Ever since liberalisation, the Indian tyre industry has shown its mettle and has progressed rather rapidly against all odds. The industry is capable of taking all the challenges in its stride. However, the industry is asking for a level playing field with its counterparts in China and other countries, says Rajiv Budhraja, Director General, Automotive Tyre Manufacturers' Association. In an exclusive interview with EQUIPMENT INDIA, Rajiv talks about the Indian tyre industry and the challenges it faces.
China's tyre industry is estimated to witness a rapid ten per cent CAGR until 2020. And as per reports, leading Chinese tyre companies are sprucing up technology and scale to meet global norms. What is the impact of this on the Indian industry and its export capabilities?
In its own way, the Indian tyre industry, too, is on a growth path. Notwithstanding the current slowdown in the economy and the automobile sector which has impacted the growth trend in automotive tyre industry, the long-term growth potential of Indian tyre industry remains intact. The industry has put in place an unprecedented investment of Rs 20,000 crore in expansion and technology upgradation over the next few years. Indian tyre industry is amongst the few sectors of industry which are self-sufficient and has been ahead of the demand curve. As such, Indian industry is geared to face all the present and future challenges.
Yes, China's impact will be felt if Indian industry continues to be deprived of a level playing field with its Chinese counterparts. Chinese tyre companies are able to source raw material at a much lower cost. Export incentivisation policy by the Chinese government is another advantage that Chinese manufacturers have been enjoying. There has been large-scale dumping of cheap tyres in India through unfair means adopted by certain independent importers such as under-invoicing. If all these issues are sorted out, India's manufacturing prowess in tyre manufacturing will be on stronger display.
Has the sharp correction witnessed in input costs of key raw materials helped ease the shrinking market?
Yes, the softening of raw material prices has helped the industry but the cost advantage has been nullified in view of slackening sales, a result of the severe slowdown in the automobile sector and the overall economy.
Is a price war lurking in the wings, given the slowdown in the global auto industry, import of tyres from China and Korea, a bulging inventory, etc?
As such, the tyre sector is amongst the most competitive industries in the country with margins in the industry being one of the lowest in the automotive ecosystem. Tyre companies are up against competition from not only fellow players but also from cheap imports. Market forces will determine the price.
What is the impact of the recent government proposal to hike import duty on rubber?
The move is certainly uncalled for as the difficult times necessitate incentivising the industry with lower raw material prices. Any hike in import duty will further hurt the industry which is already passing through a challenging phase. Moreover, there is no rationale for increasing the duty as the domestic natural rubber (NR) prices are ruling above international prices and import of NR is inevitable, since domestic production is unable to meet the domestic demand both quantitatively and qualitatively.
To what extent the domestic industry capable of meeting the challenges, locally and globally?
Ever since liberalisation, the Indian tyre industry has shown its mettle and has progressed rather rapidly against all odds. The industry is capable of taking all the challenges in its stride. However, the industry is asking for a level playing field with its counterparts in China and other countries.
Brief us on the challenges the industry faces today.
The industry is facing challenges on both ends of the value chain. The raw material prices have certainly come off from their peak levels but are still ruling at much higher level than the prices obtaining two years ago before the unprecedented rise. The stiff import duty on raw materials (even those which are not manufactured in India) has not helped the matters either. At the other end, the industry is facing a lower off take in view of the slowdown in the automobile segment. Meanwhile, the import of cheap tyres from China, Thailand, etc, continues to hurt the industry.
The industry has asked for certain policy enablers to ride through the challenging times. The import duty on NR needs to be brought down. At current prices of NR, the effective import duty on NR is 12.5 per cent while Chinese tyre manufacturers can import NR at 0-5 per cent duty. Similarly, in case of those raw materials which are not produced indigenously at all or where domestic production is far below domestic consumption, import duty needs to be waived off. Anti-dumping duties on cheap and dumped tyres need to be more stringent.
What is the demand-supply scenario for tyres in the OTR segment? What is the growth potential?
OTR is amongst the fast emerging segments in the tyre industry, with big potential for growth in view of proposed investments earmarked for infrastructure sector. As per the latest data available, while different tyre categories showed muted and even negative growth in production during the financial year 2012-13, the OTR segment showed a significant growth of 35 per cent.
Is there any over-capacity?
Capacities in tyre industries were created keeping in view the growth projections in different categories of tyres. Unfortunately, the slowdown in economy and the automobile sector in particular has created a situation of varying overcapacities in different categories.
What is the impact of the slowdown in the mining sector? When do you expect a revival?
Slowdown in mining sector has not only dented the growth in OTR tyres but commercial vehicle tyres as well, as commercial vehicles play a big role in logistics. We believe by the last quarter of the current financial year, the situation is likely to improve.
What are the product and technology trends in the tyre industry?
The industry has gone beyond India's shores and is truly integrated with the world. The technological trends are benchmarked against the best in the industry worldwide. New tyres with less rolling resistance and better fuel economy have been introduced to help the sustainability drive of the companies. Certain path-breaking work is also being done, like finding alternative sources of natural rubber.
Brief us on the trends in radialisation in the OTR segment.
The radialisation in farm and OTR tyres has not picked up so far in India. After almost complete radialisation in passenger car tyres, currently commercial vehicle tyres are in the midst of a significant radialisation drive. Farm and OTR tyres will follow suit.
Is there any move in the direction of green tyres, especially for the OTR segments?
Driven by concerns of environment, industry initiatives demand from the customers and government legislation, there is greater awareness today for the need to move in the direction of green tyres. This shift will start from the passenger segment and subsequently encompass commercial, farm and OTR segments.
What sort of role does ATMA play here?
ATMA works towards promoting and safeguarding the interests of the tyre industry in India primarily by acting as a conduit between the government and the industry. The association strives to be an active participant in policy making process and holds frequent meetings with the government departments to discuss the challenges being faced by the industry in the ever-changing economic environment.
The association acts as the industry's interface with the media, opinion leaders, NGOs and other industry associations around the world, so as to present the perspective of Indian tyre industry on different issues. ATMA prepares and constantly updates an extensive information bank on the tyre industry and regularly publishes periodicals on a variety of subjects.