Professional Documents
Culture Documents
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 1
1 . Enabling regulatory environment 1 2
2 . Developing talent and skills 1 7
3 . Fast-tracking infrastructure development 2 1
4 . Incubating R& D and innovation 2 4
5 . Enhancing supply chain competiveness 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 The Indian automotive sector, given its potential
times. The market continues to ex perience volatility and contribution to GDP and employment, presents a
we are waiting to see clear signals of revival in growth. signicant opportunity to be one of the biggest growth
W ith the government and the judiciary taking steps to drivers for the economy. W hat we do need to emerge
make transport cleaner and safer, there is some degree as a world-class automotive manufacturing hub is a
of uncertainty for automakers, especially regarding the concerted effort from the Government and the automotive
fuel mix and the necessary investments for technology industry to create an enabling ecosystem. The country s
upgrades. W e believe that these are just short-term key strengths such as a large domestic consumption base,
challenges as the long-term growth story for the a cost competitive value chain (that includes low design,
automotive industry in India remains intact. testing and validation costs, frugal engineering capabilities
and low labor costs) and strategic geographical location
The Government s Automotive Mission P lan (AMP )
would go a long way to develop the country as a world class
2 0 1 6 2 6 envisions the industry to grow around four
automotive manufacturing base.
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 R ak esh B atra, M M S ing h, R ajeev W asan,
need to address. These include an enabling regulatory A uto m o tiv e and E x ecutiv e A dv iso r, S r V ice P resident
environment, developing the req uisite talent and skills, Transp o rtatio n Maruti S uz uk i Manufacturing,
fast-tracking of infrastructure development, incubating L eader, E Y I ndia I ndia L td H o nda C ars I ndia
L im ited
R& D and innovation culture, and enhancing supply chain
competiveness.
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 O ver the years, the Indian auto industry has emerged as one of
and employment in India, with huge potential for growth. The the world s largest, with annual sales of 1 9 . 8 million vehicles in
sector accounts for 7 % of India s GDP , 4 5 % of manufacturing GDP FY1 5 . It is also one of the fastest growing auto markets, with
and employs about 1 9 million people both directly and indirectly. production of 2 3 . 4 million vehicles in FY1 5 and a leading position
Further, the sector contributes around 4 . 3 % to India s total in several sub-segments.
ex ports and 1 3 % to the country s ex cise revenues.
W o rld s largest
Tractor manufacturer
W orld s 2 nd largest
Two-wheeler (2 W ) manufacturer
W orld s 5 th largest
P assenger v eh icle density ex p ected to b eco m e 1 . 5 tim es makes it one of the world s most attractive auto markets. O wing
b y 2 0 2 0 to its uniq ue demographic dividend, the Indian auto industry
India has the largest population of young people in the world, has immense growth potential. India s passenger vehicle parc of
with around 6 6 % of population under the age of 3 5 . The country s around 2 9 million during 2 0 1 5 is ex pected to grow to more than
low vehicle penetration (3 2 vehicles per 1 0 0 0 people in 2 0 1 5 ) 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)
8 0 1
7 6 5
6 1 1 6 2 4
5 4 5 5 4 7
3 9 3
3 5 0 3 6 9
3 2 6
1 9 2 1 8 4 1 8 4
1 6 9 1 5 9
1 0 2
4 8
3 2
Sources: Automotive Mission Plan 201626 (AMP 201626), LMC Automotive, EY analysis
A uto m o tiv e
O E Ms
1 ,0 8 0 ~ I N R 6 , 0 0 0 b illio n
V alue of planned investments by automakers
over the nex t few years
C o m p o nent 4 9 5 4 8
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
Despite the presence of several Indian and global players, each competition and new model launches, market shares are ex pected
segment has a dominant player commanding more than 4 0 % to realign over the nex t few years.
