Auto component SMEs should scale up operations to strengthen productivity, says Vinnie Mehta of ACMA

The automobile space as a whole is growing at a rapid pace but the margins of the auto component SMEs are consistently becoming thin, said Vinnie Mehta, executive director of Automotive Component Manufacturers Association (ACMA) in an exclusive interview. Despite the various challenges witnessed by the auto component SMEs, this sector will reach $110 million by 2020.

 

What is the role that ACMA plays for the SMEs engaged in the auto component sector?

Vinnie Mehta: The Automotive Component Manufacturers Association of India (ACMA) is over 50 year old industry body. We represent over 650 members and close to 70% of the membership come from the small and medium enterprises (SMEs). In fact, whatever ACMA does, it is primarily in the interest of SMEs. We play a prominent role in shaping the industry conducive policies and also carry out various business development initiatives such as buyer-seller meets for the original equipment manufacturers (OEMs) and Tier-1 suppliers. ACMA continues to play a very important role in the promotion of the industry and business development. We successfully run the ACMA Centre of Technology (ACT), which spearheads the drive for quality, productivity and technology. We have highly qualified councillors on our rolls for the said purpose. We are actively involved in trade promotion, technology upgradation, quality enhancement and collection and dissemination of information which has made ACMA a vital catalyst for this industry's development. The other activities include participation in international trade fairs, sending trade delegations overseas and bringing out publications on various subjects of topical interest to the automotive industry. We also undertake cluster programmes with definite roadmaps, which could be company specific i.e., it depends upon the state of evolution of the company. The periodicity of the new cluster development programmes depend upon 6 months-2 years based upon local maps. We also organise events and trade shows and bring out studies periodically to track the health of the sector. ACMA is represented on a number of panels, committees and councils of the Government of India through which it helps in the formulation of policies pertaining to the Indian automotive industry.

What are the current projects being undertaken by ACMA?

Vinnie Mehta: Right now, two in-depth studies are being carried out with the aim to look for opportunities beyond traditional manufacturing. The first study focusses on ‘how auto component sector can become a hub for R&D and product development’ and the second study is on 'analysing Indian auto Component industry's competitiveness and identifying emergent opportunities'.

Please elaborate on the performance of the SMEs in the auto component sector?

Vinnie Mehta: During the financial year 2009-10, the size of the auto component sector was at $40 billion, while the exports were at $5.25 billion. This industry continues to grow at 14%. Although, the auto vertical as a whole is growing but the margins in the auto component space are increasingly becoming thin. The situation is more stressed out for the SMEs. There are quite a few challenges which are impacting the SMEs – access to easy capital, cost of capital, availability of skilled manpower, inadequate infrastructure etc. What needs to be understood is that the SMEs should scale up operations, which will in turn help strengthen the productivity levels.

It is believed that the auto component makers are hit with various roadblocks (rupee depreciation, high interest rates and petrol prices) amid the global slowdown? What’s your take on it?

Vinnie Mehta: It is time we internalise the fact that although overall demand curve for the sector will rise, there will be few ups and downs from time-to-time. ACMA envisions that the auto component sector will touch $110 billion by 2020 out of which $80 billion will come from the domestic market and another $30 billion from exports.

The auto component makers have been demanding uniform standard for auto components for both original equipment makers (OEMs) and after sales to combat counterfeits in market. Do you think it will help the sector?

Vinnie Mehta: The counterfeiting market in India is growing rapidly and it is a major concern for the organised sector as this problem is spreading its wings. This market is growing at 15-20% per annum and causing lot of worry for the organised players. The counterfeiting problem has gained pace in India an also causing considerable loss to the government. The size of the counterfeit market stood at Rs 33,000 crore during the financial year 2011-12. ACMA in this regard has created a White Paper and submitted it to Ministry of Road Transport and Highways, Bureau of Indian Standards. One way of tackling the counterfeit market for aftermarket products is by mandating standards, especially for safety critical ones, as currently there exists no such standards.

Can you throw some light on the main challenges witnessed by the SMEs in the auto component sector?

Vinnie Mehta: Few of the key challenges which are impacting the growth of the auto component SMEs are access to capital coupled with its cost. In markets such as the US, Japan, Europe etc the lending rates vary between 0-3% as compared to 17-18% for Indian SMEs. SMEs are under the strong grip of many problems such as absorption of technology, manpower availability along with infrastructure challenges. Most of the SMEs in India are a one-man-army and therefore, depth of management is also an issue.

How far do you think that the government policies and initiatives are working in favour of the SMEs and the sector as a whole?

