The first slowdown for the Indian automotive sector in eight years has made everyone sit up and take note. The last few months have been particularly bad. On its part, the Central Government and the Reserve Bank of India is trying to build confidence back into the industry with various fiscal measures.

To understand the government's perspective on the current scenar­io, Auto Monitor caught up with Additional Secretary, Ministry of Heavy Industries and Public Enterprises Dr Surajit Mitra. Excerpts from the interview:

Deepangshu Dev Sarmah and S Ronendra Singh

NEW DELHI

How do you view the current scenario for the Indian auto industry?

The auto industry is affected in a way that there is a recession, particularly in the United States of America and European countries. The auto industry is a very exclusive industry. It is not one of the large spectrums of manufacturing and has various kinds of coordinates, which is different than other kinds of manufacturing sector. On one hand it is a need-based industry, on the other hand it is also a luxury industry.

The Indian auto industry's integration into the global market is not as pervasive as it is in other countries. About 23 percent of the total value of production of the auto industry is exported. A large chunk of it is therefore consumed in the domestic market. I am not talking about the auto component industry, which is slightly different, but overall, it does contribute to it.

Secondly, if you look at the structure of our auto industry, 75 percent of it is contributed by two-wheelers - a significant difference compared to other markets worldwide - except China, which is the largest two-wheeler market. The other difference is that our economic situation today compared to what has happened in America is different, thanks to our guarded approach towards various starting from full of rupee to our integration global financial market. We are therefore in a much better position today.

The third thing is that our production is largely domestic oriented. China on the other hand wanted to be a factory the world and had created capacity for the world in many sectors. Therefore, any recession in the global market will have greater impact on them compared to India.

But by saying all these I am not minimising the impact of global recession on our economy. I am rather trying to emphasise that much will depend on how our domestic demand behaves. Until now our domestic demand has not slumped that much, but it has slowed down. The slowing down is basically to two things - liquidity problem and rising interest rate- because wherever you two-wheelers as the main manufacturing activity, naturally it is dependent on bank loans, and loan availability is becoming an important factor.

Where do you see this leading to?

I am not expecting a crash in the Indian auto industry, but there is bound to be some unutilised capacities, which mean cost to the company or the manufacturer. There will be some sort of squeeze on the margins because of various factors. Foreign direct investments have slowed down and all long range investments - around Rs 80,000 crore that we could get as a favourable destination - will slow down. Project implementations will slow down.

That obviously has an economic and social cost in terms of employment. But I would suppose that this thing is only a partial effect compared to what has happened in other countries. For me, it is a period where we cannot show much growth, like what we had in the past but I am certainly not ready to believe that it means closure of many companies and many others going out of production.

The Government is addressing this problem. The four percent cut in Cenvat is a bonanza that has been given to the industry across the table and not to a specific sector. It is a tre­mendous boost to see that costs have come down. I hope all sectors are passing on this to the consumer, which is very important because if it is not passed on and being taken away somewhere in the middle then it does not help at all.

Two other problems that have been addressing and will continue to address from time to time are liquidity and availability of loan - liquidity in terms of investments and projects, availability of loans in terms of consumer loans. The third thing is when such a recession takes place there is price-cuts by all countries. Our exports will have to be competitive price driven.

So this is something the industry can expect to come out of?

I am pretty confident that the industry will come out of it. It will take time and it is always painful to be a part of this slowing down. Nevertheless, I am not expecting any crash because once auto industry is de-structured, it is very difficult to restructure and reconstruct it because of various things like superior technology of components and high investments.

How much would this affect Government projects and schemes, including the Automotive Mission Plan (AMP)?

The slowdown will affect our projects for sure. But as you know AMP is a 1O-yearplan (from 2006-16) and we have done hardly two years, before we headed for this slowdown. We were recording a growth of 20 percent plus, which a very order is. Even if it comes down to half of it, it's not a bad growth at all. Since we are used to very high growth regime, today we are getting very concerned.

It does affect, but it is important to check when the recession recedes, how quickly it picks up and what will be the growth rate. I feel we have enough time to make up. Even if I expect the slowdown to have its repercussions for about a year or so, we still have solid seven years to rebuild. I personally am not too worried about those targets are not sacrosanct.

