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AUTO COMPONENTSOctober 2007
Contents
Prole o Indian auto component industry
Growth potential o Indian auto
component industry
India as a manuacturing hub
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www.ibe.org
PROFILE OF INDIAN AUTO
COMPONENTS INDUSTRY
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Indian automobile industry crossed
a historic landmark 10 million vehicles in 2006-07
Indian auto industry sales grew to 11.12 billion
units in 2006-07, exhibiting an impressive CAGR
o 15.5% during the past 5 years
Two wheelers have the maximum share in the
industry by volume, ollowed by passengervehicles, three wheelers and commercial vehicles
Maximum growth has been witnessed in the
commercial vehicles segment, ollowed by
three-wheelers
Automotive sales(domestic and exports) Million units
Source: SIAM, IMaCS analysis
2007
2006
2005
2004
2003
2002
11.12
9.71
8.53
7.29
6.25
5.41
15.5%CAGR
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Indian automobile industry crossed
a historic landmark 10 million vehicles in 2006-07
Segment Share in total CAGR
Two wheelers 76.2% 14.5%
Passenger vehicles 14.2% 16.7%
Three wheelers 4.9% 20.5%
Commercial vehicles 4.7% 26.7%
Indias position in world production
2nd in two wheelers
11th in passenger cars13th in commercial vehicles
Source: SIAM, IMaCS analysis
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The OEM as well as the component industry is highly competitive
Tata Motors
Mahinhra & Mahindra
Bajaj Auto
TVS Motors
Hero Honda
Bajaj Tempo
Ashok Leyland
Bharat Forge
Sundram Fasteners
Rane Group
Shriram Pistons
RICO Auto
Sono Koyo Steering
Global OEM Indian OEM
GlobalSuppliers
IndianSuppliers
GM
Toyota
Ford
Hyundai
Maruti Suzuki
Honda
Skoda Volvo
Mercedes
Delphi
Visteon
Bosch
Denso
Valeo
Thyssen Krupp
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The OEM as well as the component industry is highly competitive
The Indian auto industry is highly competitive
with a number o global and Indian auto
companies present
The supplier industry is equally competitive
with a mix o global and Indian players
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Indian auto industry has evolved around 3 major clusters
North / Central
Ashok Leyland Eicher
Hero Honda Honda
Honda SIEL Maruti Suzuki
Delphi Denso India
JBM Lumax
Minda Shriram Pistons
Sona Koyo Phoenix
Asahi India Johnson Matthey
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Indian auto industry has evolved around 3 major clusters
West
Ashok Leyland Bajaj Auto
Daimler Chrysler FIAT
GM M & M
Skoda Tata Motors
Bharat Forge Bright Brothers
DGP Hinoday Endurance Systems
Kirloskar Brothers Kalyani Brakes
SKF Bearings Tata Johnson
Supreme Ind NRB
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Indian auto industry has evolved around 3 major clusters
East
Hindustan Motors Tata Motors
Simpson &Co JMT
International Auto Forgings Ramkrishna
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Indian auto industry has evolved around 3 major clusters
South
Ashok Leyland Enfeld
Ford Hyundai
Toyota Kirloskar TVS Motors
Brakes India Delphi TVS
Fenner India Nippon
LUCAS-TVS MICO
Rane Brake Rane-TRW
Visteon UCAL
Sundaram astners TI Group
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Indian auto industry has evolved around 3 major clusters
Major automotive clusters - Mumbai - Pune -
Nasik - Aurangabad (West), Chennai - Bangalore
-Hosur (South) and Delhi-Gurgaon - Faridabad
(North)
The state o Uttaranchal is turning in to an
autohub, because o the industry riendly
government policy
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Exports o auto components have
also exhibited an impressive growth
The exports o auto components industry has
reached around US$ 2.9 billion in 2006-07,
having grown at a rate o 40% CAGR over the
last our years
The Indian auto component industry is wellpositioned to capitalise on the growth in
outsourcing to low cost countries
Indian auto component exportsUS$ billion
Source: ACMA, IMaCS Analysis
2003-04
2002-03
2.93
0.76
CAGR40%
2004-05
2005-06
2006-07
2.1
1.4
1.02
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More than 60% o exports are made to the developed
markets o Europe and USA
Over 60% o the exports are to developed
markets such as US and Europe, indicating the
capability o Indian manuacturers to meet
stringent quality and technical standards
A signicant characteristic o exports is theshit in the market in which the components
are sold - 75% o the supplies are today made
to OEM/Tier-I players as compared to only
35% in the 1990s
Indian auto component exports by destination (2006)
Source: ACMA, IMaCS Analysis
n Europe n US
n Asia n Arica
n Middle East n Others
36%
26%
16%
10%
10%2%
Exports by type o Client
Source: ACMA, IMaCS Analysis
1990
2006 25%75%
65%35%
n OEM/TiEr-1s n AfTErMArkET
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The Indian auto component Industry is highly ragmented
Around 500 organised players account or the
77% o the value added in the sector.
