Defining Standards

Q & A

Rattan Kapur,

President, ACMA

Interview by: Anirudh Raheja

Q. What will be the effect of BSIV emission norms on the industry?

A. As far as BSIV emission norms are concerned, I would say that the industry is ready. The problem of fuel availability has already been addressed by the government. Most Indian companies have already adapted to BSIV technologies. BSIV, I feel, is good for India. The industry is ready for it too. The 2020 deadline for BSVI emission norms however seems too optimistic.

Q. Global players are expanding their base in India. What role will the Indian auto components players play?

A. Not only is the Indian market opening up, the world is also increasing its shopping list from India. Over a period of time, India has proved to be a market that has matured to a great extent on the quality aspect. The acceptability of Indian products has been rising even in difficult markets like Japan and Germany. It will be a matter of time that the whole world accepts us. Exports will be an important part of the business plans of most companies. As of date, out of our total exports of USD 13 to 15 billion, nearly 25 per cent is exported to the United States of America.

Q. What led to the publication of ACMA study report?

A. The study report reflects on the growth trajectory of auto aftermarket in the country. As per the study, the Indian aftermarket stands at around USD eight billion, and is expected to surpass USD 13 billion mark by 2020. As per the Indian Government’s Automotive Mission Plan 2026, the set target is to reach USD 32 billion. We are looking at the aftermarket to scale up in the next few years. I think it is becoming a part of everybody’s portfolio. It is also proving to be a de-risking portfolio, and is thus an important market. The aftermarket is here to stay.

Q. The unorganised part of the aftermarket is sizeable. How does ACMA look at it?

A. There are two aspects to it. A big chunk of unorganised market reflects upon an entrepreneurial spirit. As long as these companies produce genuine, safe and good quality products, there should not be an issue. The challenge is when unorganised players get involved in the production of substandard products. This largely happens, and in part because India is a highly price sensitive market. At every price point, you can find a market segment. Unfortunately, India has not mandated the standards of products to be sold in the aftermarket. If standards were mandated, there would be a mechanism in place to check the standards. The products would have to comply to those standards. When supplying to the vehicle industry, component manufacturers have to adhere to the auto industry standards. Nobody will take the risk of making the vehicle unsafe. We have been talking to the government for three years now, to make standards a mandate for the aftermarket. The government is serious. If one looks at the new Motor Vehicle Act, much stress is laid out on safety. We are in dialogue with the government.

Q. Counterfeiting is hurting the auto industry. How successful have you been in curbing it?

A. We did a study five years ago. The counterfeit market was as high as 36 per cent. It has now come down to five per cent. In the earlier study, counterfeiting was used in a broad sense. We have tightened the definition of counterfeiting. Counterfeiting is truly spurious as per the tightend definition, and accounts for five per cent. Consider the earlier 36 per cent, and the rest of the 31 per cent accounts for substandard products. The proportion, when one looks closely, hasn’t changed. There is thus a long way yet to curb substandard and counterfeit products.

Q. You spoke about defining the standards. How does that reflect on the role of ACMA?

A. It is essential to understand that the market is rapidly evolving. Our understanding of the market is also evolving. Earlier, the term counterfeit included substandard products. Those that are available with small retailers in markets like Paharganj and Kashmere Gate. Counterfeit now refers to fake or spurious products strictly. Products that do not comply with the Copyright Act, and with the IP Act. At this juncture, it may be worth mentioning that China is also dumping products into India. Curbing this is possible by mandating standards. It should be made necessary to show proof of compliance to standards at the customs. The raids we conduct to flush out spurious spares are collective raids. There is a committee in ACMA where all the member companies come together. ACMA conducts raids on their behalf. It is paid for by the members. ACMA has been conducting raids for several years now.

Q. What was the effect of demonetisation on the auto components industry?

A. There are some industries that have survived immense pressure. The four wheeler, two wheeler and agricultural equipment sector lost a big chunk of revenue in terms of sales from rural areas. Major transactions there take place in cash. Demonetisation led to buyer shrinkage. In the long term, demonetisation will go a long way in eradicating industry malpractices. Various sellers sell products at cheap prices in cash and disappear. It is difficult to catch them. Demonetisation will make it difficult for such transactions to take place. Trace-ability will rise when they are mandated to raise invoices. It would be much easier to catch these people, and to regulate the market. In many instances, they end up killing the taxation structure. They end up killing the industry too. Demonetisation has been accepted in the market.