Mark et sh are ( F Y 1 5 )
Mahindra 9 % TV S 1 3 %
Ashok Leyland 1 5 %
Honda 7 % Bajaj 1 1 %
V ECV 6 %
Tata Motors 6 % Yamaha 4 %
Force 3 %
Toyota 5 % Suzuki 2 %
GM 2 % Mahindra 1 % P iaggio 1 %
P assenger vehicles
9 .1 %
P V sales witnessed a slow down over the last couple of
CAGR years due to economic uncertainty and high interest
rates.
Two-wheelers
1 8 .5
1 6 .9
1 5 .4 1 5 .8 Scooters continued to witness strong growth due to a strong
1 3 .3 surge in urban demand.
1 0 .5
9 .5
8 .4
Commercial vehicles
6 9 0 Ex ports 2 2 %
5 2 9 6 1 4
4 2 3 (1 0 . 2 ) (1 1 . 3 )
3 0 1 (9 . 7 )
(8 . 8 )
1 9 9 (6 . 7 )
(4 . 2 )
After market 1 2 %
Engine parts 3 1 % P V 4 5 %
Two wheeler 2 2 %
Drive transmission 1 9 %
Tractors 8 %
Suspension & Braking 1 2 %
Heavy CV 8 %
Body & chassis 1 2 %
LCV and SCV * 5 %
Eq uipment 1 0 %
Medium CV 5 %
Electrical parts 9 %
O thers 4 %
Sources: Automotive Component Manufacturers Association of India (ACMA), * SCV s (max imum mass): U pto 2 tonnes; LCV s (max imum mass): 2 to 7 . 5 tonnes
SIAM, AMP 201626, EY analysis
G R
C A
%
1 3
3 ,3 6 7 4 ,7 0 1
2 ,8 3 3
1 ,8 7 3 2 ,3 4 7 (7 0 ) (7 7 )
1 ,7 9 5 (6 2 )
(4 7 ) (5 0 )
(3 9 )
A MP 2 0 1 6 2 6 fo recasts v eh icle sales to gro w at a C A G R INR4 . 5 trillion-5 . 5 trillion. The growth of the automotive market
o f aro und 1 0 % o v er th e nex t decade will translate into huge potential for the auto component sector. It
According to the AMP 2 0 1 6 2 6 , vehicle sales are ex pected is ex pected to grow at a CAGR of 1 3 % from U S$ 3 8 billion in FY1 5
to touch 6 6 million units by FY2 6 . To achieve the projections, to more than U S$ 1 5 0 billion by 2 0 2 6 .
the auto industry will req uire additional investment of
Do m estic v eh icle sales o utlo o k 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
5 3 .4
(1 5 8 . 3 )
1 7 %
4 3 %
1 9 .5
2 ,3 4 0
(3 8 . 3 )
9 .4 8 3 5 1 7 % 4 2 %
(1 8 . 9 )
2 9 %
3 .2 1 5 %
2 .0 1 .5 1 6 % 5 3 %
0 .7 0 .6 6 9 %
2 W + 3 W P V CV (incl SCV and LCV ) Tractors FY0 6 FY1 5 FY2 6 F
US$/INR at 67.0 for forecasts; average historical rates used for historical data
FY1 5 -
2 6 (F) 1 0 % 1 0 % 1 0 % 9 %
CAGR
Digital payment options 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
U sage-based pricing model rather than peer-to-peer sharing.
(per minute/ kilometres)
2 2 nd and 3 rd car buyers in urban cities allows them to manufacturing driven prot
defer/ cancel investments in a new car model will be challenged.
Automakers would, therefore,
need to take notice of these
3 Traditional rental and tax i business models under pressure,
thus calling for reinventing value proposition
new-age mobility providers,
and prepare relevant offerings
for customers.
Fast-tracking
infrastructure
development
I ncub ating
R&D and
E nab ling
regulato ry
env iro nm ent
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 F ast- track ing
infrastructure
recent past. The Government has launched many new programs such as Make in India dev elo p m ent
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.
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.
