Red tape and taxes threaten India's auto-parts industry

India is emerging as a global hub for sourcing automobile components but red tape, high taxes and rigid labor laws are major roadblocks to the country's remaining competitive, officials and analysts say.

A joint study by McKinsey and Co and India's Automotive Component Manufacturers Association says the local parts industry has the potential for five-fold revenue growth to US$40 billion by 2015. Exports would account for half of this.

Kiyomichi Ito, managing director of Toyota Kirloskar Auto Parts, in which Toyota Motor Corp holds a 64 percent stake, said he was treating the figures with caution but was optimistic the growth potential was indeed there.

"If it happens we will go ahead and invest more capital," Ito said in Bangalore, India's southern technology hub.

He said India had the advantage of a huge domestic market for automobiles with its billion-plus population, a strong base of more than 800 existing auto component makers and an English-speaking population.

"But red tape is a major hurdle. It takes a lot of time to get government approvals and as a global company responsible to its shareholders we expect things to happen in a global time frame," Ito said.

"Infrastructure such as power, airports and roads are bad and labor laws are rigid. It is ridiculous to retain people who are not working or productive. It does not make sense," he said.

Other nations including China, Poland and Turkey were competing with India, he said, and rising labor costs could rob India of its advantage.