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 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
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

Two-wheeler (2 W ) manufacturer
W orld s 5 th largest

W orld s 6 th largest Heavy truck manufacturer

W orld s 7 th largest P assenger vehicle (P V ) manufacturer

C urrent rank ing ( F Y 1 5 ) 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)
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

W orld Brazil Russia India China Japan North W estern Eastern

America Europe Europe
2 0 1 5 2 0 2 0

Sources: Automotive Mission Plan 201626 (AMP 201626), 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
The Indian auto industry has witnessed on-going interest with development. The P V industry has witnessed a revival in new
several global players entering the industry post liberalization investments after three years of weak investment climate with the
through technical tie-ups and minority investments. The industry anticipation of a recovery in demand.
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)

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 )

P assenger v eh icles Tw o w h eelers C o m m ercial v eh icles*

Maruti Suzuki 4 5 % ero 4 0 % Tata Motors 4 7 %

Hyundai 1 6 % Honda 2 7 % Mahindra 2 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 %

Ford 3 % oyal neld 2 % Isuzu 2 %

GM 2 % Mahindra 1 % P iaggio 1 %

* Daimler India Commercial V ehicles data not available

Sources: Society of Indian Automobile Manufacturers (SIAM), AMP 201626, EY analysis

6 | Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b

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

9 .1 %
P V sales witnessed a slow down over the last couple of
CAGR years due to economic uncertainty and high interest
rates.

3 .1 3 .2 3 .2 During FY1 6 , the market has begun to show moderate

3 .0 3 .1
growth due to improving sentiment, low fuel prices and
interest rates.
2 .4
1 .9
1 .7
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
FY0 9 FY1 0 FY1 1 FY1 2 FY1 3 FY1 4 FY1 5 1 HFY1 6 * preference and successful new launches.

Two-wheelers

CAGR 1 4 .0 % 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 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

A decline in motorcycle sales due to shrinking rural demand

has again weakened growth in the current
scal year
FY0 9 FY1 0 FY1 1 FY1 2 FY1 3 FY1 4 FY1 5 1 HFY1 6

Commercial vehicles

CAGR 8 .5 % CV sales declined during FY1 2 -1 5 due to the economic

slowdown and stalled infrastructure projects.

0 .9 0 .9 During FY1 6 , demand is reviving, driven by economic

0 .8 recovery, urbanization and infrastructure development.
0 .7 0 .7
0 .6
0 .4
0 .4
Medium and Heavy CV s are witnessing strong growth on the
back of pent-up demand and an anticipated increase in
infrastructure spending.
FY0 9 FY1 0 FY1 1 FY1 2 FY1 3 FY1 4 FY1 5 1 HFY1 6

* 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 E ntry o f glo b al O E Ms strength ening cap ab ilities o f
The Indian auto component industry comprises around 7 0 0 I ndian sup p liers
organized players and a few thousand unorganized players, with uto component manufacturers in India have beneted from
its size estimated at U S$ 3 8 . 3 billion in FY1 5 . After a challenging the entry of global O EMs through ex posure to global standards
FY1 4 , the industry has rebounded during FY1 5 , growing at 1 1 % and technology by forming tie-ups with foreign suppliers. As a
due to a recovery in domestic demand and ex ports. result, many global O EMs have also managed to achieve a fairly
high level of localization in India.

Turno v er trends in I N R b illio n ( U S $ b illio n) , F Y 1 0 1 5 E S h are o f m ark et segm ents ( F Y 1 5 E )

2 ,3 4 0
2 ,1 6 1 2 ,1 1 8 (3 8 . 3 )
2 ,0 4 6
1 ,8 8 3 (3 9 . 7 ) (3 5 . 1 )
(4 2 . 2 ) O EM 6 6 %
(4 1 . 3 )
1 ,3 8 6
(3 0 . 8 )

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 %

FY1 0 FY1 1 FY1 2 FY1 3 FY1 4 FY1 5 E

Total turnover 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 )

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 %

O thers 7 % Three wheelers 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

8 | 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 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 India s GDP , according to the Automotive Mission P lan 2 0 1 6 2 6
U S$ 3 0 0 billion in annual revenue by 2 0 2 6 , create around prepared jointly by the SIAM and the Government.
6 5 million additional jobs and contribute more than 1 2 % to

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)

2 0 ,1 0 0
(3 0 0 )

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 )

FY0 8 FY0 9 FY1 0 FY1 1 FY1 2 FY1 5 E FY2 6 F

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
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 .

