A U TO C O M P O N E N T S

October 2007

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 AU TO C O M P O N E N T S
October 2007

Contents

• Profile of Indian auto component industry

• G
 rowth potential of Indian auto
component industry
• India as a manufacturing hub
 PROFILE OF INDIAN AUTO
COMPONENTS INDUSTRY

www.ibef.org
 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Indian automobile industry crossed

a historic landmark 10 million vehicles in 2006-07

• Indian auto industry sales grew to 11.12 billion Automotive sales

(domestic and exports) Million units
units in 2006-07, exhibiting an impressive CAGR
of 15.5% during the past 5 years 2007 11.12
2006 9.71

• T
 wo wheelers have the maximum share in the 2005 8.53

industry by volume, followed by passenger 2004 7.29 15.5%

CAGR
2003 6.25
vehicles, three wheelers and commercial vehicles 2002 5.41

• M
 aximum growth has been witnessed in the Source: SIAM, IMaCS analysis
commercial vehicles segment, followed by
three-wheelers
 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Indian automobile industry crossed

a historic landmark 10 million vehicles in 2006-07

India’s position in world production Segment Share in total CAGR

2nd in two wheelers Two wheelers 76.2% 14.5%
11th in passenger cars
Passenger vehicles 14.2% 16.7%
13th in commercial vehicles
Three wheelers 4.9% 20.5%
Commercial vehicles 4.7% 26.7%

Source: SIAM, IMaCS analysis

PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

The OEM as well as the component industry is highly competitive

•  M
G • Tata Motors
• Toyota • Mahinhra & Mahindra
• Ford • Bajaj Auto
Global OEM Indian OEM
• Hyundai • TVS Motors
• Maruti Suzuki • Hero Honda
• Honda • Bajaj Tempo
• Skoda • Ashok Leyland
• Volvo
• Mercedes • Bharat Forge
• Sundram Fasteners
• Delphi Global Indian • Rane Group
Suppliers Suppliers
• Visteon • Shriram Pistons
• Bosch • RICO Auto
• Denso • Sono Koyo Steering
• Valeo
• Thyssen Krupp
 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

The OEM as well as the component industry is highly competitive

• T
 he Indian auto industry is highly competitive
with a number of global and Indian auto
companies present
• T
 he supplier industry is equally competitive
with a mix of global and Indian players
 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Indian auto industry has evolved around 3 major clusters

North / Central
• Ashok Leyland Eicher
• Hero Honda Honda
• Honda SIEL Maruti Suzuki
• Delphi Denso India
• JBM Lumax
• Minda Shriram Pistons
• Sona Koyo Phoenix
• Asahi India Johnson Matthey
 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Indian auto industry has evolved around 3 major clusters

West
• Ashok Leyland • Bajaj Auto
• Daimler Chrysler • FIAT
• GM • M&M
• Skoda • Tata Motors
• Bharat Forge • Bright Brothers
• DGP Hinoday • Endurance Systems
• Kirloskar Brothers • Kalyani Brakes
• SKF Bearings • Tata Johnson
• Supreme Ind • NRB
 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Indian auto industry has evolved around 3 major clusters

East
• Hindustan Motors • Tata Motors
• Simpson &Co • JMT
• International Auto Forgings • Ramkrishna
 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Indian auto industry has evolved around 3 major clusters

South
• Ashok Leyland • Enfield
• Ford • Hyundai
• Toyota Kirloskar • TVS Motors
• Brakes India • Delphi TVS
• Fenner • India Nippon
• LUCAS-TVS • MICO
• Rane Brake • Rane-TRW
• Visteon • UCAL
• Sundaram fastners • TI Group
 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Indian auto industry has evolved around 3 major clusters

