sts and
e ien
infrastructure
• U pcoming regulatory policies around emissions, safety and
would significantly impact supply chain operations
and the development of new products/ processes
• Spurious parts have ~ 3 0 % share in the overall replacement
market, due to which the industry faces annual turnover loss of
around INR9 0 billion
• ~ 2 0 % of total road accidents in India are attributed to the use of
spurious auto parts
S h o rtage o f
sup p ly ch ain
p ro fessio nals
O EMs, suppliers, academic institutes
and industry bodies should collaborate
and facilitate supply chain specific
skill-development programs
• Logistics cost in India is around 1 3 % of GDP compared with 8 % -9 %
for developed countries; higher logistics costs are led by the
predominant use of road transport, and impact the competiveness
of the auto supply chain
Infrastructure bottlenec s including deficient roads and ports
transport, and inadeq uate power distribution, increase operational
costs and impact overall supply chain operations
E v o lv ing
regulato ry
p o licies
Suppliers and O EMs should ex plore close
collaboration across products/ process
development
Sources: ACMA, Armstrong & Associates and EY analysis
Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b | 2 9
G reater industry - w ide co llab o ratio n is needed to reinv ent th e v alue p ro p o sitio n o f
th e auto m o tiv e sup p ly ch ain
n evolve
th e secto r
n e
ien s ppl
in o l provi e o pe i ive
v n
e n pl
O EM-supplier collaboration in demand forecasting,
product development and greater transparency
across the supply chain would reduce time to
market, increase responsiveness, optimize inventory
levels and reduce the overall operational cost
pivo l role in
e s s in ble ro
o
Improved supply chain visibility and efficient
IT-driven processes would be vital in managing
the complex supply chain
1
I ncrease co llab o ratio n acro ss th e
auto m o tiv e v alue ch ain
2
I m p ro v e sup p ly ch ain v isib ility
th ro ugh use o f tech no lo gy
E nh ancing
co m p etiv eness to
b uild a w o rld- class
sup p ly ch ain
Develop responsive/flexible
p ro ductio n sy stem s
Demand volatility necessitates flexible production systems. Further, suppliers need to actively
manage contracts to cater to the cost pressures
of any unutilized capacity which is a significant
part of overall supply chain cost
Source: EY analysis
3 0
| Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b
4
3
Dev elo p a glo b ally integrated
netw o rk and co m p etent sup p ly
ch ain fo r an ex p o rt- led gro w th
Suppliers need to develop a globally
integrated supply chain to manage
customized delivery schedules, varying
regulatory compliances and combination
of completely built units (CBU s) and
completely knocked down units (CK Ds).
K ey co nsideratio ns fo r th e G o v ernm ent and th e industry
K ey themes
Government
E nab ling regulato ry env iro nm ent • P rovide a stable and consistent policy regime
• Continued thrust on initiatives such as Make
in India, Skill India, etc .
• Greater clarity on regulations around new
mobility service providers
Dev elo p ing talent and sk ills
• P artner with the industry to facilitate
vocational training for students and laying
out clear standards on competency levels
nderta e steps towards simplification and
consolidation of labor laws
rovide flexibility of operations through
reforms related to upscaling/ downscaling of
workforce numbers
F ast- track ing infrastructure
dev elo p m ent
• Continue to encourage private
participation to develop specialized
infrastructure across ports, railway
terminals, etc.