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

FY1 5 FY2 6 F Domestic O EM sales Ex ports Aftermarket

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

Sources: ACMA, SIAM, AMP 201626, 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
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.
V alue p ro p o sitio n o ffered b y tech no lo gy - intensiv e, sh o rt-
term h ire co m p anies
Easier access to vehicles
th e traditio nal o w nersh ip m indset to w ard
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
eet through digital apps
Ride-sharing connects people traveling long distances (in the
same direction) and seeking a cost-effective, eco-friendly
mode of transit

Some automakers are testing car sharing models in niche

Real-time booking process pockets such as corporates, students and small businesses

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 xed costs of car
ownership among many consumers.

I m p act o n auto m o tiv e industry

1 Ex pected to affect two segments entry-level car and 2 W

The concept of access to
mobility is catching up
q uickly, and the traditional,

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.

4 ew category of eet buyers for the industry

Sources: report rban mobility redened analysis

1 0 | Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b

 Enhancing Enabling
supply chain regulatory
competitiveness environment

Incubating R&D Developing

and innovation 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
A stab le and sup p o rtiv e regulato ry env iro nm ent is
E nh ancing
sup p ly ch ain
co m p etitiv eness

I ncub ating
R&D and
E nab ling
regulato ry
env iro nm ent

Dev elo p ing

critical to driv e gro w th in th e I ndian auto m o tiv e industry

talent and
inno v atio n sk ills

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.

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 K ey auto m o tiv e regulatio ns to w atch o ut fo r

m anufacturing and ease o f do ing b usiness

Mak e in I ndia 0 1 C leaner transp o rt

Advancement of BS V I norms
S m art cities
Likely rollout of the End of life policy

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

S tartU p I ndia International safety standards from 2 0 1 7

L ik ely ro llo ut o f th e G S T 0 3 A dv anced m o b ility

Regulations for new mobility initiatives

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

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 I m p licatio ns o f Mak e in I ndia fo r th e auto secto r
transform India into a manufacturing and technology hub. It has utomotive has been identied as a top priority under this
garnered considerable attention from the industry and turned the program. The implications for the industry are as follows:
spotlight on the manufacturing sector.

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

protect intellectual property

ve
Create new Boost domestic CV

lo p
b o

employment sales, and drive rural

L a

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

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

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

reater exibility to L ow er tax b u rd en uto industry li ely to R ed u c tion in c ost

redesign supply chains and on vehic l es benet from the ease of of d oing b u siness
thus lower costs due to tax compliances and
elimination of embedded tax
costs on inter state
2 administration and
reduced litigation under
4
movement of goods and a a simplied regime
shift in the point of taxation
to the consumer
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

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
C leaner 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 signicant 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.
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.
he recent government policies reect
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 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
medium term, we ex pect heightened regulatory activity in order
to make transport cleaner and safer.
S afer transp o rt
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 .
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 dene the recall
policy. It focuses on transparency and
computerization, heavy penalties for
trafc violations and incorporates
global best practices for issues
related to vehicle regulation and
road safety.
I m p licatio ns:
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.
Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b | 1 5
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.
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
 ei p o overn en ini i ives is s r in o s o res l s i si ni n
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 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 urther with DI capital inows of b during the rst half
for two successive years, investment in India has bounced back of calendar year 2 0 1 5 , India has emerged as the number one FDI
with growth to b signicantly ahead of the destination in the world.
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.

F DI cap ital ( U S $ b ) H igh ligh ts 1 H 1 5

+ 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

S p lit o f F DI cap ital b y segm ent ( % )

3 % 3 % 3 %
1 4 % 1 5 %
2 3 % 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
4 6 %
3 7 %
4 6 % coincided with the launch of the Make in India
program to promote manufacturing in the country.
The program has also enhanced transparency by
3 8 % 3 7 % 3 7 % auctioning coal and power licenses, and has relax ed
constraints on FDI in key sectors. Meanwhile, several
2 0 1 2 2 0 1 3 2 0 1 4 states are moving ahead with labor law reforms.
Services Manufacturing Retail Strategic

S h are o f th e auto secto r in o v erall F DI in 2 0 1 4

W h at is th e nature o f th e b usiness activ ity y o u are p lanning
in india?
1 6 3 % (open-ended q uestion multiple responses)
y-o-y jump in auto
sector FDI during
1 2 % 2 0 1 4 to reach
U S$ 3 . 1 billion 6 2 % 4 2 % 2 1 %
S ales and
Manufacturing S erv ices m ark eting