• M
 ajor automotive clusters - Mumbai - Pune -
Nasik - Aurangabad (West), Chennai - Bangalore
-Hosur (South) and Delhi-Gurgaon - Faridabad
(North)
• T
 he state of Uttaranchal is turning in to an
autohub, because of the industry friendly
government policy
 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Growth in automobile production has

driven growth in Indian auto component industry

• T
 he Indian auto component industry has Indian auto component industry
turnover US$ billion
reached a size of US$ 15 billion in 2006–07,
growing at a CAGR of nearly 29% in the last 2006-07 15

four years 2005-06 12

2004-05 8.7
• Industry has developed strong backward and 2003-04 6.73 CAGR

forward linkages 2002-03 5.43

28.9%

• T
 he industry is characterised by the presence
Source: ACMA, IMaCS analysis
of technically capable companies in areas such
as manufacturing, design, testing, product
development
 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Exports of auto components have

also exhibited an impressive growth

• T
 he exports of auto components industry has Indian auto component exports
US$ billion
reached around US$ 2.9 billion in 2006-07,
having grown at a rate of 40% CAGR over the 2006-07 2.93

last four years 2005-06 2.1

2004-05 1.4
• T
 he Indian auto component industry is well 2003-04 1.02 CAGR

positioned to capitalise on the growth in 2002-03 0.76

40%

outsourcing to low cost countries

Source: ACMA, IMaCS Analysis
 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

More than 60% of exports are made to the developed

markets of Europe and USA

• O
 ver 60% of the exports are to developed Indian auto component exports by destination (2006)
2%
markets such as US and Europe, indicating the 10%

capability of Indian manufacturers to meet 10%

36%
stringent quality and technical standards
16%
• A
 significant characteristic of exports is the
shift in the market in which the components 26%
are sold - 75% of the supplies are today made
n Europe n US
to OEM/Tier-I players as compared to only n Asia n Africa

35% in the 1990’s n Middle East n Others

Source: ACMA, IMaCS Analysis

Exports by type of Client

2006 75% 25%

1990 35% 65%

n OEM/Tier-1s n After market

Source: ACMA, IMaCS Analysis

 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

The Indian auto component Industry is highly fragmented

• A
 round 500 organised players account for the Industry Structure Value added by the players
77% of the value added in the sector.
• U
 norganised players are mainly replacement
500
market players or tier 3/4 component manufacturers Organised
77%
Players

• A
 utomotive Manufacturers Association of India
(ACMA) represents the auto component Unorganised Players
industry in India and has around 500 registered : 6000 23%

members
Source: ACMA, IMaCS Analysis
 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Demand from the OE segment dominates

the Indian component industry

• O
 E demand accounts for half of the auto Breakup of components industry by end market profile

component market in India.

15%

50%

35%

n OE Components n Replacement Market

n Exports

Source: ACMA, IMaCS Analysis

 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Demand from the OE segment dominates

the Indian component industry

• E ngine parts accounts for a third of the auto Breakup of components industry by type of component

components made in India

7%

9%
31%

10%

12%

19%
12%

n Engine Parts n Drive transmission and Steering

n Body/ Chassis n Suspension and Braking
n Equipments n Electrical n Others

Source: ACMA, IMaCS Analysis

 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Two and Three wheeler’s along with car segment account for
a major portion of the component market in India

• T
 wo and Three wheelers, along with passenger Vehicle Category Contribution
cars account for two-thirds of the components
manufactured 9%

• H
 owever, CV components have shown the fastest 34%

growth rate over the last 5 years. The growth 24%

rate of components of various vehicle categories
are as follows:
• 2/3Wheelers: 14.95%
• Cars : 15.4% 33%

• CVs : 26.1%
n 2 /3 Wheelers n Cars
n CVs n Tractors

Source: ACMA, IMaCS Analysis

 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Indian auto components companies are making

significant strides on the quality front

• D
 riven by needs of export markets and the increasing Certification No: of Companies

demands of Indian OEMs, quality awareness of Indian Japan Quality Medal Winner 1
JIPM Awards 4
companies has increased over the last decade
DEMING Prize 9 ( 7 since 2003)
• Q
 uality awareness has increased across all levels OHSAS 18001 47
of management and is being viewed as a ISO 14001 154

“must have” instead of “nice to have”, which is QS 9000 81

TS 16949 342
reflected in the drastic reduction in the number
ISO 9000 524
of problems of vehicles over the last decade
• N
 ine Indian auto component manufacturers have Problems per 100 vehicles
got the prestigious DEMING award
1997 572

