Rising costs threaten India's auto growth story

Rising costs threaten India's auto growth story - survey

	Published : Tue, 08 Jan 2008 09:34 By : Agencies Print this Story

NEW DELHI (Thomson Financial) - Rising production costs and dilapidated infrastructure threaten the Indian auto industry's ambitions for fast growth, according to a survey by consultancy KPMG published Tuesday.

The Indian government's 'Automotive Mission Plan' aims for automotive sales to more than quadruple to 145 billion dollars by 2016, and for indirect and direct auto sector employment to grow to 25 million from 13 million today.

But this may be tough to achieve due to insufficient investment to improve India's battered infrastructure, which creates major bottlenecks, said KPMG after interviewing 40 top executives from the Indian automotive industry.

India may be full of potential but it also has challenges 'from the remotest road-building site to the highest levels of government where policy is hammered out,' said Yezdi Nagporewalla, a director at KPMG India.

Periods of high confidence about the auto sector's prospects are just when 'questions need to be asked,' said the report, released a little ahead of an international auto trade fair in New Delhi that begins Thursday.

Labor costs are a big worry as a talent shortage drives up pay and staff turnover in an economy that historically has relied on low wages, the research said.

'Auto executives are also concerned about India's eroding cost advantage and the increasing challenges of rewarding and retaining talent,' the report said.

India's automotive industry, which produces 1.5 million vehicles annually, is worth 34 billion dollars a year and contributes 5.0 percent of India's gross domestic product.

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Rising costs threaten India's auto growth story - survey