Unorganised players are mainly replacement
market players or tier 3/4 component manuacturers
Automotive Manuacturers Association o India
(ACMA) represents the auto component
industry in India and has around 500 registered
members
500Organised
Players
Unorganised Players: 6000
77%
23%
Industry Structure Value added by the players
Source: ACMA, IMaCS Analysis
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Demand rom the OE segment dominates
the Indian component industry
OE demand accounts or hal o the auto
component market in India.
Breakup o components industry by end market prole
Source: ACMA, IMaCS Analysis
n OE Componentsn Replacement Market
n Exports
50%
35%
15%
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Breakup o components industry by type o component
Source: ACMA, IMaCS Analysis
n Engine Parts n Drive transmission and Steering
n Body/ Chassis n Suspension and Brakingn Equipments n Electrical n Others
31%
19%12%
12%
10%
9%
7%
Demand rom the OE segment dominates
the Indian component industry
Engine parts accounts or a third o the auto
components made in India
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Two and Three wheelers along with car segment account or
a major portion o the component market in India
Two and Three wheelers, along with passenger
cars account or two-thirds o the components
manuactured
However, CV components have shown the astest
growth rate over the last 5 years. The growthrate o components o various vehicle categories
are as ollows:
2/3Wheelers: 14.95%
Cars : 15.4%
CVs : 26.1%
Vehicle Category Contribution
Source: ACMA, IMaCS Analysis
n 2 /3 Wheelers n Carsn CVs n Tractors
34%
33%
24%
9%
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Indian auto components companies are making
signicant strides on the quality ront
Driven by needs o export markets and the increasing
demands o Indian OEMs, quality awareness o Indian
companies has increased over the last decade
Quality awareness has increased across all levels
o management and is being viewed as a
must have instead o nice to have, which is
refected in the drastic reduction in the number
o problems o vehicles over the last decade
Nine Indian auto component manuacturers have
got the prestigious DEMING award
Certiication No: o Companies
Japan Quality Medal Winner 1
JIPM Awards 4
DEMING Prize 9 ( 7 since 2003)
OHSAS 18001 47
ISO 14001 154
QS 9000 81
TS 16949 342
ISO 9000 524
Problems per 100 vehicles
Source: JD Power Survey, IMaCS Analysis
2006
1997 572
208
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Indian auto component companies are spreading their
operations globally, mainly through acquisitions
Acquisitions made overseas are helping Indian
auto component companies get access to new
set o skills, technology and customers
Indian Company Acquired Country Acquisition value
Tata Technologies Incat International UK US$ 95 million
Bharat Forge Imatra Kilsta AB Sweden US$ 56 million
Amtek Auto GWK UK US$ 37 million
Amtek Auto Zelter Germany US$ 36 million
Bharat Forge Carl Dan Peddinghaus Germany US$ 35 million
EL Forge Shakespeare Forgings UK US$ 28 million
Ucal Fuel Systems Amtec Precision USA US$ 28 million
Bharat Forge Federal Forge USA US$ 9.1 million
Bharat Forge CDP Aluminiumtechnik Germany US$ 7.5 million
Sona Koyo Steering 21% o Fuji Autotech France US$ 6.15 million
Tata Auto CompSystems
Wundsch Weidinger Germany US$ 5 million
Sundaram Fasteners Cramlington Forge UK US$ 2.6 million
Source: Industry news
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The companies are capable o carrying
out product development activities at low cost
High level o existingcapabilities
Low cost highquality designs
Low cost oemployment and high
proportion o irsttime right designs
Experience in designs
with increasing levelso Indigenisation
Largest pool o English
Speaking Engineers
0.4 million Engineering graduates
every year India accounts or 26% o the world
ESO & BPO Talent
Analysis and Simulation
Engineering animations Modelling and drating Tooling design etc.