Vinnie Mehta: The government especially the Ministry of Micro, Small and Medium Enterprises (MSME) has been very supportive of ACMA initiatives. ACMA has proposed the setting up of Technology Upgradation Development Fund under the aegis of the MSME which has found acceptance for the 12th Five Year Plan. We hope this will soon be realised.

Do you think that Foreign Trade Policy will help the industry overcome the challenges?

Vinnie Mehta: We are happy that recent supplement to the FTP has been favorable to the automotive sector. In the product focus scheme, 5 new auto component products have been added, while in market linked products focussed scheme out of 46 new products that have been added, 23 are auto components. This move will definitely help promote exports from the auto component sector.

Apparel sector SMEs facing liquidity pressure in India

Amid the global economic meltdown, the apparel sector exporters are witnessing many problems like inventory build-up and liquidity pressure, said Lalit Gulati, president of Apparel Exporters & Manufacturers' Association (AEMA) in an exclusive interview.

He also said that the the SMEs engaged in the apparel sector should explore new markets to enhance the growth prospects.

 

 

What is the role that AEMA aims to play in India's SME sector?

Lalit Gulati: AEMA is committed to the welfare, expansion and promotion of the garment trade for the SME sector. The main aim of AEMA is studying the various laws which affect the working of export industry where SMEs constitutes 60% of the entire apparel exports advocating changes to various central and state governments. The major membership forum of our association consists of SMEs as its members.

 

 

What are the current projects being undertaken by AEMA?

Lalit Gulati: Our association has taken up the issue with Apparel Export Promotion Council (AEPC) in adding one more agency for issuance of Country of Origin certificate for Japan under Comprehensive Economic Partnership Agreement (CEPA) to reduce and ease the rush and delay for issuing the certificate. AEMA is in its endeavor to help exporters with problems like clearing and suggesting to the customs for speedy clearance of pending drawback, advocating changes for smooth and timely clearance of customs cargo.

AEMA is helping AEPC for the effective implementation of it’s baby project DISHA under the sponsorship of Textile Ministry. The project will help the garment manufacturers comply with the global social standards and ease the auditing process.

AEMA is also in the process of bringing a new Textile park under RIICO at Tapukara, Rajasthan. The primary objective of the Textile Park is to provide the industry with world-class infrastructure facilities for setting up their textile units. The scheme would facilitate textile units to meet international environmental and social standards.

AEMA is promoting various garment fairs under the sponsorship of AEPC and FICCI which mainly gives the SMEs sector ample opportunity to explore new markets and promote their business which have been very successful and ample exposure for the SME’s sector.

 

 

How do you think that the Indian SMEs engaged in apparel sector are performing in the present global meltdown?

Lalit Gulati: The pressure is rising consistently as the sector is mainly dependent on exports to the US and European countries. The exporters are witnessing many problems such as inventory build-up and liquidity pressure.

In the present global meltdown, one needs to analyse the changing trends in apparel business across the world and also have to explore new markets. If we compare the growth of apparel industry in past ten years, the Indian apparel industry has experienced rapid changes, primary due to new sourcing avenues and wide markets (both domestic and international). It has successfully put up good performance under market pressure with shrinking demands and tighten prices. The SME sector needs to explore new and virgin markets for growth which is being aggressively hit due to injury.

 

 

What are the key challenges faced by the Indian SMEs in apparel sector?

Lalit Gulati: The availability of fabrics, high cost of logistics, shortage of power supply and cost of power, stringent labour laws and unstable world apparel demand are the major causes which are affecting the SMEs sector.

 

 

Do you think that the apparel SMEs are aptly placed for exports?

Lalit Gulati: Apparel sector is well suited for the SMEs but it has to become more innovative to remain globally competitive. 

  

Do you feel that government policies (both Centre and state) are working in favour of the SMEs? Are they assisting these companies in alleviating the pertinent issues?

Lalit Gulati: Government policies are directed to assist the working of SMEs. However, more changes needs to be done. A major reason for it could be that the SME sector is mostly unorganised. The government needs to work out a conducive policy commensurate with the needs of the Industry.

 

 

Do you feel that ICT (information and communication technology) usage by apparel SMEs is going up?

Lalit Gulati: Information technology is one of the strongest drivers for competitiveness, innovation and change in our modern economy. ICT is changing our lives – the way we socialise, work, shop, search for information, and communicate. ICT enables all forms of innovation, from social to organizational and technological innovation. ICT boosts businesses’ efficiency and competitiveness in the global market. The apparel SMEs have adopted ICT innovation which is an absolute necessity in today’s export field.