2006 208

Source: JD Power Survey, IMaCS Analysis

 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Indian auto component companies are spreading their

operations globally, mainly through acquisitions

• A
 cquisitions made overseas are helping Indian Indian Company Acquired Country Acquisition value

auto component companies get access to new Tata Technologies Incat International UK US$ 95 million
Bharat Forge Imatra Kilsta AB Sweden US$ 56 million
set of skills, technology and customers
Amtek Auto GWK UK US$ 37 million
Amtek Auto Zelter Germany US$ 36 million
Bharat Forge Carl Dan Peddinghaus Germany US$ 35 million
EL Forge Shakespeare Forgings UK US$ 28 million
Ucal Fuel Systems Amtec Precision USA US$ 28 million
Bharat Forge Federal Forge USA US$ 9.1 million
Bharat Forge CDP Aluminiumtechnik Germany US$ 7.5 million
Sona Koyo Steering 21% of Fuji Autotech France US$ 6.15 million
Tata Auto Comp Wundsch Weidinger Germany US$ 5 million
Systems
Sundaram Fasteners Cramlington Forge UK US$ 2.6 million

Source: Industry news

PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

The companies are capable of carrying

out product development activities at low cost

• 0.4
 million Engineering graduates • Analysis
 and Simulation
every year High level of existing • Engineering animations
• India accounts for 26% of the world capabilities • Modelling and drafting
ESO & BPO Talent • Tooling design etc.

Experience in designs
Largest pool of English Low cost high
with increasing levels
Speaking Engineers quality designs
of Indigenisation

• Entry
 level engineer costs as less as Low cost of • High
 levels of indigenisation by foreign
US$ 8000/year employment and high OEMs & increasing skill sets
• 89-92% “first time right” designs proportion of “first • World renowned IT Skills with
experienced by certain companies time right” designs excellent Automotive domain
much above world average knowledge
 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Government of India Initiative to strengthen Automotive R&D Infrastructure-

National Automotive Testing and R&D Infrastructure Project (NATRIP)

NATRIP envisages an investment of US$ 380 million

in setting up the following facilities NATRIP is expected
to strengthen the automotive R&D infrastructure in
India
Rae Bareilly Centre
• C
 omplete homologation services to Agri Tractors,
off road Vehicles, Gensets as per Indian or Global
standards & Driver Training centre
• Center of Excellence For Accident Data Analysis
• C
 ommissioning Schedule Phase-I: July 2010,
Phase-II: Aug 2010
 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Government of India Initiative to strengthen Automotive R&D Infrastructure-

National Automotive Testing and R&D Infrastructure Project (NATRIP)

Manesar - iCAT
• C
 omplete homologation services to all vehicle
categories as per Indian or Global Standards
• C
 enter of Excellence For Component
Development, NVH
• C
 ommissioning Schedule Phase-I: 2008,
Phase-II: 2010
Silchar Centre
• H
 ill area Driver Training Centre and Inspection
& maintainence Facilities
• Center of Excellence For Driver Training
• C
 ommissioning Schedule Phase-I: 2008,
Phase-II: 2010
 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Government of India Initiative to strengthen Automotive R&D Infrastructure-

National Automotive Testing and R&D Infrastructure Project (NATRIP)

Ahmednagar - VRDE Up-Gradation

• R
 esearch, Design, Development and Testing
of Vehicles
• C
 enter of Excellence For Photometry, EMC,
EMI,Test Tracks
• Commissioning Schedule April 2008
Indore -Proving Grounds
• C
 omplete Testing Facilities to all vehicle
categories as per Indian or Global Standards
• C
 enter of Excellence For Vehicle Dynamics,
Tyre Development
• C
 ommissioning Schedule Phase-I: 2009,
Phase-II: 2010
 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Government of India Initiative to strengthen Automotive R&D Infrastructure-

National Automotive Testing and R&D Infrastructure Project (NATRIP)