Entry level engineer costs as less asUS$ 8000/year
89-92% irst time right designsexperienced by certain companiesmuch above world average
High levels o indigenisation by oreignOEMs & increasing skill sets
World renowned IT Skills withexcellent Automotive domainknowledge
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Government o India Initiative to strengthen Automotive R&D Inrastructure-
National Automotive Testing and R&D Inrastructure Project (NATRIP)
NATRIP envisages an investment o US$ 380 million
in setting up the ollowing acilities NATRIP is expected
to strengthen the automotive R&D inrastructure in
India
Rae Bareilly Centre
Complete homologation services to Agri Tractors,
o road Vehicles, Gensets as per Indian or Global
standards & Driver Training centre
Center o Excellence For Accident Data Analysis
Commissioning Schedule Phase-I: July 2010,
Phase-II: Aug 2010
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Government o India Initiative to strengthen Automotive R&D Inrastructure-
National Automotive Testing and R&D Inrastructure Project (NATRIP)
Manesar - iCAT
Complete homologation services to all vehicle
categories as per Indian or Global Standards
Center o Excellence For Component
Development, NVH Commissioning Schedule Phase-I: 2008,
Phase-II: 2010
Silchar Centre
Hill area Driver Training Centre and Inspection
& maintainence Facilities
Center o Excellence For Driver Training
Commissioning Schedule Phase-I: 2008,
Phase-II: 2010
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Government o India Initiative to strengthen Automotive R&D Inrastructure-
National Automotive Testing and R&D Inrastructure Project (NATRIP)
Ahmednagar - VRDE Up-Gradation
Research, Design, Development and Testing
o Vehicles
Center o Excellence For Photometry, EMC,
EMI,Test Tracks Commissioning Schedule April 2008
Indore -Proving Grounds
Complete Testing Facilities to all vehicle
categories as per Indian or Global Standards
Center o Excellence For Vehicle Dynamics,
Tyre Development
Commissioning Schedule Phase-I: 2009,
Phase-II: 2010
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Government o India Initiative to strengthen Automotive R&D Inrastructure-
National Automotive Testing and R&D Inrastructure Project (NATRIP)
Pune - ARAI Up-Gradation
Complete homologation services to all vehicle
categories as per Indian or Global Standards
Center o Excellence For Power Train
Development, materials, atigue Commissioning Schedule Phase-I: 2008,
Phase-II: 2009
Chennai Centre
Complete homologation services to all vehicle
categories as per Indian or Global Standards
Center o Excellence For Inotronics,EMC,Passive Saety
Commissioning Schedule Phase-I: 2008,
Phase-II: 2011
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Indian Productivity is on a rise - Analysis o Return
On Capital Employed (ROCE)
ROCE% levels in India have shown an increase
in the past ew years, indicative o the
productivity increase
Average ROCE levels in India are estimated
to be in the range o 24-28%
MNC/Collaborations have achieved signicantly
higher ROCE levels in India
Component Manuacturer ROCE (%) in 2002 ROCE (%) in 2007
Sundram Clayton 17.73 29.06
Amtek India 14.11 17.96
Clutch Auto 14.17 20.64
Minda Industries 17.5 19.1
Setco Automotives 18.07 35.83
Wheels India 10.88 15.77
Sona Koyo 8.17 25.03
ZF Steering 25.94 38.96
Denso India 14.52 28.28
Exide Industries 13.69 30.45
Lumax Industries 6.56 22.57
Subros 10.9 19.73
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Capacity utilisation is also on an increase
The huge growth in demand has
improved the capacity utilisation o Indian
auto component manuacturers
Overall capacity utilization
n 2007 n2002
