New Delhi: For the past four days, top Indian and international auto makers have been unveiling their latest cars— pricey products of highly sophisticated engineering—at the Auto Expo in New Delhi’s Pragati Maidan exhibition ground.
A few minutes’ drive in any of these vehicles will take you to Karol Bagh, where the vehicle could potentially be ripped apart and reassembled with spurious parts made by local engineers at around one-third the original cost.
“Look at this,” said Pawan Sharma, 50, pointing to his Maruti Suzuki Esteem’s new wheel caps. Sharma bought two original wheel caps for Rs600, but decided to settle for two fake ones as well, costing Rs200. “The quality is good,” he added.
Demonstrating value: The Auto Component Manufacturers’ Association of India stall at the 10th Auto Expo in New Delhi juxtaposes fake parts (left) with genuine components to point out the differences to visitors. Ramesh Pathania / Mint
Srivats Ram won’t agree. The vice-president of the Auto Component Manufacturers’ Association of India (Acma) says fake auto parts reduce the performance of a car and can even cause fatal accidents. “Customers are duped by retailers into buying these parts and the brand goodwill of reputed companies suffers,” said Ram, who is also managing director of wheel maker Wheels India Ltd.
More and more fake components have been finding their way into the replacement market—where retailers sell auto parts to replace factory-fitted ones. A recent Acma report estimates the proliferation of counterfeit parts has caused the auto component industry a whopping loss of $1 billion (Rs4,590 crore) till date.
The size of the replacement auto components market is $4 billion, or nearly 22% of the $18 billion auto component market in the country. As the Indian auto sector is expected to grow robustly in the next few years, the market for spurious parts is also likely to grow. The Acma report estimates that the spurious parts market would more than double to Rs11,400 crore by 2015.
Pankaj Chadha, director of automotive practice at Ernst and Young India, says the spread of fake parts is the biggest disincentive for a multinational to step into India, because it loses control over its intellectual property rights (IPRs). “They ruin the performance of a vehicle and, hence, run the risk of diminishing the goodwill of such companies,” he said.
It’s a major loss for the Indian government as well. “Around 20-22% of the cost of an auto part is paid to the government as excise, sales tax and other duties, which is a very sizeable amount,” said Vishnu Mathur, executive director of Acma.
Thanks to tax evasion and a complete disregard for quality and safety standards, makers of fake auto parts have a price advantage ranging from 10% to 60% over established companies, said Soumitra Bhattacharya, chairman of Acma’s consumer affairs and anti-counterfeiting committee.
Anand Saluja, who runs an auto outlet called Shree Balaji Car in Karol Bagh, said people prefer the fakes. “Here, genuine is duplicate and duplicate is genuine. People choose according to their pocket. The cost of mechanic labour is the same whether you take an expensive spare or a cheap part. It depends on you,” he said.
This is particularly true for the not-so-important “outer fitting parts” of a car, such as filters, hose pipes, headlights and fans, Saluja added. Duplicates are avoided for critical parts such as the crank in an engine. “If you are getting a Chinese Honda City headlight for Rs2,000 instead of Rs4,000, you take it, no? For most big cars, these Chinese-made parts are very popular now.”
But Satish Azad, owner of Spares and Spares in Karol Bagh, says the market for cheaper spares has waned in the past four years to just 15-20% and is more dominant in smaller towns and rural areas. “Since spending power has increased, people don’t want to come back to the mechanic again and again. They don’t have time, so they insist on a better product,” he claims.
To minimize the menace, Bhattacharya’s panel has adopted a two-pronged approach. It has hired three private investigation agencies to identify manufacturers, wholesalers, retailers and packagers of fake parts. It is also taking the help of local police to make arrests.
Bhattacharya says some 160 raids in seven states across the country led to arrests over the past year. The raids also found fake parts of 11 of the top auto component makers of the country, including Bosch Ltd, Delphi Automotive Systems Pvt. Ltd, Federal Mogul Goetze (India) Ltd and Lucas-TVS Ltd.
“We have laws dealing with IPRs that can bring such violators to justice. But the problem is that they are not enforced properly. Though we have managed to get some people arrested, but they have managed to secure bail,” said Bhattacharya, who is also a senior vice-president at Bosch.
Acma is now trying to persuade the government to make counterfeiting of auto parts a non-bailable offence, similar to the laws applicable to the counterfeiting of pharmaceuticals.
It also plans to conduct such raids in other states as well and triple the number of arrests in the next fiscal.
The most number of raids have been carried out in the northern region, and the National Capital Region in particular, Bhattacharya said.
Ernst and Young’s Chadha said that to check the sale of fake parts in the market, auto component makers should have a strict distributor selection process to minimize the chances of their designs leaking out. They should also engage directly with distributors.
“It is often seen that roadside mechanics are the ones who pass on fake parts to the customers in return for a commission from the makers of fake components,” he said. “As a result, companies have started offering incentives to these mechanics to win them over.”