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Slide 1: Assessment of Automotive Industry in West Bengal Vision@2022 *connectedthinking pwc
Slide 2: © 2009 Confederation of Indian Industry Prepared by pwc
Slide 3: Assessment of Automotive Industry in West Bengal - Vision 2022 Table of contents Executive Summary............................................................................................2 Global Trends Impacting Indian Automotive Sector ......................................6 Global Automotive Sector – An Industry in Transition .................................... 6 Trends in the Global automotive sector ........................................................10 Overview of the Indian automotive sector.....................................................14 Competitiveness of Indian Automotive Sector – Comparison with China and Thailand.........................................................................................................20 Future potential of the Indian automotive sector in 2022..............................22 Current Status Assessment of Automotive Sector in West Bengal ...........26 Industrial Performance in West Bengal.........................................................26 Evolution of the Automotive Sector in West Bengal .....................................27 Key Existing Players......................................................................................27 Key Enablers for Automotive Industry Development ....................................29 Competitive Analysis of Automotive Industry Enablers in West Bengal.......31 Maturity Level of Key Automotive Manufacturing States of India .................35 Summary of Industry Enablers - SWOT........................................................35 Summary of Industry Enablers - SWOT........................................................36 Vision for West Bengal’s Automotive Industry .............................................38 Potential for the Automotive Sector in West Bengal .....................................39 Investments Required in the State’s Automotive Sector ..............................40 Economic Impact and Employment Potential ...............................................42 Way Forward .................................................................................................42 Action Plan and Recommendations ...............................................................44 Role of the Central Government ...................................................................45 Role of the Government of West Bengal ......................................................47 Role of the Industry .......................................................................................59 Glossary.............................................................................................................61 Sources..............................................................................................................62 -1-
Slide 4: Assessment of Automotive Industry in West Bengal - Vision 2022 Executive Summary The auto business is vital for India. But what are the prospects of this industry in the context of a global auto industry and the booming domestic market? Does West Bengal have the competitive advantage, talent, technology and the global reach to become a significant automotive cluster in India? This report tries to address these questions, using original survey data, interaction with key stakeholders in West Bengal and by conducting extensive secondary research on the Global and Indian automotive industry. For the purpose of this study we have not considered the current slowdown of the global economy and its impact on the automotive sector. Analysis of global trends and their impact on Indian Automotive Sector For the future outlook on the sector, PwC estimates the global automotive industry to accelerate over the next few years, at an estimated CAGR of 6.6%. Dichotomy between the mature and emerging markets is becoming increasingly obvious. Pressure on existing players to create value has brought in a trend of global giants opting for dispersed production in low cost destinations. Environment concerns, affordability and fuel costs have led to the rise of the small car segment as a major driving force in the industry. The growth of auto sector in India has followed a typical cluster formation pattern, with major auto clusters coming up in the Delhi-NCR, Chennai and Pune-Mumbai regions. The component manufacturing industry caters to the local cluster OEMs as well as the Tier1/2 manufacturers in the mature markets. The future for India’s automotive sector looks bright with the central government highlighting its capabilities, policy support and potential growth in the latest Automotive Mission Plan 2006-2016. Translating the industrial trends, India has the potential to develop into a low cost sourcing hub for automobiles and components. India’s large pool of engineering graduates provides global auto companies the opportunity to offshore their R&D activities to the country. Indian automakers have developed competencies in manufacturing small cars, a fact which could see India emerging as a leading small car exporter. Analysis of Present State of Automobile Industry in West Bengal Diminishing returns from agriculture has prompted the government of West Bengal to look towards industrialization as the most viable option of resurrecting the state’s fortunes. Even though the state enjoyed one of the earliest investments in automobile manufacturing in the nation (HM plant at Uttarpara), the current state of the industry is a challenging one. A SWOT analysis of the state, based on the PwC framework suggests that the state is well placed to emerge as: • The nerve centre of eastern India for auto production -2-
Slide 5: Assessment of Automotive Industry in West Bengal - Vision 2022 • • Market Access & Proximity Proximity to customers Export Opportunities Cluster Maturity A global auto hub serving South Asian markets The preferred investment destination of India Ability to Attract Investment Economic Policies Incentives Image & Perception Key Enablers for Automotive Industry Raw Material Availability Skilled Manpower Labor Productivity Social Infrastructure Telecom, IT & Power Rail, Road, Air & Ports Resources / Inputs Physical & Social Infrastructure Source: PwC Analysis The lack of a strong local OEM has led to rudimentary development of the component supply chain in terms of depth and range of products. However, the state enjoys a positional advantage in terms of the large underserved markets in Eastern and North-eastern India, as well as export markets in neighboring South Asian nations. The state’s inability to enforce policy decisions and court orders undermines investor confidence. Social infrastructure is a strong point for the state. However, physical infrastructure development is limited to agri-industrial pockets particularly in South Bengal. Road network and power facilities are good but ports and airports are behind those of competitive states like Tamil Nadu and Gujarat. Overall the investor-perception of the state overshadows its strengths. Vision of Automotive