FAME-India scheme
Digital I ndia
0 2 S afer transp o rt
S k ill I ndia
U pcoming Road Transport and Safety bill
m o tiv e F DI and R
t to auto &D
B o o s
I nf
Facilitate investment and ras
s technology inow tru
rm ct
ur
fo Build best-in-class
re manufacturing infrastructure e
P romote R& D investment and
de
aw
rl
ve
Create new Boost domestic CV
lo p
b o
m e
opportunities demand for vehicles
nt
Focus on building Drive vehicle ex ports
technical skills
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 O th er initiativ es: The Government has also launched several
other initiatives such as Smart Cities, Skill India, Digital
b usiness in I ndia India, etc. , that will support India s development as a world-class
The Government has taken a series of actions to support Make in manufacturing hub.
India, including those outlined below.
1 2 3 4
N ew trade p o licy N ew lab o r law s i pli ion o re l or prove en o reso r e
Ex port and import tax es on small These include a single-window o pli n e n e en pro r
volumes of goods have been labor compliance process for To make doing businesses easier, The Government is taking steps to
abolished, and incentives have been companies, simpler P rovident Fund companies can obtain environmental ensure that resources are used
introduced for ex port-oriented units (compulsory employee insurance approvals and licenses online. more efciently such as opening
and ex port processing zones. and pension) procedures and a new coal blocks to companies through
inspection scheme. auctions while encouraging solar
and wind power generation projects.
Sources: EY analysis
3 y ears
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 Duration of income tax rebate for startups
the growth of startups. under the StartU p India program
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
I N R1 0 0 b illio n
cab aggregation and, ride sharing), vehicle and component retail, Fund size committed by the Government
connected car, etc. to support upcoming startup enterprises
I m p licatio ns o f G S T fo r th e auto secto r 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 specically the distribution networ his single reform
will impact vehicle pricing, sourcing strategies, distribution costs
and dealer protability
1 3
ignicant reduction emoval of the cascading
in tax costs for the effect of taxes especially
mid size and luxury for automotive distributors
R ed u c tion in segments li ely Greater
l og istic s c ost transp arenc y
A dv ancem ent o f B S V I no rm s: The C o m p liance w ith internatio nal safety Regulatio ns fo r new m o b ility
government recently decided to skip standards: The Government has initiativ es: The Indian market has
the BS V norms altogether, and adopt announced O ct 2 0 1 7 as the deadline recently witnessed a slew of advanced
the BS V I norms from April 2 0 2 0 . for automakers to ensure mobility offerings and new mobility
Automakers and the oil companies will international standards in terms of initiatives such as technology-based
need to ma e signicant investments vehicle safety. Mandatory crash tests cab aggregation and ride sharing. A
to meet these deadlines. W e ex pect a will be implemented from O ctober regulatory environment conducive to
continued thrust toward cleaner fuels 2 0 1 7 for new models (O ct 2 0 1 9 for promote innovation for these new
in the policy formation and some ex isting models). To conduct the mobility initiatives is needed. The road
possible announcements in the 2 0 1 6 tests, India is likely to have seven transport ministry has issued some
U nion budget. world-class automotive design and guidelines, which could be the starting
testing centers (being set up by point for states to establish
F A ME - I ndia* sch em e: The scheme,
NATRiP * * ) by the end of 2 0 1 6 . regulations.
launched in April 2 0 1 5 , provides
incentives for the purchase of green N ew ro ad transp o rt and safety b ill:
vehicles. W hile the scheme has pushed The bill seeks to drive faster
electric vehicle (EV ) sales, efforts need clearances, stricter road and vehicle
to be undertaken in areas such as safety norms and dene the recall
setting up of charging infrastructure, policy. It focuses on transparency and
launching compelling EV models, and computerization, heavy penalties for
reducing battery costs. trafc violations and incorporates
global best practices for issues
E nd o f life p o licy : The Government is
related to vehicle regulation and
likely to introduce a policy promoting
road safety.
scrappage of old vehicles. This is a
welcome move and is likely
to reduce pollution and drive new
vehicle sales.