 

 

Do you think that Centre has undertaken ample initiatives to strengthen the apparel sector?

Lalit Gulati: The government of India has been making good efforts to promote and support the industry in the post MFA (Multi Fiber Agreement) era. Various stimulus schemes have been announced in the previous years. Some of them are as general reduction of 4% in CENVAT rates, abolishment of the CENVAT on cotton and few other taxes being either reduced or deleted to promote the textiles exports.

The government introduced two packages of duty concessions, tax and interest rebates in past years to provide stimulus to the economy in general to combat the recession.

 

 

RBI's move to leave rates unchanged for the second consecutive policy review has been criticised by India Inc. How do you think it will impact the growth of SMEs?

Lalit Gulati: Higher interest rates are going to hurt the bottom line of SMEs. A separate rate for exporting community would help the sector compete at the global market.

 

 

Kindly share the roadmap of AEMA for the ongoing financial year 2012-13.

Lalit Gulati: AEMA is determined to take up the issues like availability of fabrics, shortage of fabric mills & process houses, modification of infrastructure, higher cost of logistics, Labour related issues etc. with the highest authorities so that we can create a level field for the growth of exports from India vis-a-vis China, Bangladesh, Vietnam etc. and the growth of our industry from 12% to 14% of apparel exports in the coming 4 – 5 years to reach the target of $18 billion.

Rubber plantation should be given level playing field with industrial crops, says Niraj Thakkar of AIRIA

NEW DELHI:  Although Indian rubber industry is facing a range of constraints, like anti-dumping duties on carbon black and rubber chemicals, high interest cost and energy rates which also forced many SME units to shut down their shutters, but it is still achieving 15% to 20% annual growth in exports. An equal and fair consideration to the rubber industry will emerge as a big boost for the industry and country's economy, tells Niraj Thakkar, senior vice president of All India Rubber Industries Association (AIRIA) in an exclusive interview.

What is the current status of Indian Rubber industry?

Niraj Thakkar: According to the Economic Survey of 2010-11 India is the world’s 4th largest producer and second largest consumer of rubber. There are three categories of rubber: natural rubber, synthetic rubber, and reclaimed rubber. Of the overall global production of rubber, natural rubber accounts for approximately 42%. Till date Kerala contributes to approximately 90% of the India’s natural rubber production. On an average, per day, 44,500 people are employed in rubber plantation. They then sell natural rubber to dealers who are responsible for its sale to rubber manufacturers.

India's rubber manufacturing industry consists of more than 6,000 manufacturing units, comprising of 30 large scale, 300 medium scale, and approximately 5,670 small scale and tiny sectors in India. These units manufacture more than 35,000 rubber products and employ approximately 400,000 employees.

The products manufactured by the rubber industry in India can be broadly divided into two sectors: the tyre sector and the non-tyre sector. The tyre sector is involved in the production of various types of automotive and non-automotive tyres, and the non-tyre sector (which consists mainly of medium scale, small scale and tiny units) manufactures a wide range of products including footwear, belting, hoses, automobile parts, cables and wires, camelback, battery boxes, latex products, and pharmaceutical goods. In the non-tyre sector, the small-scale sector accounts for over 50% of production of rubber goods.

As shown in Table 1, the turnover for both the tyre and non-tyre sector has increased from 2006-07 to 2012-13. In 2012-13, the annual turnover of the tyre industry is estimated to be approximately Rs. 35,000 crore compared to Rs. 25,000 crore of the non-tyre industry.

Table 1: Annual Turnover of Rubber Industry in India by Tyre and Non-tyre Sector (Rs. Crores)

Sector	2010-11	2011-12*	2012-13*
Tyre Sector	27,000	30,000	35,000
Non-Tyre Sector	18,000	22,000	25,000
Total	45,000	52,000	60,000

            Source: AIRIA

Note:* Values for 2011-12 and 2012-13 are estimates

An Overview of Rubber Industry (F.Y. 2011-12) (Estimated)

Total No. of Units	6000 approx
Large & Medium scale units	500
Small & Tiny Units	5500
Industry Turnover	Rs. 50,000 Crores
Tyre Sector	Rs.30,000 Crores
Non Tyre Sector	Rs.20,000 Crores
Value Exports	Rs.8,500 Crores
Taxes & Duties	Rs. 7500 Crores
Raw-Material intensity	Raw Material cost accounts for 65% - 70% of Industry Turnover (approx)
Principal Raw-Materials	Natural Rubber, Synthetic Rubbers, Carbon Black, Rubber Chemicals etc.

Indonesia has invited investment from Indian Rubber Industry. Please throw some light on what can be achieved with this alliance?

