Mumbai: A severe economic crisis in Sri Lanka has forced many Indian automotive firms to slam the brakes on exports of vehicle kits as well as production at the local assembly operations they have set up in the island nation.
Shipments of vehicle kits, including those for light commercial vehicles, trucks and buses, have declined sharply, as the neighbouring country is grappling with precarious forex reserves and fuel shortages, said industry executives.
While companies like Tata Motors have been exporting vehicle kits to distributors in Sri Lanka, others such as Mahindra & Mahindra, Ashok Leyland and TVS Motors have local assembly operations in the country.
“We are unable to get the kits, so we cannot put finished products out in the market,” said Rajeev Pandithage, chief operating officer-mobility sector at Diesel & Motor Engineering, one of the oldest and largest dealers for Tata Motors and Mahindra tractors in Sri Lanka.
Imports of vehicle kits are heavily restricted in Sri Lanka owing to the forex crunch.
Diesel & Motor Engineering had started assembly of the Tata Ace small commercial since there were import restrictions on completely built units of vehicles. It wants to launch the vehicle soon given the huge demand for such low-cost vehicles, said Pandithage.
Demand for Low-cost Vehicles
Besides, the distributor can import fully built tractors. However, Pandithage said, “We are facing forex issues to open LCs (letters of credit). Before the season starts, we have a stock of at least 1,000 tractors. This time we have just about 150, which is clearly not enough.”
Farmers want to buy new tractors, he said, but higher interest rates and rising inflation are not allowing them to do so.
A Tata Motors spokesperson said the company stays committed to the Sri Lanka market and prays that the country recovers from the crisis at the earliest. “Tata Motors continues to have a positive outlook about the Sri Lanka market,” said the spokesperson.
Tata Motors has been running its operations in Sri Lanka since 1961 and the country continues to be a priority market. “The company has consistently grown over the years and is now the largest selling commercial vehicle brand in Sri Lanka. It has the widest range of products, from the 750 kg Ace to 45-tonne Prima trucks,” said the company spokesperson.
Two-wheeler maker Bajaj Auto said due to the forex shortage, imports of most auto products including two-wheelers and three-wheelers were stopped by the Sri Lankan government almost a year ago. “As a result, our exports in the previous year were negligible. In 2019-20, we exported over 30,000 units, which also was a decline over the previous highs,” said Rakesh Sharma, executive director, Bajaj Auto. “A small restart was made recently based on efforts to localise and generate employment there. Now, with this dislocation, we have to wait and see how that initiative unfolds.”
Mahindra & Mahindra set up assembly operations in Sri Lanka with the Ideal Group to produce the KUV 100 mini sport utility vehicle (SUV) and Bolero Maxi pickup truck in August 2019. “We cannot ramp up production as there is difficulty in sourcing,” said Nalin Welgama, executive chairman, Ideal Group. “The target was to sell at least 5,000 vehicles a year through this JV (joint venture). We sell about 200-250 of such vehicles a month. Our assembly is continuing despite the forex challenges.”
The KUV 100 and the Bolero Maxi are entry-level products and there is a good demand for them, he said.
Distributors are hoping they can accelerate production of such low-cost vehicles, which continue to have a good demand in Sri Lanka.
Mahindra & Mahindra set up a completely-knocked-down assembly plant in Welipenna through a JV with local partner Ideal Motors. “Our vehicles including KUV 100 and Bolero City Pickup have been well received. Further, last week, M&M signed an agreement with Sri Lanka Police for 750 Scorpio SUVs,” said a company spokesperson. “With over 35,000 customers in Sri Lanka, M&M remains committed to the long-term prospects of the market and will continue to work on building and strengthening its brand and position in the country.”
TVS Motors retails several of its two-wheeler models such as the 100 cc economy motorcycle TVS Sport and the 125 cc scooter TVS NTORQ Race Edition through local assembly. The launch of this scooter, in January 2020, triggered a turnaround in the Sri Lankan scooter segment.
In January this year, the Sri Lankan government approved the purchase of 500 buses from Ashok Leyland for its transport board.
Queries emailed by ET to TVS Motors and Ashok Leyland did not elicit a response till press time.
As Sri Lanka battles the worsening crisis, automakers realise that production cannot be immediately ramped up due to economic uncertainty and low business activity, said industry executives. However, local players are confident that production will not come to a complete halt, they said.
This sharp decline in Sri Lanka’s share of Indian exports comes at a time when commercial vehicle exports in general have picked up speed in FY21-22, despite pandemic related disruptions particularly in the neighbourhood markets of Bangladesh, Nepal and Sri Lanka.
