India loses cost competitiveness to China, Singapore in auto sector

India loses out to China, Singapore, Indonesia and even to Bangladesh when it comes to achieving cost competitiveness in the automobile and automobile components industry in terms of major parameters including labour, fuel cost and price of raw material, according to an Assocham-Thought Arbitrage joint study.

In terms of four parameters - cost of raw material, labour , fuel cost and rent paid, India is a clear loser to China, which is the world’s largest producer and has been developing rapidly since the 1990s, the study, titled ‘Assessing India’s manufacturing cost competitiveness’, noted.

“Development of the automobile industry in China primarily came through foreign direct investment, which has come in the form of alliances and joint ventures. Most of the fully Chinese made cars are used in the domestic market and its exports are mostly light trucks and auto parts,” it said.

Compared to China, Indonesia and Singapore, India spends heavily on raw materials for manufacturing automobiles and components. While these countries spend about 29 per cent, 23 per cent and 57 per cent of their value of output on raw materials, respectively, India spends around 69 per cent, clearly indicating a disadvantage for India. 

According to Kaushik Dutta, director of the Thought Arbitrage Research Institute, to remain relevant in both internal and external market environment, manufacturing sector producers need to be cost competitive as costs have direct impact on price competitiveness.

Indian auto and auto components industry has high labour costs relative to Bangladesh, Indonesia and China. It enjoys a cost advantage only with respect to Singapore, which spends 13.13 per cent of its output value on wages and other benefits to workers. India spends 8.29 per cent of its output while Bangladesh spends a mere 1.87 per cent, Indonesia 4.46 per cent output value and China nearly seven per cent of its total sales on labour.

In comparison to the proportion of output value spent on fuel by Bangladesh (0.18 per cent) and China (1.22 per cent of total sales), India spends a significantly higher proportion (1.99 per cent ) of its output on fuel, Indonesia is the only country over which India enjoys a slight cost advantage, spending 2.03 per cent of its output on fuel.

“In case, we have to realise the Make in India and attract lot more FDI, we need to work on reducing the cost of production in all the parameters, especially at a time when the world demand is subdued,” said D S Rawat, secretary general, Assocham.