Source: IMaCS Analysis
Denso India
Subros
Delphi TVS
Minda Industries
Axles India
Wheels India
Lumax Industries
Exide Industries
Setco Automotives
MICO
0 20 40 60 80 100 120
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Company Increase in Capacity
Denso India 493%
Subros 233%
Delphi TVS 170%
Minda Industries 140%
Exide Industries 95%
Axles India 79%
Wheels India 40%
Lumax Industries 11%
Setco Automotives 0%
MICO 0%
Capacity utilisation is also on an increase
Most o the Indian manuacturers have utilisation
levels in excess o 80%, even ater taking into
account the recent capacity additions
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www.ibe.org
GROWTH POTENTIAL OF INDIAN
AUTO COMPONENT INDUSTRY
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Indian auto component industry is expected
to grow to US$ 33-40 billion by 2015
The Indian auto component industry is well
positioned to capitalise on the growth in
outsourcing to low cost countries
Exports would lead the growth in the component
industry, which is expected to be around
US$ 33- 40 billion by 2015, rom the current
size o roughly US$ 15 billion
Projected size o Auto componentIndustry 2015
Source: AMP, SIAM, ACMA, IMaCS Analysis
Exports
Domestic
US$ 20-25 bn
US$ 13-15 bn
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Several actors make India a avourite investment destination
Proven product developmental capabilities More than 125 Fortune 500 (including
large auto companies) have R&D centresin India
Companies can leverage Indiasacknowledged leadership in the IT industry
Proximity to Markets Proximity to other Asian economies
Proximity to the emerging markets likeArica
Shipments to Europe cheaper than thoserom Brazil and Thailand
Stable economic policies Continuity in economic
reorms and policies related to
investments
High quality standards 9 Indian component
manuacturers have won theDeming Award or quality
Most leading componentmanuacturers are QS and
ISO certiiedLarge and growing domestic
demand Demand growth o 14%
CAGR makes India one o
the astest growing markets
Competitive
manuacturing costs Skilled labour costs
amongst the lowest in India
Availability o Manpower
0.4 million Engineeringgraduates every year
7 million enterworkorce every year
Export Potential Total value o exports by
2015 expected to reach
US$ 810 billion orvehicles and US$ 2025billion or components
India as a
Auto Hub
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Indian auto component oers a balance between quality and cost
Quality Services
Indian IT Recognized worldwide
Quality Manpower
0.4 Million Engineering Graduates
Quality Suppliers
456 Nos ISO 9000 Certied Suppliers
Lower
Labour Cost
Lower
Design Cost
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Many global auto companies have made India a manuacturing base
- a robust supply base exists in India
Engines Stamping
Gear Boxes Engg ServicesPlastics Air BrakesMoulds ForgingCastings Lamps
Die MakingMachining
Indian Supply Base
Delphi Denso BoschLear Meritor AisinVisteon Jhonson Controls
TRW Valeo AmtekRico MindaBharat Forge TVS
Maruti Suzuki Hero Honda
Toyota Kirloskar Skoda India SwarajMazda Tatra VectraVolvo Ford IndiaForce Motors General Motors
Tata Motors Mahindra
Ashok Leyland HindustanMotors Atul AutoTVS Motors Bajaj Auto
Tier 1s/ 2s
Indian OEMSGlobal OEMS/ JVs
Global Exports
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OEMs have made India as a sourcing hub or their auto
components requirements
Manuact-
urer
Component Worth Comments
Volvo Machine and painted castings ,
orgings, gearbox and enginecomponents & Others
US$ 90
Million
India is the single sourcing
unit FM12 (8 X 4) modelsold in South Korea.