Pune - ARAI Up-Gradation

• C
 omplete homologation services to all vehicle
categories as per Indian or Global Standards
• C
 enter of Excellence For Power Train
Development, materials, fatigue
• C
 ommissioning Schedule Phase-I: 2008,
Phase-II: 2009
Chennai Centre
• C
 omplete homologation services to all vehicle
categories as per Indian or Global Standards
• C
 enter of Excellence For Infotronics,EMC,
Passive Safety
• C
 ommissioning Schedule Phase-I: 2008,
Phase-II: 2011
 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Indian Productivity is on a rise - Analysis of Return

On Capital Employed (ROCE)

• R
 OCE% levels in India have shown an increase Component Manufacturer ROCE (%) in 2002 ROCE (%) in 2007

in the past few years, indicative of the Sundram Clayton 17.73 29.06
Amtek India 14.11 17.96
productivity increase
Clutch Auto 14.17 20.64
• A
 verage ROCE levels in India are estimated Minda Industries 17.5 19.1
to be in the range of 24-28% Setco Automotives 18.07 35.83
Wheels India 10.88 15.77
• M
 NC/Collaborations have achieved significantly Sona Koyo 8.17 25.03
higher ROCE levels in India ZF Steering 25.94 38.96
Denso India 14.52 28.28
Exide Industries 13.69 30.45
Lumax Industries 6.56 22.57
Subros 10.9 19.73
 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Capacity utilisation is also on an increase

• T
 he huge growth in demand has Overall capacity utilization
improved the capacity utilisation of Indian
auto component manufacturers Denso India

Subros

Delphi TVS

Minda Industries

Exide Industries

Axles India

Wheels India

Lumax Industries

Setco Automotives

MICO

0 20 40 60 80 100 120
n 2007 n 2002

Source: IMaCS Analysis

 PRO F I L E OF I N D I A N AU TO COMPONENTS INDUSTRY
October 2007

Capacity utilisation is also on an increase

• M
 ost of the Indian manufacturers have utilisation Company Increase in Capacity

levels in excess of 80%, even after taking into Denso India 493%
Subros 233%
account the recent capacity additions
Delphi TVS 170%
Minda Industries 140%
Exide Industries 95%
Axles India 79%
Wheels India 40%
Lumax Industries 11%
Setco Automotives 0%
MICO 0%
 GROWTH POTENTIAL OF INDIAN
AUTO COMPONENT INDUSTRY

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 GROW T H P OT E N T I A L O F I NDIAN AUTO COMPONENTS INDUSTRY
October 2007

Indian auto component industry is expected

to grow to US$ 33-40 billion by 2015

• T
 he size of the Indian automotive industry is Potential vehicle sales by 2015
expected to grow at 13% p.a over the next
Total 31.96
decade to reach around US$ 130-159 billion Three
Wheelers 0.87
by 2016. Two
Wheelers 27.8

• In volume terms the market is expected to grow CVs 0.64

to 31.96 million vehicles Cars 2.65

Source: AMP, SIAM, ACMA, IMaCS Analysis

 GROW T H P OT E N T I A L O F I NDIAN AUTO COMPONENTS INDUSTRY
October 2007

Indian auto component industry is expected

to grow to US$ 33-40 billion by 2015

• T
 he Indian auto component industry is well Projected size of Auto component
Industry 2015
positioned to capitalise on the growth in
outsourcing to low cost countries
Domestic US$ 13-15 bn

• E xports would lead the growth in the component Exports US$ 20-25 bn

industry, which is expected to be around

US$ 33- 40 billion by 2015, from the current Source: AMP, SIAM, ACMA, IMaCS Analysis

size of roughly US$ 15 billion

GROW T H P OT E N T I A L O F I NDIAN AUTO COMPONENTS INDUSTRY
October 2007

Several factors make India a favourite investment destination

Proven product developmental capabilities Proximity to Markets
• More than 125 Fortune 500 (including • Proximity to other Asian economies
large auto companies) have R&D centres • P
 roximity to the emerging markets like
in India Africa
• Companies can leverage India’s • Shipments to Europe cheaper than those
acknowledged leadership in the IT industry from Brazil and Thailand

High quality standards

Stable economic policies • 9 Indian component
• Continuity in economic manufacturers have won the
reforms and policies related to Deming Award for quality
investments • Most leading component
manufacturers are QS and
India as a ISO certified
Large and growing domestic Auto Hub
demand Competitive
• Demand growth of 14% manufacturing costs
CAGR makes India one of • Skilled labour costs
the fastest growing markets amongst the lowest in India

