NEW DELHI: Latin America, the furthest export market for India, has overtaken Africa to become the largest for vehicles shipped out of India. As much as a quarter of vehicles exported out of India in value terms went to Latin America in the last financial year, compared with 21% the year before, latest industry data show. Exports to Africa fell for the first time in a decade.
India exported buses, trucks, cars, motorcycles and chassis fitted with engines worth $8.86 billion (Rs 59,360 crore) in the year ended on March 31, 2015. While overall vehicle exports remained almost flat, shipments to Latin America jumped nearly 19% to $2.26 billion. There is a huge logistics cost involved in shipping vehicles to Latin America, some 15,000 km away from India.
But India's highly costeffective manufacturing capabilities and government incentives are helping offset some of the impact, say industry experts. Some auto makers that weren't doing well in the domestic market were only too happy to utilise the opportunity offered by a market with profiles similar to India, as it allowed them to keep their factories running here.
"India is known for its frugal engineering, which enables automobile makers to manufacture vehicles here at competitive costs," said Puneet Gupta, associate director at consultancy firm IHS Automotive.
"Of course, there are freight costs involved in shipping vehicles to Latin America. But if you look at it holistically, exports help companies improve capacity utilisation, better productivity of hired workers, gain economies of scale and meet commitments made to suppliers." Europe continued to totter.
Though the share of vehicle exports to the European Union improved marginally to 14% from 13% the previous fiscal year, it was still a far cry from fiscal 2010, when the continent accounted for as much as 47% of total value of India's vehicles exports. In percentage terms, Africa accounted for 23% of the value in fiscal 2016, compared with 29% the year before.
Falling oil and commodity prices, which helped auto makers improve sales and profitability in the Indian market, are blamed for the distress in Africa, where commoditydependent economies such as Ethiopia, Angola, Algeria and Nigeria are hit badly by the price plunge. "The fall in crude oil prices has hit the dollar revenue of many countries in Africa.
They now prefer to use dollar for import of essential items," said Sugato Sen, deputy director-general of the Society of Indian Automobile Manufacturers. "We have requested the government to allow rupee trade so that exports to these countries improve."
Even as the African market proved to be a challenge, the depreciation of the rupee pushed auto makers to explore markets in Latin America. That, at a time when the Indian government is working towards developing Latin America as a bigger market for the country's exports to offset slowing or shrinking shipments to its traditional markets.
European car maker Volkswagen is among the largest exporters out of India to Latin America. Of the 70,000-odd vehicles Volkswagen India shipped out in 2015, as much as 63,000 — mostly the Polo and Vento — made their way to Latin America. The madein-India Vento, which replaced Jetta Classico, has been well accepted in Latin American markets, especially Mexico.
It was second on the list of top selling cars in Mexico in the first six months of 2015, show data available with VW India. Andreas Lauermann, managing director at Volkswagen India, said the growing demand from Latin America has helped the company offset the decline in Africa.
Hyundai, which is the largest car exporter from India, shipped more than 49,000 cars in 2015 to 32 countries in Latin America. Latin America, in fact, accounted for 29% of the company's total exports out of India last year. Its made-in-India portfolio in that market comprises the Eon, i10, Grand i10, XCent, i20 Elite, i20 Active and the Creta.
General Motors ships the Chevrolet Beat from India to Latin America, while rival Ford exports the Figo and Figo Aspire. Suzuki Motor sells the Ciaz made by Indian unit Maruti SuzukiBSE -0.75 %. Incentives offered by the Mexican and Indian governments help in mitigating logistics expenses.
Lauermann of Volkswagen explained: "Mexico offers exemption of duties on imported cars for a number equivalent to 10% of the total production of cars done by the brand in Mexico. So, number of cars up to 10% of Volkswagen production in Mexico can be imported by Volkswagen into Mexico, without having to pay import duties on it. Add to that the good cost and quality position of our manufacturing in India, and it forms a good business case."
Source:economictimes.indiatimes.com
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