Prolonged lockdown to badly hurt auto-part clusters in NCR, Pune: CRISIL

The Indian automobile industry, already dented by a protracted slowdown before the Covid-19 pandemic struck, is now staring at a severe and prolonged disruption, due to domestic and global lockdowns and preventive measures, which have snapped major links of its supply chains, CRISIL Research said on Thursday.

If the lockdown is extended again in the the National Capital Region (NCR) and Pune clusters, there would be a material disruption in component supplies to vehicle makers – both sourced locally and imported, it said in a statement.

Currently, India sources 80-85 per cent of components for all vehicle segments domestically, mainly from clusters such as the NCR (including Gurgaon, Manesar, Faridabad and Greater Noida), Pune (including Chakan, Talegaon and Ranjangaon) in Maharashtra, Mysuru in Karnataka, and Sriperumbudur and Hosur in Tamil Nadu, it said. The rest is sourced through imports.

“Any extension of lockdown would dramatically increase the sourcing risk for products such as cast engine parts and transmission drives because major capacities are located in the Pune and Delhi-NCR belts. Passenger vehicles and two-wheelers will be particularly impacted since these two clusters are their major source of components,” said Ajay Srinivasan, Director, CRISIL Research

Tractors, which have medium to high dependence on NCR and Tamil Nadu, also face supply risk, the report said.

However, commercial vehicles are unlikely to be affected much because they source across clusters, it noted.

As for imports, India is dependent on China for critical components such as electronic control chips, engine control units and sensors. If logistics between the two countries remains disrupted for longer, it may translate into higher procurement costs due to airlifting, CRISIL said.

Also, imports of engine components and drive transmission from the United States (US) and Germany are likely to be adversely impacted if manufacturing in these regions takes time to bounce back, it added.

“Congestion following slower clearance of goods at ports stemming from labour shortage and lack of significant uptake in export volumes are expected to push up shipping freight rates, and also extend the turnaround times via road. This will drive up the cost for supply chains in the short term.” said Hemal N Thakkar, Associate Director, CRISIL Research.

Source: https://www.thehindubusinessline.com/economy/prolonged-lockdown-to-badly-hurt-auto-part-clusters-in-ncr-pune-crisil/article31415234.ece

April 23, 2020