By Invitation: Satyakam Arya, Managing Director and CEO for Daimler India Commercial Vehicles talks about the need for strong government reforms to revive the commercial vehicle segment in India
The automotive industry in India, both technologically and manufacturing wise, is a very mature industry on its way to becoming one of the world’s biggest. With 26.3 million vehicles manufactured last year, we contribute approximately 50% to the manufacturing GDP and 7% to the overall GDP at the country level. Take Tamil Nadu as an example. Tamil Nadu accounts for about 30% of India’s automotive production and it has gained this position by offering a number of advantages. These include world class infrastructure in industrial zones, availability of power and engineering talent, well developed E2E ecosystems of tier 1/2 suppliers, and the proximity to port which makes it an attractive destination for exports. The Tamil Nadu government has also ensured ease of doing business with single window clearance initiatives, incentives to invest, and a safe working environment.
Benefits such as these have helped the Indian CV segment to thrive over the years. This is why, we at Daimler consider India a key part of our global manufacturing strategy & operations. India is a very important market for Daimler Trucks in our global business. In fact, in 2018 India was already the 5th largest market for us globally and offers extremely high potential for growth when the economy revives.
But when will the economy revive? Let’s look at the effect of COVID-19. For the first time on record, not a single commercial vehicle was sold in April. Although the lockdown is now slowly easing on a region-to-region basis and we have resumed both production and sales, corona has had a significant impact on automotive manufacturing and the supply chain. To site an example, at DICV, we import only 10% of our requirements and export more 30% by value. However, in the post-covid world, it will be very challenging to manage overseas and complex supply chains. Therefore, developing a resilient and self-reliant supply chain will be the key to re-booting operations for OEMs in the country.
Developing a resilient and self-reliant supply chain will be the key to re-booting operations for OEMs in the country.
When it comes to manufacturing with implementation of social distancing guidelines, vehicle manufacturers will have to unlearn and learn a lot of new things. They will have to re-allocate manpower differently on our assembly lines, look at new layouts on the shop floor, re-sequence and modularize the work differently on the assembly line to enable social distancing. This will mean some loss of efficiency in the initial days, but they’ll have to quickly learn new ways to come back to the original efficiency levels.
Another significant impact of corona crisis will be the acceleration of automation, robotics and digitalization on the shop floor. The concepts for these already exist and now the investments will be made faster in this direction.
Post-covid, the demand for CVs could drop by another 50 to 60% if there is no stimulus provided
Moving forward, the automotive industry will need strong support from the government to help reboot the economy faster. A major challenge for many sectors will be the revival of demand after the lockdown is lifted. The automotive sector was already under a severe slowdown for the last one year. The CV sector was the worst affected with 40% de-growth last year. Our estimates show that post-covid, the demand for CVs could drop by another 50 to 60% if there is no stimulus provided by the government. This stimulus could be in two parts: reduction of GST from 28% to 18%, and implementation of an incentive-based scrappage policy. CVs are the backbone of the economy and not a luxury item; therefore, GST rationalisation is the need of the hour.
During this time, the government could also help the CV industry by waiving the need for physical vehicle inspections for STA approval. When Daimler made plans to invest in India, it had a clear plan to be a major player in the domestic market, but also to use India operations for its global business. Daimler has made India the global hub for Medium duty transmission, which is also exports to Germany. The company has so far exported over 125 million parts to various plants of Daimler from the consolidation centre in Chennai.
Daimler has made India the global hub for Medium duty transmission, which is also exports to Germany.
This required re-alignment to not only include India operations, but also to utilize the competitiveness and capability of India more in the future. This will grow with India now ready with BS6 emission norms, which enables companies like ours to look at exporting these aggregates and parts to new markets. We are also looking at using DICV for creating a strong vertical for engineering and technical services to the rest of the world. Although the current scenario for the Indian CV segment may seem bleak, the long-term potential for this market is undimmed. Daimler continues to see India as a strong pillar for growth, not only in terms of CV sales, but also as a source of quality parts and innovative engineering expertise.