I m p licatio ns:
he recent government policies reect There is an urgent need for the In the medium to long term,
the beginning of a gradual shift in the industry to make investments and automotive companies will need to
Government s focus on cleaner offer safety features (across all vehicle assess the competition from mobility
transport. The industry should brace segments) to ensure that vehicles aggregators and come up with
itself for more policy interventions in meet global standards something mobility-service-oriented strategies
this aspect. The market is likely to shift that has been lacking so far. and offerings vs. product offerings to
in favor of petrol cars, and the industry remain competitive and relevant
needs to prepare accordingly, while also
bringing in exibility in production
capacity. In addition, automakers need
to work towards improving fuel
efciency of their products and ma e
investments towards developing cleaner
vehicles (hybrid and electric vehicles).
* 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
+ 1 3 5 % + 2 2 1 %
3 1 .1
2 5
4 %
1 8 .7 + 3 Jump in FDI capital FDI capital increase
in manufacturing
2 0 1 2 2 0 1 3 2 0 1 4
U S $ 9 1 m
Highest-ever FDI capital per project
I ncub ating
R&D and
E nab ling
regulato ry
env iro nm ent
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 F ast- track ing
infrastructure
1 5 million direct jobs by 2 0 2 2 . dev elo p m ent
S u b - S ec tor 2 0 1 3 2 0 1 7 F 2 0 2 2 F
O EM 1 .9 2 .0 2 .2
Service centers 2 .8 3 .1 3 .4
Dealerships 1 .5 1 .7 2 .0
B reak - up o f w o rk fo rce in th e auto m o tiv e secto r Tier-2 / 3 manufacturers, service centers and dealers have
The majority of O EM and auto component segments much larger workforce req uirements and they also face a
employees are engaged in manufacturing. multitude of challenges, such as attracting talent, developing
skills and managing industrial relations
The workforce in tier-I auto components is similar to auto
s in terms of educational ualications and s ill levels L ab o ur co sts in I ndia draw fo reign inv esto rs to th e co untry
W hile attrition is a concern at lower-tier auto component India s most lucrative feature for foreign investors is the
manufacturers and contractors, the attrition in auto O EMs and abundance of labor. In addition, labor costs in the country remain
large auto component manufacturers is very less. far below those of advanced and other developing economies.
India is the most competitive in terms of both average monthly
According to the EY-SIAM HR study, attracting talent from
wages and minimum monthly wages, compared with its Asian
the available pool is not a signicant challenge for s and
tier-1 suppliers. However, ready employability of the workforce peers. This gives it an advantage in low-value-added, labor-
req uires additional efforts from them. intensive manufacturing.
4 6 .4
3 8 .3
3 5 .4 3 5 .4
2 1 .9
1 7 .7
1 2 .0
9 .2 2 .8
0 .9
1
demand for skilled labor in the coming years, as the economic
environment improves and investments are made as part of the W hat percentage of the available resource pool is
industry-ready? Does it have the req uisite skill-set
Make in India initiative.
to help organizations deliver?
2
W ith reduction in product life cycles and the evolution of
automotive technology, we ex pect an increase in product
Are there any new skills that have emerged as
development, manufacturing and supply chain complex ity for critical for the industry?
both O EMs and suppliers. The industry, is therefore, faced with
certain key considerations for skill development.
re government and industry initiatives sufcient
to bridge the skill gap?
3
C ritical sk ill gap s in th e industry However, the industry is faced with certain key challenges with
India s abundant talent reserves appear sufcient to meet the respect to skill development. According to the EY SIAM HR study,
overall manpower req uirements of the automotive industry. the industry faces a gap in the following areas:
A ddressing th e gap
B uilding talent 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
p ip eline changes. Industry participants need to work together to address this gap.
Dev elo p ing he lac of commonly accepted standards to dene competency levels and correlating to
co m p etency - an ideal wage has increased complexity of hiring planning and developing employees
w age grid according to req uired capabilities.
