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Suzuki Motor Corp. and Hyundai Motor Co. are exploring ways to make India a key global hub for sourcing components while also sharply increasing vehicle exports from the country, said two people familiar with the plans.

The initiatives are being pushed partly by the turbulence caused to automotive supply chains worldwide by covid-19 that has forced companies to realign their operations and reduce reliance on China.

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The Indian government’s incentive scheme to boost local manufacturing is also influencing the decisions.

Japan’s Suzuki is weighing options to make India the sole production hub for the next-generation model of its popular hatchback Swift by discontinuing production in Japan and other locations, said one of the two people cited above.

The parent of Maruti Suzuki India Ltd will adopt a similar strategy with its upcoming sport-utility vehicle, Jimny, though volumes for the Swift will be substantially higher.

Hyundai plans to develop India as one of its global hubs for sourcing parts and vehicles. This is part of the South Korean automaker’s strategy to derisk its operations by gradually reducing its reliance on China for parts, the second person said.

As part of the strategy, Hyundai plans to source more parts from India for its current or new factories in the Asean region; for instance, its upcoming plant in Indonesia. The company also plans to enhance the procurement of parts for its factories in South America and Eastern Europe from India, the person said.

The first person cited above said that in the post-covid era, global carmakers will be looking at multiple sourcing hubs as opposed to just depending on one country, and Hyundai’s decision to develop India as one of its hubs in Asia is reflective of this strategy.

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“The Indian government’s intent to promote exports and manufacturing from India in the next decade has enthused the likes of Suzuki, Hyundai and others. The covid pandemic has also shown the need to have multiple sources. If Suzuki finally decides to make India the sole hub for production (of Swift), then exports of Maruti is expected to benefit immensely. Also, given its production capacity in India, financially it will make sense as well," the person said.

Ever since the outbreak of covid-19, the Indian government has been actively pursuing companies to invest in the country as an alternative to China. The government announced in November the production linked incentive scheme of 3 trillion to encourage local manufacturing. The automotive sector, comprising vehicle makers and component suppliers, will receive subsidies worth 57,000 crore—the biggest chunk.

Hyundai has ranked as India’s top car exporter for more than two decades. Its sister company, Kia Motors, has also chalked up aggressive plans to tap India as a car export hub in the coming years.

Suzuki, meanwhile, plans to export more cars from India to other emerging markets in collaboration with Toyota Motor Corp. with whom it has a partnership for the Indian market since 2017.

The second person cited above said Suzuki may also make India the sole hub for some of its other products as well after the Jimny and the new Swift, and that the company is planning to utilize the Indian government’s incentives in the coming years to enhance exports.

“For Hyundai, India will play a bigger role when it comes to supply of parts to destinations in South America and Eastern Europe like Brazil, Slovakia and others. India is already one of the regional headquarters and, post-covid, it will be a regional hub for procurement of parts for other countries," the person added.

Queries emailed to Maruti Suzuki and Hyundai Motor India on Monday remained unanswered.

“Globally, the automotive industry is on the verge of a massive transformation, and we may see regionalization outscoring globalization in the next decade for car manufacturers and suppliers. Moreover, with the thrust on localization in India and with policies like AatmaNirbhar Bharat, India will have a key role to play in Asia," said Puneet Gupta, director, IHS Markit.

“We may see India becoming a hub for more and more models and more and more brands in the coming years. We think the production-linked scheme by the Modi government will kick off and usher in a new era of exports of cars and automotive parts from India to the world," Gupta added.

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