Fiat Engines, Gearboxes, Others US$ 4Million
To source components orthe Grande Punto as well
as Linea Models. To investUS$ 1,000 Million
FordMotors
Castings and orgings,crankshats, exhaustmaniold, lea springs, Horns,Dashboard, Door Trims
US$150Million
Expects the volume togrow to US$ 400 - US$700Million
Renault-Nissan
Has irmed up plans tosource components and
aggregates
US$ 125Million in
next 2 years
First phase to SourceLow end Tech or low end
models. High-end in secondphase
Daimler
Chrysler
Auto Components and IT
services
US$ 125
Million
Growing at 20% CAGR
Toyota R-type manual transmission Gear Boxes GlobalSupply, Propeller Shats etc
1,40,000Gearboxes
Expected to go up by 5- 10%
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Leading global auto components companies are also sourcing rom India
Manuact-
urer
Component Worth Comments
Delphi Catalytic Convertors,Steering Systems, Piston
Rods, Drive Shats etc
US$250 Million
(2007 Plan)
Planning urtherinvestments in
the sotware wing
Visteon AC Systems, Alternators,Panel Instrument assembly
US$ 56Million
in 2002
Bosch FIPs, Common Rail Systems US$100
Million
Planning or urther
investments o US$430Million
Cummins Engines and Components US$150 Million
Plans to increase it toUS$ 500 Million by 2010
TennecoAutomotive
Forgings US$60 Million
Deutz Engine Components US$70 Million
Plans to procure US$1,000 million worth ocomponents rom LowCost Countries including
India
Source: Industry News, IMaCS Analysis
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Competitiveness o Indian auto component manuacturing
In order to emerge as a manuacturing hub, India
would ace competition rom other low cost
countries such as
* China
* Thailand
* Brazil
IMaCS has compared the cost competitiveness
o manuacturing 6 automative component groups
(Engine, Transmission and Steering, Suspension
and braking, Electricals, Equipment and others
manuacturing in India with respect to these
countries in terms o actors like taxes and duties
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Tax structure in India vis--vis other countries
The burden o direct and indirect taxes is higher
in India as compared to in other countries
India Brazil China Thailand
Excise 16.36% - - -
VAT 12.5% 15% 17% 10%
Other Taxes 18%*
Corporate Tax 34% 28% 33% 30%
Exemptions Speciicpackagesprovided
by states
or largeinvestments
Tax incentivesor companiesin Export
processing
zones
Preerentialcorporate taxpolicies or
FIE
Taxincentives orinvestments
outside
central zone
Import dutyon rubber
13% 16% 8% Free
Import duty on steel 8% 4% 2% 10%
*Refers to local taxes
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Labour and labour productivity vis--vis other countries
India compares avorably with other low cost
countries in productivity adjusted labour cost
Indian labour productivity in the manuacturing
sector is on an increase with the application o
production management techniques and many
companies have doubled their productivity in
last ve years
India Brazil China Thailand
Labour cost (US$/hour) 0.7 4.1 0.7 0.72
Labour cost (US$/day)* 5.6 32.8 5.6 5.76
Productivity index** 1.0 2.0 1.0 1.2
Productivity adjustedlabour cost (US$/day)
5.6 16.4 5.6 4.8
* Assuming 8 hour shift per day
** Gross value added per person employed as compared to India
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Power Cost vis--vis other countries
Power cost in India the highest amongst the
competing countries
However, power cost accounts or around
3% o the overall cost structure, hence not a
signicant disadvantage
Power costs in India varies by state and is
as low as US$ 0.1 in states like Maharashtra
With privatisation and competition in the
emerging Indian power sector, cost o power
is expected to come under control
Interest rates in India high as compared to
competing countries, but expected to soten
in the uture.
