Localization presents ‘medium to long-term’ clear benefits to Indian Automotive Industry, says GlobalData

Following the news that Indian Government officials met with the auto companies to discuss localization initiatives;

Animesh Kumar, Director of Automotive Consulting at GlobalData, a leading research and consulting company, offers his view:

“There is a need for all the stakeholders in the Indian automotive industry to work closely and increase the push towards localization. The economy, automotive industry as well as customers would benefit from higher localization as it would help in decreasing the imports and would strengthen the supply chain. The unpredictability related to the external factors as well as currency fluctuations would decrease. It would help in the growth of local industry and would generate employment as well. Additionally, the logistics costs will also come down.

“From a purely cost point of view, Chinese imports would continue to make better sense – at least in the short to medium-term – due to the political situation, abundance of manpower, lower wages, labor laws, lower tax rates in China. Indian government must ensure that the companies that make concentrated efforts towards higher localization get adequately benefitted in the medium to long-term through tax/duty rebates. If OEMs pass some of the benefits to the customers, the prices of vehicles would also decrease.

“OEMs must work towards reducing their dependence on Chinese suppliers for key parts like drive transmissions, electrical and electronics, brakes, engine components steering systems and EV components. The Indian automotive industry should develop capabilities and competitiveness of domestic suppliers, especially for supplying such components. Apart from reducing the risks in supply chain, it would also positively impact the auto component market, including aftermarket, in India. Apart from OEMs, component suppliers must also reduce dependence on imported parts and materials.

“There is a possible branding opportunity as well. By reducing the extent of imported components in a vehicle – especially the components imported from China – vehicle manufacturers can promote the Indian government’s push towards ‘Atmanirbhar Bharat (i.e., self-reliant India). Such initiatives can be included in the messaging and may help in scoring some additional points in a customer’s overall purchase decision-making process. This of course cannot be a primary driver for increasing localization but could be an add-on benefit.

“Significant changes in current localization levels cannot be brought in immediately as it would require substantial investments, skill development, design and development, regulatory testing clearance and so on. However, localization presents clear benefits in the medium to long-term and it is a path worth taking.”

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