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Home arrow News arrow Auto component arrow ACMA requests Govt. for a 2-3 year "Bridge Policy"
ACMA requests Govt. for a 2-3 year "Bridge Policy" Print E-mail
Written by Anand   
Friday, 07 November 2008
New Delhi, 06th November 2008: The Auto-Component Industry is deeply concerned about its immediate future growth prospects as it faces the oncoming of a winter of despair.

"At an emergency meeting of ACMA's Executive Committee, to discuss the current economic crises and its impact on the auto-component manufacturing sector, the Association has voiced the need for an immediate redressal package comprising of a 2-3 year "bridge policy" to enable the industry survive the current economic crises", said Mr. J.S. Chopra, President ACMA.

While the Association remains very positive about the long term prospects of the auto and auto-component industry, the short term poses daunting challenges that has dampened the mood and affected the earlier positive mindset of the industry, which will lead to slowdown in capex if the liquidity in the financial system does not improve soon and interest rates become more moderate.

In the domestic market, the crippling liquidity crunch has slowed down vehicle demand, specially in the commercial vehicle industry. Payments from OEMs to vendors are getting delayed, loans for capacity expansion are difficult to secure and even disbursement of loans already approved by the banks are being deferred.

Furthermore, the exchange rate remains very uncertain, a strong dollar has already increased the landed cost of imported machine tools and raw materials by 14% setting a much higher price benchmark for domestic commodity pricing, inflation continues to be very high at 11% and raw material prices have not gone down significantly. Alloy steel prices remain particularly strong and have not shown reduction commensurate with price of alloying elements like Nickel, Molybdenum, Chromium, etc. To make matters worse, the steel manufacturers are seeking the re-imposition of Customs Duty on Steel which will further push up the prices of basic raw material for the domestic industry.

On the export front, global outsourcing to large traditional markets like USA have taken a stiff beating and has seen a reduction of upto 30-40% in many cases. The SMEs are the worst affected as they lack the muscle to withstand such severe shock impacts. The overall exports growth of the auto-component industry has slumped to a meager 6% in the period April to September 08 as compared to a +25% CAGR over the last 5 years. The total export of auto-components was US $ 3.6 billion in 2007-08.

On the other hand, imports of auto-components continue to rise unabated at a high growth rate of almost 50%, with total imports growing to US $ 5.3 billion during 2007-08. Consequently, India today, is a net importer of auto-components.

ACMA has made the following specific recommendations to tide over the current situation and to ensure that the current slowdown does not snowball into a full fledged recession in the coming months:-

a) The Customs Duty on key raw materials, specially all categories of alloy and non-alloy steels should be reduced to zero.
b) Ongoing and approved funding by the Banks for capex requirements of the industry should continue without any disruption.
c) Government should take immediate steps to shore up liquidity in the financial system and evolve special loan schemes for the auto-component industry at concessional rate of interest.
d) Loans for SMEs should be rolled over by a few quarters to allow them more time to pay back.
e) Special precaution should be taken to ensure that Infrastructure Projects do not get delayed or deferred at this time of economic crises. Such large projects would provide the much needed multiplier effect for the automotive industry.
f) CRR and SLR should be further cut by RBI to bring in more liquidity in the system.
g) Government should take a pause in making any further cuts in Import Duties. In fact, in view of the increasing imbalance in the import-exports of auto-components, Government should consider revising the Customs Duties on auto-components as a temporary measure.

Mr. J.S. Chopra also appealed to the vehicle manufacturers to take special efforts to support the component manufacturers during this trying phase and to avoid payment delays at all costs, as such delays would result in serious cash-flow problems for the suppliers.

Mr. Chopra, emphasized that while the auto-component industry was confident about their long term prospects, it was necessary to provide some immediate relief to the industry to sustain their growth over the next a few months to ensure that the momentum built over the last 5 years is continued to meet the vision of the AMP 2016.

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