Source: EYs 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).
Sources: EYs 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

2 Dev elo p ing talent
and sk ills
A n ab undant lab o r p o o l and lo w lab o r co sts are h elp ing
E nh ancing
sup p ly ch ain
co m p etitiv eness

I ncub ating
R&D and
E nab ling
regulato ry
env iro nm ent

Dev elo p ing

talent and
I ndia b eco m e an attractiv e m anufacturing destinatio n inno v atio n sk ills

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

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)

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

Auto component manufacturers 4 .8 6 .0 7 .3

Service centers 2 .8 3 .1 3 .4

Dealerships 1 .5 1 .7 2 .0

Overal l sec tor 1 0 .9 8 1 2 .8 1 1 4 .8 8

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 ualications 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 signicant 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, labor-
intensive 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
9 .2 2 .8
0 .9

Germany Canada U S Japan Singapore South Brazil Taiwan China India

K orea
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 K ey co nsideratio ns fo r sk ill dev elo p m ent

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:

O E Ms and auto co m p o nent

S erv ice centers Dealers
m anufacturers
Civil engineering and project U nderstanding of local geographical
management to build plants dynamics and customer req uirements
Concepts related to q uality and Customer need diagnostic skills
S taff/ m anagem ent manufacturing ex cellence such as P roduct knowledge
5 S, TQ M etc.
Customer handling and
P roduction operations such as Total communication skills
P roductive Maintenance

Fitters, machinists, welders, Regular maintenance Selling and communication skills

N o n- m anagem ent painters, etc. Automotive service
Advanced electrical, CNC Automotive and accident repair/ body
operations, automation skills repair/ paint repair, etc.
Soft skills, work discipline

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.

E stab lish ing a

centraliz ed he sector needs an industry recognized centralized certifying body laying out
clear standards and certifying s ill levels on dened competency levels
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

 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 competency levels for many trades in the industry. The
to help develop the skillset of the current and potential employee Government also launched the Skill India mission, which aims
base. O ne of the key government initiatives is the development to converge and monitor skill development schemes across the
of the ational ills ualication ramewor which lays country and provide subsidized loans to students for vocational
down the competency framework and standards with respect 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 Difference fro m p rev io us p o licies

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
inv est in training to address sk ill gap s
lthough the supply of engineering students is sufciently
high to meet the combined req uirement of auto O EMs and auto
component manufacturers, they are not adeq uately trained
to be industry t arallel to government initiatives to address
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 India has the advantage of a
programs
vast and young talent pool.
In order to build a strong
Collaborate with universities to
Invest in ex ternship programs
set-up training centers/ labs and workforce, the skill demand
and provide funding for various
university curriculums
offer joint certification and supply gap needs to be
bridged by investing in critical
I ndustry initiatives.
p articip ants tak e
m easures to
address sk ill gap s

Set up their own dedicated

P artner with government
training academies with
agencies to provide vocational
programs focusing on
training to students
technical and soft skills

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 signicant driver to develop in the auto sector does not stop with the O EMs, but is critically
India s manufacturing ex cellence. This necessitates a change dependent on the partners in the ecosystem.
in industrial relations within the automotive sector in line with
The changing times call for a mutual appreciation for ease of
the evolving scenario. EY s India Attractiveness Survey 2 0 1 5
doing business and maintaining the cost competitiveness of the
indicates that labor costs labor s ills and exibility of labor laws
organization while treating the larger workforce with fairness,
are critical parameters for driving investment in India. Due to the
trust and eq uity. However, the industry is faced with the following
intertwined nature of business, importance of industrial relations
challenges with respect to managing the industrial workforce.