Availability of Manpower Export Potential

• 0.4 million Engineering • Total value of exports by
graduates every year 2015 expected to reach
• 7 million enter US$ 8–10 billion for
workforce every year vehicles and US$ 20–25
billion for components
 GROW T H P OT E N T I A L O F I NDIAN AUTO COMPONENTS INDUSTRY
October 2007

Indian auto component offers a balance between quality and cost

Quality Services
• Indian IT Recognized worldwide
Quality Manpower
• 0.4 Million Engineering Graduates
Quality Suppliers
• 456 Nos ISO 9000 Certified Suppliers
Lower
• Labour Cost
Lower
• Design Cost
GROW T H P OT E N T I A L O F I NDIAN AUTO COMPONENTS INDUSTRY
October 2007

Many global auto companies have made India a manufacturing base

- a robust supply base exists in India
Global Exports

Maruti Suzuki Hero Honda

Tata Motors Mahindra
Toyota Kirloskar Skoda India Swaraj
Indian Supply Base Ashok Leyland Hindustan
Mazda Tatra Vectra
Motors Atul Auto
Volvo Ford India
TVS Motors Bajaj Auto
Force Motors General Motors Engines Stamping
Gear Boxes Engg Services
Plastics Air Brakes
Moulds Forging
Global OEMS/ JVs Indian OEMS
Castings Lamps
Die Making
Machining

Delphi Denso Bosch

Lear Meritor Aisin
Visteon Jhonson Controls
TRW Valeo Amtek
Rico Minda
Bharat Forge TVS

Tier 1s/ 2s
 GROW T H P OT E N T I A L O F I NDIAN AUTO COMPONENTS INDUSTRY
October 2007

OEMs have made India as a sourcing hub for their auto

components requirements

Manufact- Component Worth Comments

urer
Volvo Machine and painted castings, US$ 90 India is the single sourcing
forgings, gearbox and engine Million unit FM12 (8 X 4) model
components & Others sold in South Korea.
Fiat Engines, Gearboxes, Others US$ 4 To source components for
Million the Grande Punto as well
as Linea Models. To invest
US$ 1,000 Million
Ford Castings and forgings, US$150 Expects the volume to
Motors crankshafts, exhaust Million grow to US$ 400 - US$700
manifold, leaf springs, Horns, Million
Dashboard, Door Trims
Renault- Has firmed up plans to US$ 125 First phase to Source
Nissan source components and Million in Low end Tech for low end
aggregates next 2 years models. High-end in second
phase
Daimler Auto Components and IT US$ 125 Growing at 20% CAGR
Chrysler services Million
Toyota R-type manual transmission 1,40,000 Expected to go up by 5
– Gear Boxes – Global Gearboxes - 10%
Supply, Propeller Shafts etc
 GROW T H P OT E N T I A L O F I NDIAN AUTO COMPONENTS INDUSTRY
October 2007

Leading global auto components companies are also sourcing from India

Manufact- Component Worth Comments

urer
Delphi Catalytic Convertors, US$ Planning further
Steering Systems, Piston 250 Million investments in
Rods, Drive Shafts etc (2007 Plan) the software wing
Visteon AC Systems, Alternators, US$ 56
Panel Instrument assembly Million
in 2002
Bosch FIPs, Common Rail Systems US$100 Planning for further
Million investments of US$430
Million
Cummins Engines and Components US$ Plans to increase it to
150 Million US$ 500 Million by 2010
Tenneco Forgings US$
Automotive 60 Million
Deutz Engine Components US$ Plans to procure US$
70 Million 1,000 million worth of
components from Low
Cost Countries including
India

Source: Industry News, IMaCS Analysis

 GROW T H P OT E N T I A L O F I NDIAN AUTO COMPONENTS INDUSTRY
October 2007

Competitiveness of Indian auto component manufacturing

• In order to emerge as a manufacturing hub, India

would face competition from other low cost
countries such as
* China
* Thailand
* Brazil
• IMaCS has compared the cost competitiveness
of manufacturing 6 automative component groups
(Engine, Transmission and Steering, Suspension
and braking, Electricals, Equipment and others
manufacturing in India with respect to these
countries in terms of factors like taxes and duties
 GROW T H P OT E N T I A L O F I NDIAN AUTO COMPONENTS INDUSTRY
October 2007

