Rs 7,500 cr parts business rides on Maruti's plans

Suzuki Motor Corporation's expansion plans, which set the Japanese company on a collision course with the government, could turn out to be a big push for the automobile components industry.

The 250,000 cars per annum assembly unit announced by Suzuki could result in an investment of up to Rs 7,500 crore (Rs 75 billion) by the components industry. The entire sourcing for the venture is proposed to be done locally.

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Though Maruti Udyog, which will own 70 per cent of the venture, is yet to announce its investment in the project, the automobile components industry expects it to be around Rs 2,500 crore (Rs 25 billion).

As every rupee spent in a car project needs to be backed by a downstream investment of Rs 3 in components, vendors say the industry could see an investment of Rs 7,500 crore.

"We are very bullish on this development, though we are yet to do our calculations on what the Suzuki Motor investment means to us exactly," Surinder Kapur, chairman of the Sona Group, one of the largest vendors of Maruti Udyog, told Business Standard.

Even the government is shedding its initial reservations about Maruti's role in the new project. Senior United Progressive Alliance leaders have started making enquiries of the Maruti Udyog brass about the impact of the investments on downstream industries and the employment that would be generated.

According to an ICRA study, every car produced leads to 5.31 jobs in the economy. The proposal to make 250,000 cars could result in 1.32 million jobs.

In fact, the automobile components industry is also expecting a significant amount of business from Suzuki's proposed diesel engine venture.

Though it will start with a capacity of 100,000 per annum, this will be gradually hiked to 300,000. At the moment, the Indian automobile components industry is functioning at full capacity.

Any new demand can be met only by adding fresh capacity. "The automobile components industry has to make substantial investments in increasing capacity to meet the additional demand," said Dilip Chenoy, director-general, Society of Indian Automobile Manufacturers.

McKinsey & Co had in a recent study said the Indian automobile component industry had the potential to become a $33-40 billion industry by 2015. Suzuki's expansion plans could turn out to be a big push in that direction.