Saturday January 3, 01:30 AM

Source: Indian Express Finance

But fail to cheer up component makers

By Corporate Bureau
The auto component industry has been the most disappointed of all sectors, which are bleeding due to the slowdown in domestic as well as global demand, from the second stimulus package announced on Friday. The Centre falls short of our demands, major being the priority sector lending status or setting up a fund for the component sector and providing for a credit risk insurance coverage for the sector, says Vishnu Mathur, executive director, Automotive Component Manufacturers Association (Acma). Banks have listed auto component sector in the negative list and as such they are not increasing their exposure to the sector. So despite the Reserve Bank of India reducing the cash reserve ration, repo rate and the reverse repo rate, banks are not giving working capital loans to component manufacturers and there is no way to ensure that the reduction in rates will reach down to the auto component players, he says. According to Mathur, the Centre has given no heed to the industry demand of giving it a priority sector lending status of setting up a separate fund for the sector. Moreover, nothing has been done to provide credit risk insurance coverage to component players, especially against their export to the US and Western Europe where auto companies are on the verge of going bankrupt. Even the arrangement that would be worked out with leading public sector banks to provide a line of credit to NBFCs is restricted for commercial vehicles and would address only a small part of the overall dip in demand, he adds. However, the sectors demand for restoration of DEPB (Duty Entitlement passbook Scheme) rates and reduction in CRR, repo rate and reverse repo rate has been adequately addressed. The average 3-6% DEPB rate for different auto components has been once again restored to the earlier value prevailing in November. In fact, the rate is stable for one year now and this will improve the margins of exporters, he says. The India auto component industry, which is worth $18 billion in 2007-08, is expected to see a dip in revenue in 2008-09 despite a 6% growth in the April-September period as sales in developed countries have come to a standstill. There has been no provision of additional depreciation on machinery which in turn results in lower investment in the sector, added Mathur.