Q. What was the effect of demonetisation on the aftermarket?

A. From an aftermarket perspective, the effect of demonetisation was based on the nature of transactions carried out. In the North, cash transactions are over 50 per cent. In the South, they are less than 20 per cent. Depending upon the amount of cash transactions, markets reacted differently. They were affected differently. Improvement in cash flow should improve market sentiments. I don’t think there are any more issues pertaining to market vibrancy. It is back to normal. The government and bankers today know who are doing cash transactions. At ACMA, we are pushing for digital transactions. We organised seminars at (ACMA) Automechanika to promote digital transactions and epayments.

Q. How do you look at the aftermarket in the eastern region of the country?

A. It is a vibrant market, especially from a commercial vehicle point of view. The hilly terrain leads to more wear and tear of vehicles. This has an effect on maintenance. East India market is set to become big with Assam as the focal point for warehousing. All the material from across India will move there before being transported further to various surrounding regions including the export markets of Myanmar and China.

Q. What change will GST bring about?

A. Products travel across various states. Much paperwork is involved in terms of sales tax and excise duty. GST will eradicate this in a big way. We as an industry have been struggling for long to conduct raids. Almost 500 raids are carried out every year at the retail level. It is possible to reach the distribution level but not the manufacturer level. With GST, it will be possible to reach the level of the manufacturer. My only hope is that GST maintains a level of 18 per cent or less. Above 18 per cent, it will hurt the industry, and may lead to counterfeiting and price rise. Once prices go up, the tendency to under cut and under sell increases. Especially, in the absence of legal papers. We have an abatement on Maximum Retail Price (MRP). Tax is paid on MRP. This abatement will stop once GST comes in. It is tax paid on MRP that makes a product expensive. In a price sensitive market like this, where there is a gravitational pull towards products, lacking quality consciousness, the two wheeler market looks the most vulnerable. If the product becomes more expensive, it will have an adverse impact. This will be led by the two wheeler market, and followed by the agricultural equipment market, commercial vehicles, and passenger vehicles.

Q. What are the programs and drives ACMA conducts?

A. ‘Safer drives’ is a big campaign we conduct. During the safety week of the Government of India, we participated for the first time. We held seminars, walkabouts, and campaigns. Even at (ACMA) Automechanika, we had a pavilion for safer drives. We are now consciously pushing people to use safer products. We also held a classroom for mechanics. Mechanics in batches of 30 were trained to use safety products. We are also building a digital catalogue of all aftermarket products. When one needs a product, he or she can send a query on the ACMA website. It will enable us to help them find a genuine product at a genuine price.

Q. Is the Cluster program a part of it?

A. The cluster program is completely different. It is about building competency in manufacturing. It intervenes at the shop floor level to make sure that requisite training happens at all levels to minimise defects. A part of this program concentrates on zero defect. To create awareness for safer and quality products, we constantly conduct road shows, take up kiosks in vibrant automotive hubs, and get company teams to educate people about spurious products. .

Q. What role does ACMA play in connecting suppliers with OEMs, and improve the ecosystem?

A. We try to find out from the OEMs what their requirements are. We talk to them. We consult them for visiting as delegates. We introduce our member suppliers, and help to establish a communication link, including inking of technical pacts. Such activities helps boost the technical capabilities of local manufacturers while understanding the needs of OEMs. We execute such activities for tier 1 suppliers with OEMs, and with tier 1 and tier 2 suppliers. There is a need to handhold them to ensure an improvement of the whole ecosystem. We have already developed a strong base of 80 tier 2 suppliers in Gujarat who are the preferred choice of OEMs.

Q. Does ACMA also engage with potential investors?

A. An ACMA delegation visited US to meet venture capitalists recently. The delegation reached out to companies developing technologies as well. Four members of ACMA have shown interest to engage with the venture capitalists. This is towards investing in new technologies. It is for the companies to find the right path.

Q. What is your view on electromobility from an ACMA stand point?

A. Looking at the issue of pollution, the future lies in electrification of vehicles. There will be need for technologies like quick charge. There is already a talk about setting up charging points, and building the necessary infrastructure. Solutions are being found to overcome challenges.

“My only hope is that GST maintains a level of 18 per cent or less. Above 18 per cent, it will hurt the industry, and may lead to counterfeiting and price rise.”

Trendline

Counterfeit now refers to fake or spurious products strictly. Products that do not comply with the Copyright Act, and with the IP Act.