A couple of months here and there won't matter. What will matter is whether we can keep the growth momentum and pick it up from there to a higher growth trajectory. Look at what is happening to Ford and GM. We do not have their kind of economies of scale, but nevertheless we are today more competitive than them. I won't be pessimistic about this slowdown.

Generating appropriate talent is still a big issue. How does the National Skill Development Mission really help in reaching the employment targets for the industry?

The National Skill Development Mission is one of the greatest and most appro priate programmes that the Government has taken up in recent times. For a fast industrialising country like ours, the main base is manpower. And if we are competitive in the global market it is only because of the low cost of human resource. Low cost not mean low productivity and low quality. The only two things that are required are technology and human resource.

In case of the auto industry, technology absorption has happened at the' quickest possible time. We have no issues with the technology part, but we are increasingly confronting a problem of skilled manpower. Secondly, there are other competitive sectors that are growing fast, including infrastructure, cement, steel and power. So they have a competitive claim for the skilled and quality manpower.

This gap was increasingly there. For example, in the Pune hub we required around 15,000 engineers a year, but we get only about 6,000.1 believe the National Skill Development Programme would bridge this gap. Secondly, it is not only the engineers, but we need a lot of supervisors, mechanics and shopfloor workers with requisite skill sets that help us compete globally. The govern­ment's step is particularly helpful to the auto sector.

How does the Government plan to take up automotive design as a focussed sector?

Design and styling is the third important aspect of the Indian automotive industry after infrsatructure and technology. We are slowly and gradually moving to the third stage. Certain manufacturers have their own design centres here, but mostly we are dependent on designers outside. First, that it is expensive and secondly, they may not reflect our culture, requirement, weather, road conditions and lot many things. We must have a design institute, which we are trying to establish with the help of the private sector. I am sure this would come about within this Five Year Plan.

Even the IITs, for instance, were talking of starting design courses at the bachelor's level. Isn't that a step forward?

Certainly it is. The National Institute of Design (NID) has been a pioneer and certain IITs have also shown keen interest in it. They have the resources and skills to do that but what is not happening is the coordinating effort for designers. What we are trying to do is bring up an institute, which has the ability to access, and bring such kind of resources together and build up something nationally.

Are you talking of some kind of nodal agency for automotive design and styling?

We want to make an apex institute for design and styling that will also come up as a centre of excellence.

Talking of NATRiP, are all the projects on track? We understand there are some issues with land acqui­sition, particularly in the proposed Rae Bareilly.

You will acknowledge that NATRiP is one of the biggest and most ambitious programmes that the Government has launched. It is in fact, one of the very timely projects for the industry. Millions of dollars were going out of this country for various testing and validation purposes. Moreover, it was hugely time consuming for manufacturers. NATRiP aims at addressing these basic issues.

We are on track albeit the fact that in recent times, land has become an issue everywhere. legitimately or otherwise. It is an issue, which we cannot ignore and for projects like NATRiP, we require hundreds of acres of land. We are not keen that agricultural land be utilised for this. We want to take up non-productive land for the projects. We have been successful in five different locations till now and we have got the land and the projects have started. Tenders have also been issued for construction.

In Rae Bareilly, we have been facing issues with acquiring land. We are pursuing it and are hopeful that we would be successful. Secondly, the expansion programme in ARAI, Pune had also become a problem but we are coming to an end of it. It is an existing institute and we were waiting for land to build a new facility. Rae Bareilly is a Greenfield project, and the land issue is some kind of a setback. Since it is not a time consuming project, we can make up for the time lost, provided the land is allotted soon, which we are trying to do.

Overall, NATRiP is on track and would be completed on time and we are set for the Centres of Excellence in phase II. We have already started earning revenues from our centre in Manesar (iCAT). The land problem is behind us except a few. I hope it would be settled in a month or so for one project, while the other will take a little while.

If you can't acquire the land in question by a specific time, would you look at relocating that centre?

Certainly that is an option. But I don't think time has come for that. I am sure it will get sorted out.