Competitiveness of Indian auto component manufacturing

- C
 ost of manufacturing (for example, power
and fuel costs, labour costs, including
productivity interest rates)
- Economies of scale
• C
 ompetitiveness of manufacturing in India can be
improved by reducing the level of taxes impact of
taxes and by improving the business infrastructure
 GROW T H P OT E N T I A L O F I NDIAN AUTO COMPONENTS INDUSTRY
October 2007

Tax structure in India vis-à-vis other countries

• T
 he burden of direct and indirect taxes is higher India Brazil China Thailand

in India as compared to in other countries Excise 16.36% - - -

VAT 12.5% 15% 17% 10%
Other Taxes 18%*
Corporate Tax 34% 28% 33% 30%
Exemptions Specific Tax incentives Preferential Tax
packages for companies corporate tax incentives for
provided in Export policies for investments
by states processing FIE outside
for large zones central zone
investments
Import duty 13% 16% 8% Free
on rubber
Import duty on steel 8% 4% 2% 10%

*Refers to local taxes

 GROW T H P OT E N T I A L O F I NDIAN AUTO COMPONENTS INDUSTRY
October 2007

Labour and labour productivity vis-à-vis other countries

• India compares favorably with other low cost India Brazil China Thailand

countries in productivity adjusted labour cost Labour cost (US$/hour) 0.7 4.1 0.7 0.72
Labour cost (US$/day)* 5.6 32.8 5.6 5.76
• Indian labour productivity in the manufacturing Productivity index** 1.0 2.0 1.0 1.2
sector is on an increase with the application of Productivity adjusted 5.6 16.4 5.6 4.8
labour cost (US$/day)
production management techniques and many
companies have doubled their productivity in
* Assuming 8 hour shift per day
last five years ** Gross value added per person employed as compared to India
 GROW T H P OT E N T I A L O F I NDIAN AUTO COMPONENTS INDUSTRY
October 2007

Power Cost vis-à-vis other countries

• P
 ower cost in India the highest amongst the Power costs
competing countries Country Cost per kwh
(US$)
• H
 owever, power cost accounts for around India 0.14
3% of the overall cost structure, hence not a Brazil 0.05

significant disadvantage China 0.03

Thailand 0.11
• P
 ower costs in India varies by state and is
as low as US$ 0.1 in states like Maharashtra
Interest costs
• W
 ith privatisation and competition in the Country Annual lending
emerging Indian power sector, cost of power interest rate
India 10-11%
is expected to come under control
Brazil 14-16%
• Interest rates in India high as compared to China 5-6%
competing countries, but expected to soften Thailand 7-8%

in the future.
 GROW T H P OT E N T I A L O F I NDIAN AUTO COMPONENTS INDUSTRY
October 2007

Manufacturing in China vis-à-vis India

• Indian manufacturers suffer from a cost

disadvantage vis-à-vis Chinese manufacturers
mainly because of higher power and fuel costs
and to some extent due to the cascading
impact of taxes

China Engine Parts Transmission & Suspension & Electricals Equipment Others
Steering Braking

Cost of component for an Indian Company 100 100 100 100 100 100
Less
Taxes and Duties Higher net state level levies and 0.55% 0.85% 1.58% 1.51% 1.72% 0.89%
cascading impact of taxes
Higher import duty 0.03% 0.02% 0.06% 0.14% 0.14% 0.07%
Higher corporate taxes 0.03% 0.03% 0.03% 0.03% 0.03% 0.03%
Industry costs Higher cost of power and fuel 3.43% 3.16% 4.01% 3.02% 2.13% 2.68%
Higher cost of funds 0.62% 0.30% 0.18% 0.00% 0.44% 0.13%
Higher rate of insurance 0.10% 0.08% 0.10% 0.08% 0.11% 0.08%
Others Others 3.63% 2.98% 3.08% 3.11% 3.50% 2.72%
Total cost disadvantage for India 8.39% 7.43% 9.04% 7.88% 8.08% 6.60%
 GROW T H P OT E N T I A L O F I NDIAN AUTO COMPONENTS INDUSTRY
October 2007

