Against the Covid-induced challenges in the automobile sector, the Institute of Small Enterprises and Development (ISED) has recommended a strategy of “decentralised smart manufacture”.

Such a strategy is likely to protect the interests of both small and big firms alike, and the sector as a whole can be developed as an engine of growth, says India Micro, Small and Medium Enterprise Report 2020 (MSMER 2020), brought out by the ISED Small Enterprise Observatory (ISED-SEO).

Also read: A comprehensive India-centric road map for the auto industry is the way forward: Nomura

PLI scheme benefit

‘Smart manufacturing’ is a broad category, employing computer-integrated production, high levels of adaptability and rapid design changes, digital information technology, and more flexible training of technical workforce. Flexible production based on demand, optimisation of the supply chain- efficient production, and recyclability, are the expected outcomes. Strategic thinking in the context of the pandemic needs to be sub-sector specific, and with focus on decentralised production, PM Mathew, Editor of the Report.

The Centre has taken some major steps on the automobile sector under ‘Make in India’. The recent decision to promote the country as a manufacturing hub for automobiles and related components through a PLI scheme with an outlay of ₹57,000 crore, is likely to translate into more investments from existing domestic and foreign manufacturers. However, the experience of the pandemic demands more meticulous and focused corrective steps. The automobile sector needs indigenisation with a strategic reorientation, where, deep localisation has a potential role to play, the report said.

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Technology absorption by vendors

The new strategy needs to be grounded on the experience of vendor development over the past two decades. Despite the broad-based growth of the automobile sector as a whole, the vendor base has not contributed much to technological absorption and local capabilities. ‘Deep localisation’ is a strategic option that has been discussed today. While the Indian automotive industry, traditionally, was highly local, it underwent a change with changes in technology (the transition from BS 4 to BS 6). While during BS 4, the local content was about 95 per cent, with BS6 coming in, a lot of systems had to be imported.

Earlier, there were certain constraints to localisation, as some parts come only from one region. Typically, about 40-50 per cent of the parts are imported from China or overseas today. The lessons from some other countries can be a guide to the indigenisation strategies of India. China takes automotive sector almost like an essential service; even the US declared the sector as an essential sub-sector.

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