Niraj Thakkar: Natural rubber (NR) demand in India is expected to be higher than the availability by about 2 lakh tonnes in 2012-13. Indonesia has surplus rubber to sell in the export market. They are thinking in the right direction of doing value addition in their own country which will lead to economic growth, jobs etc. This will mean, gradually our industry may think of investing in Indonesia to expand their capacities for ease of availability of NR. This way some natural rubber may also flow into India or industry especially export-oriented may move out of India. If it does happen, it will be one of the most unfortunate milestone in Indian perspective.



What are the current prevailing challenges in the Indian Rubber Industry? What are the support and subsidy being given to the industry?

Niraj Thakkar: The current challenges prevailing in the rubber industry are:

- The Rubber Industry is highly labour and energy intensive. The Indian Rubber Industry comprises about 450 / 500 large / medium scale units and nearly 5500 Small and Tiny units.

- The high cost of power, finance, inadequate & expensive infrastructure and relatively low volumes, deprives the Indian rubber industry particularly small and tiny units. The cost-competitiveness as well as availability of NR as compared to our counterparts in other Asian countries are posing threat to the very survival of Industry.

- Allowance should be offered for duty free import of 1 lakh metric tonne of natural rubber to meet demand supply gap.

- Rubber Product as well as Synthetic Rubber are imported at same rate of duty, whereas import of rubber products from Asian Countries have 5% concession in duty. Hence it is very difficult for Indian rubber industry to survive.

- In India, the consumption ratio between natural rubber and synthetic rubber is nearly 73:27 against the world ratio of 44:56, which shows over dependence on natural rubber in India. Natural rubber being non-modvatable (for rubber cess), does increase the cost though negligible, in absolute terms is significant.

- The import of the major raw materials of rubber industry which are not indigenously produced, is subjected to high rate of Custom Duty,  making it very difficult for the Rubber  Industry   to survive and to compete against import of finished products. Inverted duty structure is a big concern which we have brought to the notice of the relevant ministry.

- Basic raw material and rubber finished products are charged at same rate of duty. This is against normally accepted practice of imposing lower rate of duty on raw material and higher rate on finished products. The government should fix the import duties on raw material lower than the import duties on the finished products.

- Levy of anti-dumping duties on High Styrene Butadiene Rubber  (all 1900 series) has made the Indian footwear products more expensive. With high interest cost and energy rates many of SSI footwear units had to shut shops, leading to import of Footwear products from Nepal, Sri-Lanka & China.

- Levy of anti-dumping duties on Carbon Black & Rubber Chemicals has made the Indian rubber products more expensive. With high interest cost and energy rates many of SME units had to Down their shutters.

- Inspite of constraints faces by the Indian rubber industry; it is achieving growth in export of rubber products at 15% to 20% annually. Imagine what the industry can achieve if the government assists the entrepreneurs. For Indian Rubber Industry, sky is the limit.



How does your association extend its cooperation to small rubber growers?

Niraj Thakkar: We have excellent relations with the Rubber Board, a body for the Rubber planters and are working on win-win strategy. The rise in rubber prices, though has affected the rubber industry, but we encourage fresh plantation. The Rubber board is exploring new areas within the country as land availability in Kerala is saturated. Under the leadership of Ms. Sheela Thomas, the industry has witnessed a fair hearing to our concerns and is looking for offering a solution by looking at land beyond Kerala for rubber plantations. Many pro industry measures have been taken as we both understand that we need each other for growth and that it is in our interest to collaborate.



What measures, according to you, Central government should adopt in order to promote rubber plantation in the country?

Niraj Thakkar: Rubber Board may be in a better position for this reply. However, we can suggest that Rubber Plantation should also get treatment unlike just another agricultural crop, but an crop meant for the industry, like Cotton.



Several automotive tyre and rubber goods manufacturing units are eyeing ASEAN countries to take advantage of the free trade regime. What is your take on this?

Niraj Thakkar: This is the purpose of the free trade and will happen. However, the government must be careful in not leveraging the Indian Rubber Industry  and in turn the livelihood of a millions employed in the rubber industry. Credence must be prudently offered to the deserving for the long term prospects of the industry and economy. Our advantage of global positioning in the rubber industry must be considered before FTA's are committed to.



Please share your roadmap for the current fiscal (2012-13). What are your key priorities?

- Position the Indian Rubber Industry strategically for world to be dependent on us.

- Increase membership and offer services To make AIRIA higly visible and vibrant.

- Bring various facets of the Indian Rubber Industry under one roof and showcase our strength globally