Country Cost per kwh
(US$)
India 0.14
Brazil 0.05
China 0.03
Thailand 0.11
Power costs
Country Annual lendinginterest rate
India 10-11%
Brazil 14-16%
China 5-6%
Thailand 7-8%
Interest costs
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Manuacturing in China vis--vis India
Indian manuacturers suer rom a cost
disadvantage vis--vis Chinese manuacturers
mainly because o higher power and uel costs
and to some extent due to the cascading
impact o taxes
China Engine Parts Transmission &
Steering
Suspension &
Braking
Electricals Equipment Others
Cost o component or an Indian Company 100 100 100 100 100 100
Less
Taxes and Duties Higher net state level levies andcascading impact o taxes
0.55% 0.85% 1.58% 1.51% 1.72% 0.89%
Higher import duty 0.03% 0.02% 0.06% 0.14% 0.14% 0.07%
Higher corporate taxes 0.03% 0.03% 0.03% 0.03% 0.03% 0.03%
Industry costs Higher cost o power and uel 3.43% 3.16% 4.01% 3.02% 2.13% 2.68%
Higher cost o unds 0.62% 0.30% 0.18% 0.00% 0.44% 0.13%
Higher rate o insurance 0.10% 0.08% 0.10% 0.08% 0.11% 0.08%
Others Others 3.63% 2.98% 3.08% 3.11% 3.50% 2.72%
Total cost disadvantage or India 8.39% 7.43% 9.04% 7.88% 8.08% 6.60%
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Manuacturing in Thailand vis--vis India
Indian manuacturers suer rom a cost disadvantage
vis--vis Thai manuacturers mainly because o higher
level o taxes and their cascading impact
Thailand Engine Parts Transmission &Steering
Suspension &Braking
Electricals Equipment Others
Cost o component or an Indian Company 100 100 100 100 100 100
Less
Taxes and Duties Higher net state level levies andcascading impact o taxes
3.64% 5.13% 5.80% 5.33% 5.54% 5.33%
Higher import duty 0.58% 0.39% 0.51% 1.06% 1.00% 0.92%
Higher corporate taxes 0.12% 0.12% 0.12% 0.12% 0.12% 0.12%
Industry costs Higher cost o power and uel 0.93% 0.86% 1.09% 0.82% 0.58% 0.73%
Higher labour cost 1.72% 1.10% 1.19% 1.22% 1.59% 0.85%
Higher cost o unds 0.50% 0.24% 0.14% 0.00% 0.35% 0.10%
Higher rate o insurance 0.10% 0.08% 0.10% 0.08% 0.11% 0.08%Others Others 2.15% 1.51% 1.60% 1.63% 2.02% 1.25%
Total cost disadvantage
or India
9.74% 9.42% 10.56% 10.26% 11.32% 9.38%
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Manuacturing in Brazil vis--vis India
India is competitively positioned vis--vis Brazil across
components mainly due to the higher cost o labour
in Brazil
Brazil Engine Parts Transmission &
Steering
Suspension &
Braking
Electricals Equipment Others
Cost o component or an Indian Company 100 100 100 100 100 100
Less
Taxes and Duties Higher net state level levies andcascading impact o taxes
-4.20% -5.72% -3.89% -3.15% -3.08% -5.15%
Higher import duty 0.25% 0.16% 0.13% 0.24% 0.22% 0.33%
Higher corporate taxes 0.18% 0.18% 0.18% 0.18% 0.18% 0.18%
Industry costs Higher cost o power and uel 2.79% 2.58% 3.28% 2.47% 1.74% 2.19%
Higher labour cost -23.16% -14.85% -16.07% -16.45% -21.47% -11.51%
Higher cost o unds -0.27% -0.13% -0.08% 0.00% -0.19% -0.06%
Higher rate o insurance -0.06% -0.05% -0.06% -0.04% -0.06% -0.05%
Others Others 5.55% 4.90% 5.00% 5.02% 5.42% 4.64%
Total cost disadvantage or India -18.93% -12.94% 11.51% - -11.73% -17.25% -9.42%
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Conclusions
India has a cost advantage when compared to Brazil,
however suers rom a cost disadvantage vis--vis
China and Thailand (to a lesser extent), primarily
due to high level o taxes and their cascading impact.
India, in the near uture is expected to go ahead with
the abolition o interstate Central Sales Tax (CST),
which will reduce the cascading impact o taxes tosome extent.
Implementation o Goods and Services tax (along the
lines o VAT) and abolition o all other taxes by 2010
is under consideration, which will reduce the taxation
loading on the automotive sector considerably. This
step is expected to strengthen Indias uture position
as a leading automobile manuacturing hub.
Various steps being taken by the Indian government
in improving inrastructure would reduce the
disadvantage that India suers rom because o poor
inrastructure that causes project delays, delays
in deliveries and others. This would increase the
demand or road transportation in the country and
consequently demand or auto components.
Indias exports o auto components have the
advantage o proximity to automotive manuacturing
nations like Thailand; trade agreements being signed
with ASEAN nations are expected to give urther
boost to exports.
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AUTO COMPONENTSOctober 2007
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