FY 2018-19: Challenges for the Auto Component Marketplace
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The character of an excellent automobile is governed by the quintessential mix of technicality and synchronization, the assembly of right spare parts being the backbone. Thus, for any player in the automobile industry, consumers’ demands for aspects like styling, comfort, and safety, must be kept in mind. With right spare parts at right place and time, these demands can be met.
There are various issues that might lead to the bigger challenges for the sector in the following 2018-19, if not taken care of:
The custom duty on specified spare parts/accessories of motor vehicles, motor cars, and motorcycles has been raised from 7.5% to 15%. Now, there is also a 5% increase in the imported duty, on truck and bus radial tyres.
The 10% increase in excise duty, i.e. from 5% to 15%, on Completely Knocked Down (CKD) vehicle kit along with a 5 percent additional increase in excise duty to 25 percent on Completely Built Unit (CBU) vehicles, are reflecting on the market price of luxury cars as most of them are either CKD or CBU.
The imposition of the duties is leading all premium brands in the market to increase prices across lines, in the range of 3.5% to 5%.
India is a net importer of auto components — USD 13 billion worth of imports vis-a-vis USD 11 billion of exports. This hike in custom duty is focused at reinforcing ‘Make in India’ mission. However, it’s not easy. In fact currently, to refill this gap, the local industry is moving towards black market.
For any big change to take place, it must always be accompanied with vigorous support of the local industry to manufacture spare parts in India.
Delayed Custom Clearance
The most recent evolution in the delay in releasing of spare parts from custom office is hitting the timely services and delivery to customers. Earlier, the release time was two days which is now increased to two weeks, which means huge delay in the operational work and delivery of products. Such deceleration will lead to an increase in the use of fake products and parts, as they can be obtained through various ways, which is an agonizing strand for the marketplace and taxpaying players, thus affecting the entire auto business ecosystem.
Decline in demand and jobs
The spare parts marketplace for automobile will face a hit due to its deep forward and backward linkages with several key segments of the economy. In coming months, due to inflation in the economy, the price rise will be reflected by the fall of demand. The growth of jobs will also be influenced as the industry has a strong multiplier effect on the growth of jobs.
Other Staple Challenges
A stable exchange rate regime is a primary requirement for the e-commerce business, for it sources products from different countries. The recent fluctuation in exchange rate and depreciation of rupees may also add to the market place woes.
Besides, Indian diversity sets bigger challenges in terms of communication for all the businesses including auto components. The language and dialect changes every 60 kilometers in India, posing a challenge in terms of offering services to the customers.
However, despite all the above challenges, the government goes with the conventional fundamental of macroeconomics where the economy is vigorous and that the slowdown in the job market will be skirted on account of ongoing structural reforms.
As per the government, the Indian automobile industry is destined for a bright future ahead. What is required is to take care of the sensitive segments of the market while building a manufacturing ecosystem, instead of exchanging prosperous perspectives with short-term gains.