It is often claimed that, even if the rupee is cheaper and external demand revives, India Inc will be unable to seize the advantages so offered. However, as a recent report in this newspaper shows, that is not necessarily true - at least for some. Indian companies making high-end motorcycles and electric cars are working towards entering the Chinese market. The Austrian motorcycle maker KTM, which is 48 per cent owned by Bajaj Auto, intends to sell more than 10,000 high-end motorcycles in China annually. The low-power variants of these motorcycles will be built as "completely knocked-down" units at the Bajaj facility in Pune, and finally assembled in China. KTM is not alone. The iconic high-end motorcycle maker Harley-Davidson, which has lent its name to an entire "biker" lifestyle, intends to produce certain models for export in its plant in Haryana - the only such location for manufacturing those models other than its famed plant in the American state of Kansas. Finally, there's the Mahindra group, which promoted the Reva electric car. The Indian government was supposed to subsidise electric vehicles, a plan that unfortunately did not work out. In response, the group is looking outwards for electric vehicle markets - first to Europe, and then to China.
The Indian automotive industry has long been seen as one of the few islands of relative success in domestic manufacturing. Indeed, the auto components industry has, by some accounts, led the response to a weaker currency by looking outwards for markets. However, what is needed is a strategic response by car makers too long dependent on the domestic market, and pinioned by a strong rupee. In this, they should learn from those making two-wheelers and electric vehicles. Excessively high diesel subsidies have for long warped the innovation priorities of the Indian automotive sectors, which have concentrated on reaping the benefits of dieselisation in the domestic market at the cost of competing in markets abroad. Hopefully that phase is coming to an end. Domestically, sales have dropped by about five per cent so far in 2013. Meanwhile, exports have jumped by 20 per cent.
What is very important is that this changed environment should be given a boost by India's trade negotiators. Both formal tariff and non-tariff barriers can come in the way of opening up markets, and India should keep pressing forward on reducing them. Some markets in Africa, including that in Algeria - a major destination for Maruti, for example - are in the process of changing their "homologation norms", the certification that a vehicle is road-worthy. This might work to keep out Indian vehicles, and needs to be addressed at the governmental level. In China, Indian vehicles face similar non-tariff barriers, but the confidence of motorcycle makers should give them hope. Finally, when it comes to tariffs themselves, the European Union will increase duty on Indian cars from 6.5 per cent to 10 per cent next year. This shows the continuing importance of reviving and concluding negotiations on the India-European Union free-trade agreement. The automotive sector has been short-sighted in seeking to defend the domestic market from imports, and not seeking out new ones.
