An industry expert weighs up this question against data that reflects that nearly 40 to 50 per cent of the $40-billion turnover of the auto component industry comes from the internal combustion (IC) engine powertrain industry.
A rapidly changing powertrain technology landscape, stricter regulations, shifting customer preferences, increasing demand for connectivity and digitisation have become important factors for shaping the future of mobility. The Niti Aayog recently unveiled the vision document for the Indian automotive industry 'India Leaps Ahead - Transformative Mobility solutions for all', jointly authored by Rocky Mountain Institute.
The report is indeed a paradigm shift in the way we think about mobility and is rightly driven by the need to significantly cut down Co2 emission by 37 per cent and energy consumption to 64 per cent by 2030. The automotive industry will be a nodal actor in the scheme of things. It is interesting to note that the report envisages a significant penetration of Battery EVs (BEVs), almost 100 per cent in case of Commercial Passenger Vehicles and 40 per cent Personal Passenger Vehicles, 100 per cent of three-wheelers and 40 per cent of two-wheelers to be electric and the entire public transit system to be electric by 2030. While the target may seem a bit ambitious, it is no doubt that the rollout of the EVs will be much faster than we in the automotive industry expect it to be.
Having said that, speaking from the perspective of the auto-component industry, as we embark on a new journey, we must take into account that we have a very vibrant and flourishing IC engine powertrain industry, almost 40 to 50 per cent of the $40-billion turnover of the auto component industry comes from this segment and that apart, engine and powertrain account for over 30 per cent of our $11 billion exports.
The industry employs 1.5 million people directly and as many indirectly. That apart the industry over the years has a gross block of around $12 billion. We must ensure that ushering in of new technologies should not be so disruptive that the entire industry is wiped out. Therefore in my opinion it would be logical to take one step at a time; we should encourage hybrid technologies to coexist with pure-electric as it allows for the conventional industry to evolve with the new.
In the same vein, while the entire industry congratulates and stands with the government on the Goods and Services Tax (GST) rollout by July 1, we are a bit concerned that the GST rate on hybrids at 43 per cent is almost penal compared to a benign 12 per cent on the Electric Vehicles. We would like to believe that the high rate on the hybrids is merely a matter of oversight and would be rectified to make it at par with that on the electric vehicles.
The Niti Aayog report lays emphasis on developing an indigenous component-manufacturing ecosystem, akin to the FAME scheme. However, I must caution that allowing duty-free import of components for electric vehicles will be detrimental to the development of a local ecosystem. I urge the government to allocate significant funding towards indigenous R&D for creation of standard battery, motors and other components of powertrain ensuring creation of local IP.
Apart from the above, the automotive industry in India is facing a slew of new regulations on the front of safety, emissions, and environment including that of graduating from BS-IV to BS-VI. The component industry will witness a major disruption unless we prepare ourselves well to brace these changes. Therefore, the need of the hour for the industry is to embrace these changes well enough and timely enough to the expectations of our customers, the original equipment manufacturers (OEMs), else they will be forced to consider suppliers from other geographies!
Apart from the changes on the technology front, we all have to gear up for the mother-of-all reforms - the GST. ACMA had strongly recommended to the government for a rate of 18 per cent for the auto component sector, as it is an intermediary industry and has to combat the menace of Grey and Counterfeit products in the aftermarket. I am glad to report that over 30 per cent of auto components are at 18 per cent, but we are concerned about the remaining 70 per cent.
Vinnie Mehta is the Director-General of the Automotive Component Manufacturers Association of India (ACMA).