S k ill I ndia
p ro gram
Create opportunities to develop talent of Indian youth Training for traditional occupations (eg. carpenters); E arlier
Aims at providing training and skill development to emphasis on new areas (eg. transportation)
Emphasis on traditional jobs
5 0 0 m youth by 2 0 2 0 . Hallmark Rural India Skill , to standardise and
Responsibility divided among various ministries
certify training process
Tailor-made, need-based programs would be initiated N o w
(eg. management skills)
Eq ual emphasis on all jobs
Course methodology will be innovative games,
Responsibilities clubbed under ministry of skill
group discussions, etc.
development and entrepreneurship
I ndustry p articip ants co llab o rate w ith academ ia, and the skill gaps, industry participants are also taking measures to
inv est in training to address sk ill gap s help build a stronger talent pipeline. According to the EY-SIAM
lthough the supply of engineering students is sufciently HR study, O EMs are increasingly viewing investments in skill
high to meet the combined req uirement of auto O EMs and auto development as core to the business and integrating them as
component manufacturers, they are not adeq uately trained part of their people agenda.
to be industry t arallel to government initiatives to address
al l eng e
ey c h s
K
1 2 3
O utdated L ack o f L ab o r
lab o r fo cus in th e relatio ns
law s eco sy stem
Labour laws have remained unchanged Tier 2 / 3 suppliers and dealers Absence of regular personal
over the years: Cumbersome and especially lack enhanced focus on their connect with the workforce
lengthy laws for setting up and scaling IR philosophies and build maturity in and unions
down operations, slow and bureaucratic their IR practices Difculty in managing
approaches for dispute resolution increasing wage and career
O rganizations are resorting to contract aspirations of workforce
labor and this is skewing the workforce
composition towards temporary
employees
Regular and improved communication between teps towards simplication and consolidation of
management and employees labor laws
Investment in skill building of workforce and providing Reforms related to upscaling/ downscaling of
career opportunities workforce numbers
More inclusiveness in interactions with employees New inspection scheme
Active Engagement with unions E enablement for all returns and availability of
information
Focus on maturity of IR practices internally as well as
for partners in the ecosystem
I ncub ating
R&D and
E nab ling
regulato ry
env iro nm ent
India has the world s second-largest road network (4 . 7 million km), with highways
F ast- track ing
constituting only 1 . 7 % of this network. The railway network is spread across 6 4 ,6 0 0 km infrastructure
and is also among the world s largest. India is the 1 6 th largest maritime country in the dev elo p m ent
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 %
8 %
1 % 1 %
1 4 %
1 %
8 1 / 1 4 0
3 1 % 4 6 % 4 3 %
India s rank on infrastructure
4 8 %
competitiveness by the
2 3 % W orld Economic Forum
4 6 %
6 0 %
3 7 %
in 2 0 1 5
3 0 %
1 0 %
India
Air W ater
China
Rail Road
U S Europe
1 8 k m
Decades of underinvestment in infrastructure development have resulted in major Average length of highway
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
added every day during
in developing railroad, port network and hinterland connectivity is imperative for the 2 0 1 5 , compared with 8 km
growth of the manufacturing sector in India.
during 2 0 1 4 ; Government
G o v ernm ent initiativ es fo r infrastructure dev elo p m ent target to add 3 0 km per day
The Government is making concerted efforts to develop the transportation by 2 0 1 6
infrastructure. Some of the key initiatives include:
1 5 9 9 highway projects
covering around 1 2 ,9 0 3 km
2 P rojects worth
U S$ 1 . 5 9 billion have
I nv estm ent p lans of national highways have I nv estm ent p lans been sanctioned
o f U S $ 1 5 0 b illio n been sanctioned o f U S $ 1 4 0 b illio n 1 0 0 % FDI approved in railway
in h igh w ay s and Development of 6 6 ,1 1 7 km to m o derniz ing infrastructure
sh ip p ing b y 2 0 1 9 of roads under different railw ay ine corridors identied for
programs such as National developing high-speed rail
Highways Development network
P roject (NHDP ), Special
Accelerated Road
Development P rogramme in
North East (SARDP -NE) and
Left W ing Ex tremism (LW E)
3 U S$ 1 0 . 5 billion investment
I nv estm ent p lans in 1 2 major ports in the
Target of laying out new next ve years under
o f U S $ 2 7 . 1 b illio n
roads in India increased to Sagarmala initiative
