Indian car market poised to drive past Germany
Bernhard Mattes is the President of the German Association of the Automotive Industry (VDA) – a representative body for the country’s auto manufacturers and component suppliers. In this interview with ‘India Global Business’, he addresses a range of issues from the sluggish India-EU free trade agreement talks to the scope for Indian suppliers to expand into the region.
What is the kind of impact you foresee Brexit having on India-EU ties?
Brexit is a topic we are viewing with great concern. The German automotive industry is hoping for a rational solution between the European Union (EU) und the United Kingdom. However, the EU and Germany have the clear priority that the other 27 member-states should remain together.
The Customs Union and the single market are success stories. For the time after the transition phase, practical solutions must be found. Legal certainty and continuity in all regulatory issues are important prerequisites for developing economic relations.
Currently, we are observing a shift in the geopolitical framework. This will allow other EU trading partners, such as India, to benefit from these current trends, and expand their position as reliable trading partners of the EU and Germany. Free trade agreements (FTA) are an important instrument in this regard.
Is the likelihood of an India-EU FTA still on the cards?
The VDA has been promoting the continuation of negotiations on a free trade agreement between the EU and India in order to tap the full potential of mutual trade. To date, they have not come to fruition and are more or less on hold. From the outset, the VDA has supported the removal of import duties in the automotive sector; even if this is associated with longer transition periods.
The increases of import duties in India at the beginning of this year have affected both manufacturers and suppliers and will affect them in the foreseeable future, as almost all companies have to import parts for their production in India. They present a sign in the wrong direction.
For India as well as Germany, access to international markets is an essential and strategic asset. The EU and India should take into consideration the advantages of a fair FTA between two strong partners. Stable direct investments and free trade are two sides of the same coin and integral aspects of sustainable business to everyone’s mutual benefit.
From the context of VDA, how do German car manufacturers see the Indian market?
The relationship with India is significant for the German automotive industry. German automotive manufacturers have production facilities in India. Automotive suppliers, too, are represented with production sites.
Our members see considerable potential in India. Of the 1.3 billion inhabitants, 54 per cent of the population is younger than 30 years. Likewise, India’s economy has developed positively in the last few years. The gross domestic product of the world’s sixth-largest national economy increased by 7.4 percent in 2017 and industrial production rose by almost 4 percent.
Further encouraging is the development of the Indian passenger car market. More than 3.2 million cars were sold in 2017, almost 9 per cent more than in 2016. In our forecast, we assume that in the current year the Indian passenger car market will expand by 9 per cent. The Indian market is likely to surpass the German market for the first time in terms of volume. But the Indian passenger car market still offers a lot of room for growth. At a rate of only 25 cars per 1,000 inhabitants, the number is still low by international comparison. In Germany, for example, there are 560 cars per 1,000 inhabitants.
What would you say to Indian companies considering an expansion into EU/Germany?
With regards to the automotive sector, we can observe that Indian supplier companies are well prepared for entering the European and German markets. For meeting European and German quality expectations, the observance of quality standards is crucial. For the automotive market we recommend to supplier companies to get their staff certified by VDA quality standards to improve their capability to enter the German market.
Furthermore, we have made successful experiences with the collaboration in the trade fair sector. We kindly invite Indian companies to visit and exhibit at our annual Motor Show IAA. The IAA provides a great opportunity to increase the interaction between global automotive OEMs and suppliers.
With our automotive network, we also provide a tool for companies who are looking for new business partners. Here, companies may present products, locations, and events and may search for cooperation partners in finances, market, organization and technology.
Are some Indian policies still hindering closer India-EU/India-Germany ties?
The VDA calls for a higher planning reliability; the timing and implementation of new reforms is far too short to respond properly. An example is the introduction of the Goods and Services Tax (GST), which had been modified very shortly after its implementation.
Additionally, India should take steps towards the acceptance of international standards and the elimination of discriminatory regulations. India has not yet signed the UN Agreements of 1958 and 1998. This also leads to own certification methods, which hinder trade. The same applies to Electric mobility: The charging infrastructure and regulations should be harmonized with European norms. The VDA recommends the Combined Charging System (CCS) as the potential solution for Premium Electric Vehicles & Busses. CCS will be the global charging solution. A harmonised infrastructure will improve the situation for customers and investors alike.
Is this a flagship sector of collaboration between the two regions?
India and the EU have strong economic ties. According to the United Nations Conference on Trade and Development, more goods from India were exported to the EU than to the United States and China. The increasingly close ties between the two regions become apparent in the trade of cars and auto parts.
In 2017, German suppliers delivered parts and components worth €561 million to the Indian market. In return, Indian suppliers exported parts worth €218 million from India to Germany. With regards to cars, India even has a trade surplus. India delivered passenger cars worth 243 million euros to the German market, while Germany delivered cars worth 33 million euros to In . On the one hand, this underlines India’s high level of competitiveness; on the other hand, this shows that both countries profit from mutual trade.