Auto-Parts Makers Expect Short-Term Pain If Chinese Imports Get Costlier
Maruti Suzuki India Ltd. technicians work on the assembly line for the Suzuki-Maruti Alto compact car at their Gurgaon factory near New Delhi. (Photographer: Sondeep Shankar/Bloomberg News)

Auto-Parts Makers Expect Short-Term Pain If Chinese Imports Get Costlier

India’s plan to curb Chinese imports can put pressure on its auto components industry that’s already grappling with the effects of a prolonged slowdown and virus-induced shutdown.

The Bureau of Indian Standards is considering tougher import norms for at least 370 items that can be locally produced, Bloomberg reported on Thursday, citing unnamed officials. Discussions are also on to raise import duty on furniture, compressors for air-conditioners and auto components. That comes when India is embroiled in a border standoff that killed 20 Indian and an unknown number of Chinese soldiers earlier this month.

Weaning Indian automakers away from China may be difficult as more than a quarter of their global imports worth $17.5 billion come from that nation, according to the Auto Component Manufacturers Association.

And Chinese imports stretch across the value chain—from drivetrains and engine parts to electronics and electrical bits. Component-wise, the maximum dependence is in the two-wheeler and passenger vehicle segments.

It isn’t easy to set up capacity directly in India, and the short-term impact of curbs can be negative, Ashish Modani, vice president and co-head of corporate ratings at ICRA, told BloombergQuint. He said that in the case of certain components, especially in the engineering and transmission side, the move could be detrimental for the industry. “We could see some positive impact in the medium to long term.”

Modani said the problem could be pronounced on the electronics side. “India doesn’t have the capacity and capability to manufacture here, and it’s very difficult to completely move to India.”

At a time when the demand is already muted and there’s financial stress in the industry, any increase on import duty will have a short-term impact on vehicle pricing, Deepak Jain, president of ACMA, told BloombergQuint over the phone. “We’re looking at measures to incentivise consumerism to boost demand; import duty will further dampen the demand.”

Jain said the industry needs a greater degree of self-reliance. “But components are such that we can't make an overnight shift, so it needs strategising, investment and planning—all these needs to be considered before finalising anything."

Sanjay Sabharwal, managing director of Metaldyne Industries Ltd., agreed. An increase in import duty will affect the already stressed Indian industry and employment, he said. “I find this abhorrent, commercially unwise and even strategically incorrect.”

The entire world needs to find an alternative to China, but this isn’t the way to go about it, Sabharwal said. “This might be good for optics, but for a price-sensitive industry like auto, industry will either absorb the price or pass it to the OEMs (original equipment manufacturers). Either ways the cost will go up.”

RC Bhargava, chairman of India’s largest carmaker Maruti Suzuki India Ltd., said any hike in import duty could lead to an increase in product pricing, but declined to comment further saying he will wait for the details to emerge.

Others see an opportunity in the move. Arvind Kapur, chairman and managing director of Rico Auto Industries, which makes fuel system parts, clutches and wheel hubs among other parts, said there will be a temporary impact on OEMs as prices will go up. This is an opportunity for the industry to localise component manufacturing, he said.

Sunjay Kapur, chairman of Sona Comstar, which supplies parts to many automakers, too, said this could speed up localisation, adding that any decision needs to be thought through. “Anything sudden will have some impact, and will depend on component maker’s exposure to China,” Kapur said. “A lot of them have already started de-risking from China. If we’re not prepared we need to prepare ourselves.”

Arvind Kapur of Rico, however, warned that China’s ability to react fast to any changes might negate the impact. “They can make the prices more competitive and can do it for India like they have done in the past for other countries.”

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