fo r p o rts and
1 5 0 ,0 0 0 km/ year from 2 0 1 6
sh ip p ing under Convert 1 0 1 rivers across
as against the ex isting
1 2 th F iv e Y ear India into waterways to
9 6 ,0 0 0 km/ year
P lan promote water transport
Germany 8 .8 %
Singapore 8 .5 %
Japan 8 .5 %
U SA 8 .5 %
India 1 3 %
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 inefciencies
* 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
1 2 3 4
I ncreased o p eratio nal L arge centraliz ed E v o lutio n o f h ub E m ergence o f
e ien n re e w areh o uses and sp o k e m o dels o rganiz ed p lay ers
distrib utio n co sts
Reduced compliance Minimized tax ation will lead to The supply chain network will The logistics industry is highly
req uirements at toll checkpoints logistics companies be redesigned with the fragmented, with organized
will minimize transportation consolidating their warehousing objective of ensuring prox imity LSP s constituting less than 5 %
hassles and optimize delivery network by creating large, to manufacturing locations and of the total market. P ost
times. This is likely to reduce centralized warehouses, instead consumption centers, leading to rationalization of tax es, the
distribution costs by roughly of the ex isting multiple small the emergence of hub and share of organized LSP s is
1 0 % 1 5 % . warehouses across states. spoke models. ex pected to increase.
Dem and
stim ulatio n
Sources: EY analysis
I ncub ating
R&D and
E nab ling
regulato ry
env iro nm ent
6 9 % 2 0 1 5 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 Forums Global Competitiveness Report 201516, EYs 2015 India attractiveness survey and EY analysis
National Institution for National Innovation Council Science, Technology and Innovation
Transforming India (NITI) A think-tank council to discuss, (STI) P olicy Focus on increasing R& D
To increase involvement of analyze and help implement spend, sharing risk with the private
entrepreneurs, researchers to strategies and road map for sector providing new nancing
foster scientic innovations innovation mechanisms
A ddressing th e gap
Tax incentives for in-house R& D on chemicals, drugs, automotive, pharmaceuticals, electronics,
Regulato ry computers, telecom, aircrafts and helicopters; investments are eligible for a tax deduction of 1 . 5 X
incentiv es 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 E ntrep reneurial
Government s efforts to provide impetus to the start-up sector in urban and rural India. It will work and inno v atio n
with banks to make funding easier for startups and small ventures. initiativ es
P artnersh ip s The Science and Engineering Research Board is implementing the P rime Minister s Doctoral Fellow-
w ith o th er ship Scheme with a view to develop human capacity for industrially relevant R& D.
co untries, India has partnered with the U K for bilateral research and innovation via the Newton-Bhabha Fund
academ ia contribution of m each over the next ve years
1 2
p referred destinatio n fo r m anufacturing R&D:
Increasing use of automation technologies such
W ill the industry have W hat is the preparedness
as robotics for the assembly line, infusion of
the right skills available with respect to R& D and hi-tech materials and nanotechnology,
to effectively attract innovation capability at developing lighter but stronger and safer parts
and utilize R& D O EMs, suppliers and
investment across sales & service network Fast adoption of new technologies in electronics,
value chain levels? partners? 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, EYs India Attractiveness Survey 2015
G lo b al p lay ers inv esting in Do m estic p lay ers inv esting G o v ernm ent sup p o rt to driv e
R&D to tap I ndia s in R&D to co m p ete at a R&D inv estm ents
engineering b ase and co st glo b al lev el K ey initiativ es:
adv antage ene s i for testing
ene s trategic build up of local certication homologation
Inux of global D talent D eco system ax benets on D
igher indigenization and D approach moving expenditure
localization closer to global standards ech ac uisition fund
undamental research and lobal D partnerships India partnership
ground up platforms
I ncub ating
R&D and
E nab ling
regulato ry
env iro nm ent
The automotive supply chain, comprising more than 7 0 0 suppliers (organized sector),
F ast- track ing
serves as the backbone of the industry and supports the operations of around 3 5 infrastructure
global and Indian O EMs. dev elo p m ent
S tro ng lo ng- term gro w th w h ile I ndian sup p liers acq uiring scale
dem and v o latility co ntinues 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, Indian suppliers are ex panding their