Manufacturing in Thailand vis-à-vis India

• Indian manufacturers suffer from a cost disadvantage

vis-à-vis Thai manufacturers mainly because of higher
level of taxes and their cascading impact

Thailand Engine Parts Transmission & Suspension & Electricals Equipment Others
Steering Braking
Cost of component for an Indian Company 100 100 100 100 100 100
Less

Taxes and Duties Higher net state level levies and 3.64% 5.13% 5.80% 5.33% 5.54% 5.33%
cascading impact of taxes
Higher import duty 0.58% 0.39% 0.51% 1.06% 1.00% 0.92%
Higher corporate taxes 0.12% 0.12% 0.12% 0.12% 0.12% 0.12%
Industry costs Higher cost of power and fuel 0.93% 0.86% 1.09% 0.82% 0.58% 0.73%
Higher labour cost 1.72% 1.10% 1.19% 1.22% 1.59% 0.85%
Higher cost of funds 0.50% 0.24% 0.14% 0.00% 0.35% 0.10%
Higher rate of insurance 0.10% 0.08% 0.10% 0.08% 0.11% 0.08%
Others Others 2.15% 1.51% 1.60% 1.63% 2.02% 1.25%
Total cost disadvantage 9.74% 9.42% 10.56% 10.26% 11.32% 9.38%
for India
 GROW T H P OT E N T I A L O F I NDIAN AUTO COMPONENTS INDUSTRY
October 2007

Manufacturing in Brazil vis-à-vis India

• India is competitively positioned vis-à-vis Brazil across

components mainly due to the higher cost of labour
in Brazil

Brazil Engine Parts Transmission & Suspension & Electricals Equipment Others
Steering Braking
Cost of component for an Indian Company 100 100 100 100 100 100
Less

Taxes and Duties Higher net state level levies and -4.20% -5.72% -3.89% -3.15% -3.08% -5.15%
cascading impact of taxes
Higher import duty 0.25% 0.16% 0.13% 0.24% 0.22% 0.33%
Higher corporate taxes 0.18% 0.18% 0.18% 0.18% 0.18% 0.18%
Industry costs Higher cost of power and fuel 2.79% 2.58% 3.28% 2.47% 1.74% 2.19%
Higher labour cost -23.16% -14.85% -16.07% -16.45% -21.47% -11.51%
Higher cost of funds -0.27% -0.13% -0.08% 0.00% -0.19% -0.06%
Higher rate of insurance -0.06% -0.05% -0.06% -0.04% -0.06% -0.05%
Others Others 5.55% 4.90% 5.00% 5.02% 5.42% 4.64%
Total cost disadvantage for India -18.93% -12.94% 11.51% - -11.73% -17.25% -9.42%
 GROW T H P OT E N T I A L O F I NDIAN AUTO COMPONENTS INDUSTRY
October 2007

Conclusions

• India has a cost advantage when compared to Brazil, • Various steps being taken by the Indian government
however suffers from a cost disadvantage vis-à-vis in improving infrastructure would reduce the
China and Thailand (to a lesser extent), primarily disadvantage that India suffers from because of poor
due to high level of taxes and their cascading impact. infrastructure that causes project delays, delays
• India, in the near future is expected to go ahead with in deliveries and others. This would increase the
the abolition of interstate Central Sales Tax (CST), demand for road transportation in the country and
which will reduce the cascading impact of taxes to consequently demand for auto components.
some extent. • India’s exports of auto components have the
• Implementation of Goods and Services tax (along the advantage of proximity to automotive manufacturing
lines of VAT) and abolition of all other taxes by 2010 nations like Thailand; trade agreements being signed
is under consideration, which will reduce the taxation with ASEAN nations are expected to give further
loading on the automotive sector considerably. This boost to exports.
step is expected to strengthen India’s future position
as a leading automobile manufacturing hub.
 AU TO C O M P O N E N T S
October 2007

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