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

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 G o v ernm ent

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

Sources: EY-SIAM report: Make in India Leveraging human capital

2 0 | 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
E nh ancing
sup p ly ch ain
co m p etitiv eness

I ncub ating
R&D and
E nab ling
regulato ry
env iro nm ent

Dev elo p ing

essential to dev elo p I ndia as a m anufacturing h ub

talent and
inno v atio n sk ills

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

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 %
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
I nv estm ent p lans of national highways have I nv estm ent p lans
o f U S $ 1 5 0 b illio n been sanctioned
in h igh w ay s and Development of 6 6 ,1 1 7 km
sh ip p ing b y 2 0 1 9 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)
I nv estm ent p lans
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 P rojects worth
U S$ 1 . 5 9 billion have
been sanctioned
o f U S $ 1 4 0 b illio n 1 0 0 % FDI approved in railway
to m o derniz ing infrastructure
railw ay ine corridors identied for
developing high-speed rail
network
3 U S$ 1 0 . 5 billion investment
in 1 2 major ports in the
next ve years under
o f U S $ 2 7 . 1 b illio n
Sagarmala initiative
fo r p o rts and
sh ip p ing under Convert 1 0 1 rivers across
1 2 th F iv e Y ear India into waterways to
P lan 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 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
India s rank on the Logistics
P erformance Index 2 0 1 4 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 efcient 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

Germany 8 .8 %
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

Inefcient 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 inefciencies

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

P otential GST roll out Collaborating with the government for

infrastructure development
A uto m o tiv e industry

Increasing government investment on

G o v ernm ent

infrastructure development Long-term partnership with specialized

third party logistics providers to invest in
Tax breaks and incentives to technology, assets, employee training, etc.
infrastructure investors
Focus on continuous skill development
P P P and privatization measures to through dedicated programs for logistics
develop infrastructure professionals, training drivers, etc.

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

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 on improving the regulatory environment. The anticipated
companies to integrated LSP s providing a complete package of GST rollout is a major initiative in this direction, which will help
services. Complementing this, the Government is also focusing optimize logistics costs and bring in efciencies

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 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
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.
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

fcient execution of infrastructure

0 1 0 3 ncourage s to establish their
pro ects and minimizing regulatory manufacturing base in India
bottlenec s will reduce supply chain India can potentially emerge as a ey
Reduced
and logistics costs for auto L o catio n exporting country in the auto sector
companies sup p ly
o f ch o ice
ch ain co sts 0 2

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
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
E nh ancing
sup p ly ch ain
co m p etitiv eness

I ncub ating
R&D and
E nab ling
regulato ry
env iro nm ent

Dev elo p ing

talent and
inno v atio n sk ills
he research and innovation ecosystem in India presents a signicant 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 F ast- track ing
infrastructure
companies develop nex t-generation innovative products and introduce them faster to the dev elo p m ent
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
I ndia R&D and
E Y s I ndia A ttractiv eness S urv ey 2 0 1 5 inno v atio n
S tro ngly p o sitio ned fo r 2 0 2 0 cap ab ility current
India is on course to becoming one of the world s three leading fast-growth economies and a preferred standing
destination for manufacturing, as well as a regional hub for operations including R& D/ innovation.

The W orld Economic

Forum s Global
Macroeconomic stability
Competitiveness Report
7 6 %
2 0 1 5 1 6 puts India at the
7 0 %
4 2 nd place among countries
A s p er E Y ' s I ndia worldwide in terms of
A ttractiv eness innovation capacity. India is
Stable political and social S urv ey , b usiness strong among the BRICs in
environment leaders fo und I ndia terms of the availability of
7 4 % si ni nl ore scientists and engineers, but
5 9 % attractiv e in 2 0 1 5 lags on other parameters
s o p re such as university-industry
to 2 0 1 4 R& D collaboration and
Research and development
patents granted per head.
7 2 %

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

2 4 | Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b

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 Decade of Innovation. The following institutions have been set
R& D sector in the country and has declared 2 0 1 0 to 2 0 2 0 as the up to drive R& D and innovation in India:

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

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 Streamlining the patents and IP R application and registration process
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 Incubating entrepreneurial mind-set through funding and policy support
o f p atents and I P

Favorable industrial relations scenario to facilitate improved productivity

and business continuity

Sources: National Portal of India, EYs 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.
The manufacturing R& D growth story in India has often centered
on cost efciencies due to labor arbitrage he stress has been on
driving process efciencies 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.

Technology needs attention

V aried R&D and W hat do you think are the main measures to improve India s technology and innovation
capacity?
inno v atio n
p ersp ectiv es fro m Manufacturing sector Non-manufacturing
m anufacturing and respondents sector respondents
no n- m anufacturing
secto rs 3 4 %
Facilitate R& D partnerships
between foreign and local 2 9 %
companies
Respondents related to
the manufacturing sector 3 1 % Increase incentives to invest in
3 7 %
suggest more partnerships R& D and innovative technologies

between foreign and local

companies to improve 2 9 % Increase government support 1 5 %
technology and innovation
capacity. O n the other 2 5 %
Focus on collaborations between
3 7 %
universities and industry
hand, non-manufacturing
respondents demand more
incentives for investment in 1 9 % Focus on P P P s in technology 2 1 %
new technologies.