but is estimated to witness double-digit customer base and attaining scale through
growth in the long term, necessitating global ac uisitions as domestic demand
continuous capacity expansion remained wea during
H igh gro w th in co m p o nent ex p o rts and S up p liers to b ear h igh er R&D o w nersh ip
stro ng rep lacem ent dem and and ex p ense
Sharper growth in ex ports on the back of cost Stricter regulations and higher R& D ownership
benets and improved uality of components he necessitate product and process innovation and
aftermarket would witness the release of pent-up a faster response to O EMs product launches
demand, due to delayed replacements over the last
two years
In addition to regular raids, suppliers/ Spurious parts have ~ 3 0 % share in the overall replacement
O EMs should join industry bodies to launch
L arge sh are market, due to which the industry faces annual turnover loss of
awareness drives and spread information on o f sp urio us around INR9 0 billion
spurious parts p arts ~ 2 0 % of total road accidents in India are attributed to the use of
spurious auto parts
Companies should focus on innovative/ Logistics cost in India is around 1 3 % of GDP compared with 8 % -9 %
analytics-driven cost management and
strive to make optimum use of ex isting
H igh lo gistics for developed countries; higher logistics costs are led by the
predominant use of road transport, and impact the competiveness
resources, while the Government works co sts and
of the auto supply chain
toward building the necessary e ien
Infrastructure bottlenec s including decient roads and ports
infrastructure infrastructure transport, and inadeq uate power distribution, increase operational
costs and impact overall supply chain operations
O EM-supplier collaboration in demand forecasting, Improved supply chain visibility and efcient
product development and greater transparency IT-driven processes would be vital in managing
across the supply chain would reduce time to the complex supply chain
market, increase responsiveness, optimize inventory
levels and reduce the overall operational cost
E nh ancing
co m p etiv eness to
b uild a w o rld- class
sup p ly ch ain
Source: EY analysis
E nab ling regulato ry env iro nm ent P rovide a stable and consistent policy regime oo to build exible production capacity
Continued thrust on initiatives such as Make Continued focus on investments aimed at
in India, Skill India, etc . reducing vehicle emissions and introducing
safety technologies
Greater clarity on regulations around new
mobility service providers Ex plore opportunities for a play in the rapidly
evolving mobility eco-system
Dev elo p ing talent and sk ills P artner with the industry to facilitate W ork with academic institutions to develop
vocational training for students and laying technical skills in line with the industry
out clear standards on competency levels req uirements
nderta e steps towards simplication and O EMs to work with suppliers and dealers
consolidation of labor laws in the eco-system on training and skilling
agenda
rovide exibility of operations through
reforms related to upscaling/ downscaling of Focus on maturity of IR practices internally
workforce numbers as well as for partners in the ecosystem
F ast- track ing infrastructure Adopt global best practices for improving
Continue to encourage private
dev elo p m ent transportation and logistics efciency
participation to develop specialized
infrastructure across ports, railway O utsource logistics function and collaborate
terminals, etc. with the specialized logistics service
providers
Fast track GST implementation to improve
logistics efciency
Sources: EY analysis
2 6 % 2 6 % ~ 3 0 %
Share of Northern region in Share of Northern region in total Share of Northern India in total
national GDP installed power capacity passenger vehicle demand
3 2 % 5 9 % ~ 5 0 %
Share of Northern region in total Share in proposed W estern and Share of Haryana in total passenger
population of India Eastern Dedicated Freight Corridors car and 2 W production
H o m e to o ne o f th e largest auto cluster in I ndia prox imity to policy makers in the government and industry bodies
The Northern region is home to the second largest automotive such as I and he region also houses corporate ofces
cluster in India in terms of revenues (accounting for more than or sales headq uarters of various major entities in the passenger
of the total mar et he region also benets from its close vehicle and two-wheeler segments.
Sources: EY analysis
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