Industry in West Bengal The vision for West Bengal’s automotive industry has been drawn up based on a judicious mix of optimism and realism. The starting point of the visioning exercise is the national projection as per the AMP 2006-2016. PwC estimates that for the sector to grow into a size of US$ 220-260 Billion, incremental investment to the tune of US$55-70 Billion is required over the next decade. Based on assessment of the state’s capability and previous case studies, PwC estimates that West Bengal can realistically target to capture a conservative 10 percent of the projected size of the Indian automotive sector by 2022. This works out to be approximately US$ 24 billion. To get to this target, PwC estimates the state would require direct investments in the range of US$ 6-7 billion. The basic premise in our projection is that India’s automotive sector target of US$ 220-260 billion for 2022 cannot be met by existing state clusters, and would require contributions from other states as well. WEST BENGAL AUTOMOTIVE OUTPUT 2022 (US$ BILLION) Breakup of Automotive Sector Domestic Vehicle Market Vehicle Export Auto Component Export After Market Component Engineering Services Outsourcing TOTAL India 2022 165.2 22.0 45.9 9.2 3.7 246.0 West Bengal 2022 14.9 2.2 5.5 0.9 0.6 24.0 -3-
Slide 6: Assessment of Automotive Industry in West Bengal - Vision 2022 Action Plan and Recommendations CENTRAL GOVERNMENT 1. 2. 3. 4. Ensure macro economic stability Ensure cost competitiveness Stimulate domestic demand Provide right market framework and regulatory environment STATE GOVERNMENT 1. 2. 3. 4. 5. 6. 7. 8. 9. INDUSTRY 1. 2. 3. 4. 5. 6. 7. 8. 9. Policy thrust for automotive sector Promote industrial cluster policy Attracting investments and promoting FDI Provide investment & infrastructure support Provide investment support Broad based participation of State Land acquisition policy Marketing and brand building Availability of human resource Achieving scale of operations World class quality standards Increasing the Usage of ICT Ensure cost competitiveness Promote leadership Strategic linkages with international partners Competitiveness of SMEs Marketing the capability of the state Setup an industry body to take forward the needs of the sector The above vision for the state will be made achievable only through mutual coordination and strong action on part of the central government, the state government and the industry. It is the onus of the central government to ensure that all states have a level playing field when vying for foreign investments. The Centre should also set up working committees to work on simplification of the entire tax structure, exim policies and procedures. Though these reforms might take time, they are absolutely essential in eliminating cost handicaps that “Made in India” automobiles suffer vis-à-vis Chinese ones. The government should also have a strong branding strategy to promote India in international automotive forums. The state government has to come up with a clear cut policy and set of initiatives directed specially at the automotive sector to communicate the earnestness of the state in promoting and supporting this industry. In order to corner the required level of investment, the state would have to work towards making sure that it is able to absorb the investments when they come in. Some of the relevant steps have been outlined below. • • • • • • • Provide investment support in form on tax holidays, tax deductions on profits, preferential land allotment Identify and develop geographically dispersed industry zones Establish committee to oversee and structure the land acquisition process – valuation of land, identification of beneficiaries, compensation package design and communication Establish State Auto Parks – To concentrate on providing world class facilities to delimited areas thereby reducing cost of doing business due to pooling of resources. Set up personnel training centers for auto-related skills with the help of existing it is Improve road Infrastructure & last mile connectivity particularly in nonagricultural areas. Ramp up port capacity and infrastructure to facilitate large scale export-import Brand Building through three pronged approach: o Low hanging fruits like improvement in port facilities, clearance procedures, tax reforms o Earmark funds and finalize PPP projects for infrastructure development o Highlight policy reforms, infrastructure showcases in industrial fairs hosted The role of the Industry is quite significant since West Bengal does not figure on the country’s automotive map today. Be it communication during land acquisition or infrastructure development, the state’s industry bodies have to work hand-inhand with the state government to ensure smooth facilitation of projects undertaken. The existing players in the sector have to adopt new, world class technology, and bring up their products to global quality standards. -4-
Slide 7: Assessment of Automotive Industry in West Bengal - Vision 2022 About Confederation of Indian Industry (CII) The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the growth of industry in India, partnering industry and government alike through advisory and consultative processes. CII is a non-government, not-for-profit, industry led and industry managed organization, playing a proactive role in India's development process. Founded over 114 years ago, it is India's premier business association, with a direct membership of over 7800 organizations from the private as well as public sectors, including SME’s and MNC’s, and an indirect membership of over 90,000 companies from around 385 national and regional sectoral associations. CII catalyses change by working closely with government on policy issues, enhancing efficiency, competitiveness and expanding business opportunities for industry through a range of specialized services and global linkages. It also provides a platform for sectoral consensus building and networking. Major emphasis is laid on projecting a positive image of business, assisting industry to identify and execute corporate citizenship programmes. Partnerships with over 120 NGOs across the country carry forward our initiatives in integrated and inclusive development, which include health, education, livelihood, diversity management, skill development and water, to name a few. Complementing this vision, CII's theme for 2009-10 is 'India@75: Economy, Infrastructure and Governance.' Within the overarching agenda to facilitate India's transformation into an economically vital, technologically innovative, socially and ethically vibrant global leader by year 2022, CII's focus this year is on revival of the Economy, fast tracking Infrastructure and improved Governance. With 64 offices in India, 9 overseas in Australia, Austria, China, France, Germany, Japan, Singapore, UK, and USA, and institutional partnerships with 213 counterpart organizations in 88 countries, CII serves as a reference point for Indian industry and the international business community. Eastern Region 6 N S Road Kolkata 700 001 Tel: 033 2230 6240 Fax: 033 2230 1721 Email: ciier@cii.in -5-
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