Govt plans Rs 2,500-cr fund for auto component sector

A special fund meant for technology and modernisation of the industry is now likely to find its way in the 12th Five-Year Plan. In a culmination of requests by the auto component sector spanning three years, the Government plans to set up a Rs 2,500 crore development fund for the auto component sector.

According to documents accessed by Business Line, the new initiative called ‘Technology Upgradation and Development Scheme' would aim to give the $40-billion domestic component industry access to finance at reduced rates of interest. This has been suggested in the Report of the Working Group on Automobile Sector for the 12th Five-Year plan (2012-17).
Soft loans

The ‘Auto Component Technology Development Fund' will also be created under the same scheme. This would be used for financing half of the project cost through soft loans, with an interest subvention of four per cent that would be met from the fund corpus.

The total corpus of this fund will be to the tune of Rs 2,500 crore, though the initial funding needed to be pumped in by the Government for the “interest subvention requirement” would be around Rs 300 crore, a senior official said.

“We have been pushing for this for the last three years. We had asked for a Rs 7,500 crore fund over five years, but as an interest subvention. The industry will require Rs 15,000 crore in the period for research and upgradation, so we were looking for the Government to put up half of that amount,” Mr Vinnie Mehta, Director-General, Automotive Component Manufacturers' Association said.
More competitive

With many global automakers setting up base at home and the market showing steady growth, such a fund is expected to make the domestic industry much more competitive in terms of high technology component development. A lot of top-end electronic, electrical and some key materials (steel alloys/plastics) are imported.

“The industry lacks access to new technology, because it's small in size by global standards. Currently, the customer gives us the blueprint and we just produce, but now we want to do more value addition. We have identified three key areas – light weighting, processes and emissions,” Mr Mehta said.

The industry, which aims to almost triple its size to $115 billion by 2020, envisages annual capital investment of up to $3 billion.

Separately, an ‘Automotive Component Cluster Development Programme' is also being planned. This would look at process and productivity improvement in the sector.