Introduction of electric vehicles is a major gamechanger for the Indian economy. However, Shrabana Mukherjee believes it could lead to job losses in the internal combustion engine manufacturing units (mostly forging, casting and stamping units).

 

The announcement of the Union Transport Minister, Nitin Gadkari, with respect to the Government’s focus on to eliminate internal combustion engine vehicles by 2030, was an ambitious but welcoming change for many. The country ranks as the third largest emitter of carbon dioxide in the world, behind only China and the US with 2 million kilo tonnes of carbon dioxide emissions. India, being a signatory to the Paris climate agreement, is obligated to bring down its share of global emissions by 2030. About 82 per cent of its oil requirements are met through imports, making Asia’s third-largest economy in need of alternatives to fossil fuels. It is estimated to spend up to $ 85 billion in financial year 2018 on oil imports, according to India’s oil ministry. And a huge portion of this requirement could be attributed to the automobile sector.

 

India is the third largest automobile market in the world with the country currently being the world's seventh largest commercial vehicle manufacturer. Two-wheelers dominate the industry and had a 79 per cent share in the automobile production in FY17. Two-wheeler sales are expected to grow 8-10 per cent in FY18. Indian automobile industry has received foreign direct investments (FDI) worth $ 17.39 billion between April 2000 and June 2017. The passenger vehicle sales in India crossed the three-million-unit milestone during FY 2016-17 and is further expected increase to 10 million units by FY20.

 

In the view of the above statements, the Indian government has also set up an ambitious target of having only electric vehicles being sold in the country by 2030. This is likely to reduce its oil bill by some $ 60 billion and emissions by 37%. The Government’s 2015 initiative to promote clean fuel technology cars Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) received a renewed push with the announcement of Gadkari. 

 

Threat to Indian forging industry

The automotive industry in India has been one of our strongest engines of growth, contributing to about 7 per cent of GDP, 22 per cent of industrial GDP and 50 per cent manufacturing GDP. The strong multiplier effect of the industry makes it one of the biggest job creators. The industry leads to job creation in the upstream, that is, metals, mining, plastics, glass, rubber, etc, in the core manufacturing of automobiles both in OEMs and auto component suppliers, and finally downstream, ie servicing/repairs, fuel supply, logistics, etc.

 

Although EVs are technologically advanced products, their architecture is simpler with significantly lesser moving parts. This has a two-fold impact on the upstream and core automobile manufacturing. Firstly, it leads to elimination of several components and the jobs associated with manufacturing those. Secondly, it makes the assembly process less complex and leads to job losses in the OEM assembly plants. The biggest loss of employment will be in the internal combustion engine manufacturing units (mostly forging, casting and stamping units), while there will expectedly be job cuts in areas of transmission, after-treatment systems, and fuel tank and fuel circulation system manufacturing as well.

 

The order of magnitude of difference in employment levels for internal combustion engine manufacturing versus EV traction system and battery is quite evident. The jobs losses are far higher when looked at from the auto component suppliers’ perspective. The worst affected auto component suppliers would be the erstwhile engine (including engine components) and after-treatment system manufacturers. A large share of such affected suppliers are those involved in relatively more labour-intensive manufacturing processes like castings, forgings and assemblies going into engines.

 

As per the recent survey conducted by the Association of Indian Forging Industry (AIFI) in September 2017, the estimated turnover of the 378 functional forging units across India in FY 2016-17 was Rs 31,189 crore providing employment to approximately 100,000 people in the country. The report also suggests that the installed capacity also increased from 37.6 lakh MT in FY 2014-15 to 38.5 lakh MT with overall production of forgings increased from 22.5 lakh MT to 23.9 lakh MT.

 

Approximately 58 per cent of the forging units are into manufacturing of auto components. Table 2 depicts the average weight of forged components required in the typical vehicles.

 

With the introduction of electric vehicles, the forging industry would face serious threats.  Internal combustion engines (ICEs) have approximately 2000 moving parts as compared to only 20 moving parts in electric vehicles. Electric vehicles do not have engine and transmission parts completely. It only comprises steering components, suspensions and axles out of the forged auto components.  As a result, on an average 60-70 per cent of  demand for forged auto components would decline.

 

This could pose a serious threat to an entire industry and the people employed in it, if not dealt with care. Moreover, the decision seems highly farfetched at present and requires the Government to draw a clear road map for the same.

 

Currently, India sells 22,000 electric vehicles annually, out of which only 2000 units are four wheelers (approximately 1 per cent of the total four-wheelers sold in India). India’s first electric car was launched in 2001 by REVA, a Bengaluru-based company. The Mumbai-based Mahindra bought over REVA and renamed it Mahindra Electric - it remains the only electric passenger vehicle-maker in India with two models of electric passenger vehicles. A petrol-diesel car needs 5 minutes to refill the fuel tank. Now, the fastest charging battery takes at least 40 minutes to 1 hour to fully charge the battery. The best mileage given by electric cars is 120-140 km per full charge making it unsuitable for long drives. India would also have to integrate sufficient charging stations within the cities to promote the sale of electric vehicles amongst the masses.

 

Apart from spending in the infrastructural changes, the Government must consider providing preferential subsidies to both carmakers as well the buyers. China, the largest market for electric vehicles, recently saw a fall in demand for electric vehicles when the Government cut subsidies in the first half of 2017. BYD, the largest manufacturer of electric vehicles witnessed a decline of 20 per cent in sales, when they increased prices of EVs to compensate the deductions in subsidies.

 

In short, introduction of electric vehicles is a major gamechanger for the Indian economy. A haste policy would fail to generate the necessary benefits that could be expected from such a move and demands an organised attempt at every step.

 

Shrabana Mukherjee is the Assistant Manager of Association of Indian Forging Industry (AIFI) - the apex body of the Indian forging industry. At present, it consists of over 250 members, who command a large market share of the total production of the Indian forging industry. The role of AIFI is to promote and develop the Indian forging industry to meet the demands and expectations of forging customers and end users, both domestic and global) by improving the business environment for its members and contribute in increasing their competitiveness through mutual co-operation and understanding of all parties concerned and constant updating of information and technology.