The Automotive Component Manufacturers Association of India (ACMA) expects capacity utilization in the local auto parts industry to rebound to 80% to 90% in the next three years, reports The Economic Times. Over the past two financial years capacity utilization plunged to 60% amid declining vehicle sales in the country, but is now expected to surge driven by recent recovery in vehicle demand, especially since Prime Minister Narendra Modi-led government came to power in July this year.
Harish Lakshman, president of ACMA, said on the sidelines of the industry body's 54th annual conference in New Delhi yesterday (11 September), "The government has instilled confidence in the market with assurance of positive policy changes. We hope that by the fiscal year 2014-15, capacity utilisation will go up to 90%." In February this year, the previous government at the centre, led by Prime Minister Manmohan Singh, had lowered excise duty on vehicles for three months to arrest falling demand. The excise duty on small cars was reduced from 12 % to 8%, on mid-size cars from 24% to 20% and on large cars from 27% to 24%. When the new government came to the power in July it extended the excise duty cut until December this year. The lower excise duty is believed to have helped drive vehicle demand in India. The government is mulling to extend this excise duty cut till 31 March 2015.
Vikram Kirloskar, vice-chairman of Toyota Kirloskar and president of SIAM, said that the component industry should be prepared for an uptick in vehicle manufacturing so that it doesn't suffer from capacity constraint when demand picks up. Some key Indian suppliers are planning to add capacity to meet recovery in vehicle demand. "We are quite bullish and see that the market has bottomed out and a revival is around the corner," said Nirmal Minda, chairman and managing director of N K Minda Group, a major supplier of automotive electronic and electrical components. “I hope that soon our capacities will be fully utilised and we need to have additional capacity." Nirmal Minda is considering a new plant in the western Indian state of Gujarat. Another component supplier, National Engineering Industries is investing INR5 billion (USD82.1 million) in a new plant, also in Gujarat.
Significance: After two years of slowdown, vehicle sales are on a recovery path in India. According to sales data released by the Society of Indian Automobile Manufacturers (SIAM), sales of passenger vehicles, which include cars, utility vehicles (UV) and vans, grew 4.46% y/y in first five month of the financial year that started in April this year. Car sales have recorded a strong recovery, after witnessing negative growth in financial year 2013/14, while utility vehicle continue to drive growth in the passenger vehicle segment. However, commercial vehicles remain an area of concern with sales declining 13.7% in the first five months of FY 2014/15.
Maruti Suzuki, the leading carmaker of India, is expecting double-digit growth in FY 2014/15 driven by strong growth in first five months. "We will surely have a double-digit growth rate this year. We had not expected more than 7% or 8% growth till the general elections (May 2014), but our sales have grown at an average 16% in the past five months. I will, however, not like to predict whether the rate for full year will be 12% or 16%," chairman R C Bhargava told Business Standard. He also disclosed that the company would invest INR40 billion (USD657 million) over the next five years in developing at least five new models, at its India R&D centre and in providing suppliers with tooling. The first model a compact SUV, with significant local content, will hit the market in 2016.
