Intro: India’s competitive edge is not only in labour arbitrage but also in technologically intensive manufacturing; hence Research and Development will remain crucial for its success.
The automobile sector offers tremendous potential for creation of new manufacturing facilities in India to cater to domestic and global consumers. In fact, this is one sector, which has already demonstrated the potential to a marked degree in the last 12 years to show clearly and distinctly why investment in manufacturing business in India offers maximum dividends to global business institutions.
The advantages of low cost of raw material and of manpower—semi skilled, skilled and professionals, have already made India a huge production house selling globally cars of diverse brands and models ranging from Toyota, Honda and Hyundai to Fiat, Chevrolet and Volkswagen. This sector has perhaps the best potential for domestic employment generation too, as exemplified by the case of Maruti Suzuki Limited (formerly Maruti Udyog Limited), the giant Joint Venture company partnered by the Indian Government and Suzuki Motors Limited which brought the affordable, small sized car to the Indian market and created a hub of local manufacturing companies—ancillary units producing car accessories and spares. In turn these ancillaries have created jobs by the thousands and significantly helped in the economic development of the country.
In inviting domestic and international companies to invest in India, Modi said that his government’s focus was not only to “look east,” but also to “link west.” India’s newly formed government intends to strengthen ties with the US in the manufacturing domain. “The Make in India campaign is a Lion’s Step towards making the country a destination for global manufacturing,” said Modi.
The potential of the automobile sector in India’s economic development can be gauged by citing a few facts and figures, based on macroeconomic surveys. By the year 2015, India is going to become the 4th largest automobile market in the world. The automobile sector accounts for 7 per cent of country’s GDP and employs about 19 million people directly and indirectly.
India’s GDP per capita has grown from USD 1432 in 2010 to USD 1500 in 2012, attended by increasing disposable income of rural citizens. There is a huge demand for low cost electric vehicles and it is estimated that total electric vehicle sales would be 6 to 7 million units by 2020. As indicated above, the huge employment generation capacity of the automobile sector is expected to generate additional employment for 25 million by the year 2016.
It is notable that India is already the second largest two wheeler manufacturer, largest motor cycle manufacturer and fifth largest commercial vehicle manufacturer in the world.
The government has very rightly allowed 100 per cent FDI under automatic route in this sector to incentivise foreign investors. The formulation of Automotive Mission Plan 2016-26, establishment of NATRIP (National Automobile Testing and R&D Infrastructure Project 2020), preparation of National Mission for Electric Mobility and launching of Pilot Electric Vehicle Project are commendable steps taken by the government to bolster the growth of the automobile sector. There are a whole lot of fiscal incentives comprising tax reductions, concessional duties and export incentives, among others, announced for promoting R&D in this sector.
When talking about surface transportation by road, one needs to seriously consider certain things in the context of growth of manufacturing industry in India. The first and the foremost is the fact that there is a paramount need of technology shift in the wake of global warming and its deleterious effects caused by hydrocarbon fuels. So, the greatest emphasis today should be on research and development. The government should create a rewarding business environment in India for R&D, which will make automobile manufacturers keen to set up R&D centres in India for development of electric cars or automobiles based on other. environment friendly technologies like hydrogen cells. One cannot but mention in this context about the account related to ‘Vaahan Vidya’ (automobile technology) in India's historical books dating to the time of Raja Bhoj (11th century AD) which talk of surface transportation vehicles powered by simple environment friendly fuels like water. We need to extract such technological tenets from our scriptural treasure house. We also need to indigenise the production of critical parts of automobiles like the engines, which are still being imported in many cases. R&D professional will need to be valued and compensated much higher than others to attract best talent.
Better put, we need to move to greater heights of achievement in this field and the pathway is well laid out.
(The writer is a senior columnist)
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