K ey q uestio ns to b e answ ered: K ey enab lers to p ut I ndia o n th e glo b al m ap as a

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

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 Mark et indicato rs
inno v atio n initiativ es
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 efciency electric
8 % 3 0
vehicles, autonomous, on-demand mobility are driven by cross-sector R& D and Share of the Number
innovation. automotive of private
India is steadily gaining importance for both domestic and foreign multinational sector in sector
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
India s R& D automotive
and engineering of new vehicle models, and development. ex penditure R& D centers
in India

m o tiv e R&D driv

to er
A u s

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

Attracting domain ex perts Focus on achieving global

from mature markets to imbibe standards in emissions and
a strong process culture, safety while also
improve q uality, increase R& D manufacturing global
capabilities and facilitate q uality products in an
creation of domestic IP environment friendly way
K ey im p erativ es fo r
auto m o tiv e
stak eh o lders to Developing a network
of industry-
p o sitio n I ndia as a academia-government
glo b al R&D h ub bodies to build core
R& D skills and training
modules

Developing/ attracting high-end ontinuing the scal incentives

R& D talent, especially in on R& D ex penditure and
electronics, safety, materials, ex tending the scheme to
body engineering, interiors and outsourced R& D
powertrain development
Sources: AMP 201626, 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
E nh ancing
sup p ly ch ain
co m p etitiv eness

I ncub ating
R&D and
E nab ling
regulato ry
env iro nm ent

Dev elo p ing

th e ev o lutio n o f th e I ndian auto m o tiv e industry

talent and
inno v atio n sk ills

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

AMP 2 0 1 6 2 6 forecasts the Indian 8 0 % y-o-y growth in number of outbound

automotive industry to grow at a CAGR deals among automotive suppliers
of around 1 0 % in FY1 5

O E Ms p lan to co nso lidate direct S u p p l y c hain I ncreasing v eh icle p ro liferatio n

v endo rs trend s resulting in a co m p lex sup p ly ch ain

Suppliers to own development, Car models are ex pected to increase with

manufacturing and assembly of critical the introduction of new models/ vehicle
components and become module providers segments
as O EMs plan to consolidate vendors > 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
Sharper growth in ex ports on the back of cost
benets and improved uality of components he
aftermarket would witness the release of pent-up
demand, due to delayed replacements over the last
two years
S up p liers to b ear h igh er R&D o w nersh ip
and ex p ense
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 < 1 % R& D/ sales spend of most Indian suppliers,
in replacement demand over FY1 5 1 6 compared with the global average of ~ 3 %

Sources: ACMA, LMC Automotive, SIAM, AMP 201626 and EY analysis

2 8 | Mak ing I nd ia a w orl d c l ass au tomotive manu f ac tu ring hu b

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
L arge sh are
awareness drives and spread information on o f sp urio us
spurious parts 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
H igh lo gistics
resources, while the Government works co sts and
toward building the necessary e ien
infrastructure infrastructure
U pcoming regulatory policies around emissions, safety and
would signicantly impact supply chain operations
and the development of new products/ processes
Sources: ACMA, Armstrong & Associates and EY analysis
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
O EMs, suppliers, academic institutes
S h o rtage o f
and industry bodies should collaborate
sup p ly ch ain and facilitate supply chain specic
p ro fessio nals 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 decient roads and ports
transport, and inadeq uate power distribution, increase operational
costs and impact overall supply chain operations
E v o lv ing Suppliers and O EMs should ex plore close
regulato ry collaboration across products/ process
p o licies development
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 n e ien s ppl in o l provi e o pe i ive v n e n pl pivo l role in e s s in ble ro o

th e secto r

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

I ncrease co llab o ratio n acro ss th e

auto m o tiv e v alue ch ain
1 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

Dev elo p a glo b ally integrated

Develop responsive/exible
4 3
netw o rk and co m p etent sup p ly
p ro ductio n sy stem s
ch ain fo r an ex p o rt- led gro w th

Demand volatility necessitates exible produc- Suppliers need to develop a globally

tion systems. Further, suppliers need to actively integrated supply chain to manage
manage contracts to cater to the cost pressures customized delivery schedules, varying
of any unutilized capacity which is a signicant regulatory compliances and combination
part of overall supply chain cost of completely built units (CBU s) and
completely knocked down units (CK Ds).