• Fast track GST implementation to improve
logistics efficiency
I ncub ating R&D
and inno v atio n
Enhancing supply chain
competitiveness
ontinued fiscal incentives on D
ex penditure and ex tending the scheme to
outsourced R& D
I nd u stry
oo to build flexible production capacity
• Continued focus on investments aimed at
reducing vehicle emissions and introducing
safety technologies
• Ex plore opportunities for a play in the rapidly
evolving mobility eco-system
• W ork with academic institutions to develop
technical skills in line with the industry
req uirements
• O EMs to work with suppliers and dealers
in the eco-system on training and skilling
agenda
• Focus on maturity of IR practices internally
as well as for partners in the ecosystem
• Adopt global best practices for improving
transportation and logistics efficiency
• O utsource logistics function and collaborate
with the specialized logistics service
providers
• Develop a network of industry-academiagovernment to build core R& D skills and
training modules
• Bridging the gap between Indian and
global automotive standards for safety and
emissions
• Attracting domain ex perts from mature
markets/ other industries to imbibe a strong
process culture, improve q uality, increase
R& D capabilities and facilitate creation of
domestic IP
P artner with the industry and academia
to facilitate supply chain specific s ill
development programs
Improve supply chain visibility through use of
technology
Introduce checks and measures along with
launching awareness drives to reduce the
usage of spurious parts
Invest in developing an integrated network and
competent supply chain to drive efficiency in
operations
Sources: EY analysis
Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b | 3 1
Appendix :
Th e N o rth ern regio n is o ne o f th e m o st attractiv e regio ns in I ndia o ffering a
m ultitude o f o p p o rtunities fo r auto m ak ers and sup p liers
A large m ark et and an attractiv e inv estm ent destinatio n
North India is a large market with the youngest population in the
country with several states including Delhi, P unjab and Haryana
H uge m ark et siz e
having a per capita GDP above India’ s average. The region is an
attractive investment destination that accounts for around 2 8 % of
total DI inflows to the country
A ttractiv e inv estm ent destinatio n
A large v eh icle sales and
p ro ductio n h ub
2 6 %
2 6 %
~ 3 0 %
3 2 %
5 9 %
~ 5 0 %
Share of Northern region in
national GDP
Share of Northern region in total
population of India
Share of Northern region in total
installed power capacity
Share of Northern India in total
passenger vehicle demand
Share in proposed W estern and
Eastern Dedicated Freight Corridors
H o m e to o ne o f th e largest auto cluster in I ndia
The Northern region is home to the second largest automotive
cluster in India in terms of revenues (accounting for more than
of the total mar et he region also benefits from its close
Share of Haryana in total passenger
car and 2 W production
prox imity to policy makers in the government and industry bodies
such as I
and
he region also houses corporate offices
or sales headq uarters of various major entities in the passenger
vehicle and two-wheeler segments.
Manufacturing
R&D and Testing
facilities
OEM
Ludhiana
Delhi-GurgaonFaridabad
Rohtak
Manesar
Government
Manesar
International Center for
Automotive Technology
(iCAT), Manesar
Haridwar
Lucknow
Major OEMs' HQ in North
Sources: EY analysis
3 2
| Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b
Ashok Leyland
HMSI
Suzuki Motorcycles
Bajaj Auto
ICML
Swaraj Mazda
Eicher
JCB
Tata Motors
Escorts
Mahindra
Yamaha
Hero Moto Corp
Maruti Suzuki
Honda
New Holland
The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to
the development of India, partnering industry, Government, and civil society, through advisory and
consultative processes.
II is a non government not for profit industry led and industry managed organization playing a
proactive role in India’ s development process. Founded in 1 8 9 5 , India’ s premier business association
has around 8 0 0 0 members, from the private as well as public sectors, including SMEs and MNCs, and
an indirect membership of over 2 0 0 ,0 0 0 enterprises from around 2 4 0 national and regional sectoral
industry bodies.
CII charts change by working closely with Government on policy issues, interfacing with thought
leaders and enhancing efficiency competitiveness and business opportunities for industry through a
range of specialized services and strategic global linkages. It also provides a platform for consensusbuilding and networking on key issues.
Ex tending its agenda beyond business, CII assists industry to identify and ex ecute corporate
citizenship programmes. P artnerships with civil society organizations carry forward corporate
initiatives for integrated and inclusive development across diverse domains including affirmative
action, healthcare, education, livelihood, diversity management, skill development, empowerment of
women, and water, to name a few.
In its 1 2 0 th year of service to the nation, the CII theme of B uild I ndia — I nv est in Dev elo p m ent:
A S h ared Resp o nsib ility , reiterates Industry’ s role and responsibility as a partner in national
development. The focus is on four key enablers: Facilitating Growth and Competitiveness, P romoting
Infrastructure Investments, Developing Human Capital, and Encouraging Social Development.
ith
offices including
entres of xcellence in India and overseas offices in ustralia
Bahrain, China, Egypt, France, Singapore, U K , and U SA, as well as institutional partnerships with
3 1 2 counterpart organizations in 1 0 6 countries, CII serves as a reference point for Indian industry
and the international business community.
C o nfederatio n o f I ndian I ndustry
The Mantosh Sondhi Centre
2 3 , Institutional Area, Lodi Road, New Delhi — 1 1 0 0 0 3 (India)
T: 9 1 1 1 4 5 7 7 1 0 0 0 / 2 4 6 2 9 9 9 4 -7 | F: 9 1 1 1 2 4 6 2 6 1 4 9
E: info@ cii. in | W : www. cii. in
F ol l ow u s on:
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Reach us via our Membership Helpline: 0 0 -9 1 -1 2 4 -4 5 9 2 9 6 6 / 0 0 -9 1 -9 9 1 0 4 4 6 2 4 4
CII Helpline Toll free No: 1 8 0 0 -1 0 3 -1 2 4 4
Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b | 3 3
Notes
34 | Making India a world class automotive manufacturing hub
Notes
Making India a world class automotive manufacturing hub | 35
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