Tax & Accounting Blog

The Industry Needs a Comprehensive Information Management Solution

Blog, Global Trade, ONESOURCE June 10, 2016

The Indian automotive industry is one of the most important contributors to the country’s economy, both in terms of growth and employment. The industry accounts for 45% of the country’s manufacturing GDP, 7.1 % of the country’s GDP by volume and employs about 19 million people both directly and indirectly.

Currently, the Indian automotive industry also enjoys a dominant position in the world. It is currently the seventh largest producer in the world with an average annual production of 23.36 million vehicles, 3.57 million of which are exported. It is the second largest two-wheeler manufacturer, the largest motorcycle manufacturer and the fifth largest commercial vehicle manufacturer in the world. The Indian automobile market is estimated to become the third largest in the world by 2016 and will account for more than 5% of global vehicle sales.

Even the automotive components sector in India has registered significant growth over the past years. India has overtaken the U.S. to become the third largest producer in the world of steel, one of the major auto components. The component industry registered a CAGR of 11% during FY 2010-15. It had a turnover of $38.5 billion in FY15, which is expected to reach $115 billion by FY21. Exports of auto components also increased at a CAGR of 21.6% during the same five year period, reaching $11.2 billion by end of FY15.

This probably explains the growth projections and policy provisions for the Indian Automotive industry and justifies the position India enjoys today as the most favorable investment destination in the world. Global car majors have been ramping up investments in India to cater to growing domestic demand and these manufacturers also plan to leverage the competitive advantage India offers to set-up export-oriented production hubs. These will add to the already existing four large auto manufacturing hubs across the country.

A growing working population, an expanding middle-class, increasing disposable incomes in the rural agri-sector, availability of a large pool of skilled and semi-skilled workers backed by a strong educational system and availability of a variety of vehicle models to meet diverse needs and preferences – these are the key growth drivers of the industry. The key objective of the Automotive Mission Plan released by the Government of India is to make India emerge as the world’s destination of choice for design and manufacture of automobiles and auto components with output reaching a level of $145 billion, accounting for more than 10% of the GDP and providing additional employment to 25 million people by 2016.

The government plans to achieve this through trade facilitation and a slew of growth policies including lower excise duties, setting up of a testing and R&D infrastructure under NATRiP, focus on electric and hybrid vehicles under the National Mission for Electric Mobility 2020 and Faster Adaption and Manufacturing of Hybrid and Electric Vehicles (FAME) schemes, setting-up of special auto parks and auto component virtual Special Economic Zones (SEZs).

PROACTIVE INDUSTRY

It is, however, imperative that the industry too takes appropriate timely measures and executes them equally and efficiently. These measures would typically mean market innovation, demand and supply management, capacity scaling, diversification strategies, sourcing models to leverage transfer pricing advantages and managing trade complexities therein, effective utilization of trade incentives and business process improvements. Information management and technology would be an integral part of all of these measures. Market research intelligence on probabilistic and deterministic demand in existing as well as emerging markets would form the basis of all business planning and strategic investments and efficient exchange of information across various functions of the organization would ensure return on these investments.

Cost benefit analysis on contract manufacturing as compared to outsourcing or on importing from subsidiaries as compared to domestic purchasing from external vendors and similar such functions would be pivotal to making informed decisions. This information would cover the entire gamut of supply chain activities within the organization as well as extending across the various trading partners and governmental agencies involved with the end-to-end process of delivering vehicles to the end consumer. An information portal, which provides such integrated services across the supply chain, evidently represents the most vital component for achieving these growth ambitions.

Here is exactly where the need for a comprehensive information management solution becomes important for auto companies. A comprehensive solution that not only provides all the benefits of an end-to-end supply chain process automation, but also acts as a powerful information technology platform that helps organizations manage the complexities of tax and trade compliance, indirect tax planning and determination, foreign exchange earnings calculations, export benefits utilization, import duty exemptions, free trade agreements and end-to-end process visibility. The solution should also be able to integrate its workflows with the activities of various trading partners and developments in the regulatory framework in the real world, which would truly empower auto companies to keep pace with the growth targets they have set and the challenges they need to overcome.

A comprehensive global trade management solution that can be used in standard as well as customized form by the industry will further enable the industry to provide low-cost manufacturing and product development automotive solutions to consumers. This will also help fulfill the performance and price expectations of the consumer through government-industry collaboration while meeting the objectives of the Automotive Mission Plan for development of indigenous manufacturing capabilities, required infrastructure, consumer awareness and technology. A powerful tool like this would help India emerge as a world leader in the automotive market by 2020.

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References:

  1. Source: Make in India
  2. The Economic Times: What industry captains want, ETAuto, Feb 2016
  3. India: Economic Survey 2015-16 and Union Budget 2016-17
  4. Originally published at http://autotechreview.com/events/itemlist/user/62-administrator.html?start=30