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

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 simplication and
consolidation of labor laws
rovide exibility of operations through
reforms related to upscaling/ downscaling of
workforce numbers
F ast- track ing infrastructure
Continue to encourage private
dev elo p m ent
participation to develop specialized
infrastructure across ports, railway
terminals, etc.
Fast track GST implementation to improve
logistics efciency
I ncub ating R&D ontinued scal incentives on D
and inno v atio n ex penditure and ex tending the scheme to
outsourced R& D
Bridging the gap between Indian and
global automotive standards for safety and
emissions
Enhancing supply chain P artner with the industry and academia
competitiveness to facilitate supply chain specic s ill
development programs
Introduce checks and measures along with
launching awareness drives to reduce the
usage of spurious parts
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
I nd u stry
oo to build exible 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 efciency
O utsource logistics function and collaborate
with the specialized logistics service
providers
Develop a network of industry-academia-
government to build core R& D skills and
training modules
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
Improve supply chain visibility through use of
technology
Invest in developing an integrated network and
competent supply chain to drive efciency in
operations
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 having a per capita GDP above India s average. The region is an
North India is a large market with the youngest population in the attractive investment destination that accounts for around 2 8 % of
country with several states including Delhi, P unjab and Haryana total DI inows to the country

A large v eh icle sales and

H uge m ark et siz e A ttractiv e inv estm ent destinatio n p ro ductio n h ub

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.

Manufacturing R&D and Testing

facilities
Ludhiana OEM
Delhi-Gurgaon- Rohtak
Faridabad Manesar
Manesar Government
Haridwar International Center for
Automotive Technology
Lucknow
(iCAT), Manesar

Major OEMs' HQ in North

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

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

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 prot 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 efciency competitiveness and business opportunities for industry through a
range of specialized services and strategic global linkages. It also provides a platform for consensus-
building 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 afrmative
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 ofces including entres of xcellence in India and overseas ofces 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:
facebook. com/ followcii twitter. com/ followcii www. mycii. in

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

EY contacts
R ak esh B atra R and al l J Mil l er
India Automotive and Transportation Leader Global Automotive & Transportation Leader
+ 9 1 1 2 4 6 7 1 4 5 3 2 + 1 3 1 3 6 2 8 8 6 4 2
rakesh. batra@ in. ey. com randall. miller@ ey. com

A nil V al san R eg an Grant

Global Automotive & Transportation Lead Analyst Global Automotive & Transportation Marketing Leader
+ 4 4 2 0 7 9 5 1 6 8 7 9 + 1 3 1 3 6 2 8 8 9 7 4
avalsan@ uk. ey. com regan. grant@ ey. com

Gau rav B atra A nu j C hand na

Associate Director, EY K nowledge Analyst, EY K nowledge
+ 9 1 1 2 4 4 7 0 1 2 4 5 + 9 1 1 2 4 4 7 0 1 2 8 2
gaurav. batra3 @ in. ey. com anuj. chandna@ in. ey. com

E Y | Assurance | Tax | Transactions | Advisory

A b o ut E Y
EY is a global leader in assurance, tax , transaction and advisory
services. The insights and q uality services we deliver help build trust and
confidence in the capital markets and in economies the world over. W e
develop outstanding leaders who team to deliver on our promises to all
of our stakeholders. In so doing, we play a critical role in building a better
working world for our people, for our clients and for our communities.
In line with EY s commitment to minimize its impact on the environment, this document
has been printed on paper with a high recycled content.
This material has been prepared for general informational purposes only and is not intended to
be relied upon as accounting, tax , or other professional advice. P lease refer to your advisors for
specific advice.
ey . co m / auto m o tiv e

EY refers to the global organization, and may refer to one or more, of

the member firms of Ernst & Young Global Limited, each of which is a
separate legal entity. Ernst & Young Global Limited, a U K company limited
by guarantee, does not provide services to clients. For more information
about our organization, please visit ey. com.

2 0 1 6 EYGM Limited.
All Rights Reserved.

EYG no. EYIN1 6 0 2 -0 0 6

BMC Agency
GA 0 0 0 0 _ 0 4 8 2 5

ED None