Auto manufacturing is shifting from the West to emerging economies such as India and China, Prakash M. Telang, managing director of the India operations for Tata Motors Ltd, says in an interview. Edited excerpts:

Global base: Prakash M. Telang of Tata Motors. Abhijit Bhatlekar / Mint

Does India have the potential to become a global manufacturing hub?

International firms are seeing India as a manufacturing base. In the auto sector, Ford (Motor Co.) and Hyundai (Motor Co.) have already made progress in setting up a global scale manufacturing base in India. One clearly sees that from (the) West, manufacturing activities are moving away quite rapidly for several reasons.

...Population is not growing in the developed nations. Therefore, not too many hands are coming into the job market—particularly in the blue-collar segment where jobs can be tough, dirty and grimy...

Secondly, cost of manufacture (in the West) is also much high as cost of living and social benefits are substantially high.

Can you elaborate on the advantages that India offers?

India itself has a large domestic consumption. This is a big advantage and the (high) GDP (gross domestic product) growth—despite deceptive elements such as services, exports, information technology. (The) government realizes that we need an inclusive growth and the automobile industry can provide huge employment opportunities.

What are the disadvantages for manufacturing in India?

The perennial power shortage is a huge disincentive. Manufacturing requires power and setting up captive power is an expensive proposition. Manufacturing also requires a good piece of land and it has to have an ideal location as we need skilled people... We have to have longer-term perspective.

Employment policies in India are very much in favour of the labour. For instance, labour regulations specify that if a worker works for 240 days in a year...he or she has to be confirmed as an employee. We need to have an exit policy.

We are seeing some manufacturing alliances—Tata Motors with Fiat SpA, and Suzuki with Volkswagen. Are alliances the way forward in India?

Volumes are going to be important in all the manufacturing activities... For instance, in our products such as Tata Nano and Tata Ace, we have economies of scale and alliances are not needed for them.

But for some of our products as we go forward, such as engines, transmissions, etc., the economies of scale don’t come in from stand-alone operations. We see more partnerships all over the world as firms share facilities for manufacture of power trains, etc.

There are examples in Europe where firms manufacture vehicles for rivals and finally few things would be different from the look of the vehicle. This kind of alliances will also happen in India.