Amid global headwinds and increased risk exposure in certain sectors, Indian enterprises, including those in the automotive and ancillary industries, have showcased exceptional resilience and strategic advancements. The fourth edition of the ICICI Lombard Corporate India Risk Index (CIRI) 2023 highlights these achievements, noting significant improvements in risk management scores.
CIRI serves as a pioneering academic exercise aimed at understanding the levels of risk faced by companies and assisting in the development of effective risk aversion plans. As the first-of-its-kind risk measurement tool, it evaluates a company's risk exposure and preparedness across various business aspects, including customer dynamics, competitive landscape, regulatory environment, business operations, technology, finances, and environmental factors.
The report underscores the heightened impact of unprecedented events due to market and economy-related factors such as political uncertainty, global economic slowdown, and regulatory changes. These market and economy-related risks, termed ‘Systematic Risks,’ are meticulously classified in the report, providing a comprehensive overview of the challenges and opportunities faced by Indian enterprises.
Key Risk Categories
For businesses, inflation, which represents the general rise in prices within the economy, can lead to higher production costs and reduced profitability. Companies must remain vigilant and responsive to changes in inflation to effectively manage the prices of their final products.
In a large democracy like India, the complexity of multiple taxes, such as GST, customs duties, and central excise duties, poses significant challenges. Changing legislation, increased scrutiny by tax authorities, and heightened public attention contribute to tax risks for organisations. Therefore, it is crucial for firms to manage their tax affairs efficiently to minimize these risks.
Regulatory risks arise from changes in laws and regulations that can impact industries or businesses. These changes may pertain to tariffs, trade policies, employment laws, minimum wage laws, financial regulations, and Foreign Direct Investment (FDI) policies.
Foreign exchange rate fluctuations play a crucial role for firms involved in exporting goods and importing raw materials. Changes in foreign exchange rates can significantly affect the prices of traded goods. For instance, currency depreciation can benefit exporting firms but increase costs for firms importing raw materials. Companies need to hedge their exposure to foreign exchange risks to protect themselves from these impacts.
Geopolitical risks including political and economic uncertainties pose potential threats to the financial and operational stability of companies. Competitive risk involves the challenges of operating in a market with multiple companies vying for the highest market position and consumer ratings. Companies must develop effective strategies to gain a larger market share and attract customers from competitors. Failure to manage competitive risks can lead to significant business losses, making market competition a major risk factor, the report said.
Noted Developments
According to the report, India experienced significant developments across various sectors in 2023, driven by changes in consumer preferences, technological advancements, and regulatory trends. These shifts have shaped the industry landscape and influenced strategic decisions among market players.
For instance, electric vehicles (EVs) gained considerable traction across different user categories, spurring investments in infrastructure, and benefiting from government policies promoting electric mobility. The automotive industry saw a substantial increase in demand for EVs, while the logistics and transportation sector adopted electric fleets to reduce carbon emissions and operational costs.
Automotive Sector
The Automotive sector in India demonstrated remarkable resilience and growth throughout 2023, solidifying its position as a key pillar of the economy.
Contributing approximately 7.1% to the national GDP and providing direct and indirect employment to over 19 million people, the sector's significance in driving economic development cannot be overstated.
Market dynamics revealed a nuanced blend of market share dominance and export growth. Two-wheelers continued to dominate, commanding 77% of the market, followed by passenger cars at 18%, with small and midsized cars leading the segment. Notably, the export of automobiles surged by 35.9%, showcasing India's increasing presence in the global automotive landscape.
The influx of foreign direct investment (FDI), amounting to INR 2.8 Lakh crore, highlighted investor confidence and India's attractiveness as a manufacturing destination. These investments, constituting around 5.48% of the total FDI inflows, fuelled the sector's growth trajectory and technological advancements, underscoring India's emergence as a preferred destination for high quality automotive components and vehicles.
Globa Ranking
India's global rankings in various automotive segments further emphasised its stature as a formidable player on the international stage. Ranking as the second largest in two wheelers, seventh largest in commercial vehicles, sixth largest in passenger vehicles, and the largest in tractors, India solidified its position as a key contributor to the global automotive value chain.
The risk index for Indian Automotive and Ancillary sector has been slightly reduced from 69 in 2022 to 68 in 2023 as 2023. This was attributed to an increase in risk exposure which was countered by an
increase in risk management. The year saw a steady growth in the number of units sold.
Risk Exposure
The sector witnessed an increase in risk exposure, backed by regulatory changes, inflation and supply chain challenges due to geopolitical events. However, this was countered by effective risk management strategies which enabled the overall growth of the automotive industry. The implementation of the BNCAP, the focus on promoting EVs, and the PLI schemes for the automotive sector created a more favourable and stable environment for the automotive industry, leading to higher growth potential. Overall, the Indian Automotive sector's performance in 2023 underscored its resilience, growth
trajectory, and transformative potential. With a keen focus on innovation, sustainability, and strategic partnerships, the industry is poised for continued growth and transformation in the years ahead, contributing significantly to the nation's economic prosperity and technological advancement.
Artificial Intelligence
In 2023, the integration of artificial intelligence (AI) surged, transforming business operations across various sectors. Manufacturing companies utilised AI for predictive maintenance and quality control, which significantly enhanced efficiency and reduced costs. Additionally, social media became a powerful tool for brand building and customer engagement.
The ‘Make in India’ initiative also drove substantial changes in supply chain operations. Several sectors, including automotive and manufacturing, emphasised local sourcing to reduce dependence on imports. Companies diversified their supplier bases and optimised logistics networks to mitigate supply chain risks. This strategic shift towards domestic production improved resilience and competitiveness across industries.
Furthermore, Diversity, Equity, and Inclusion (DE&I) initiatives gained momentum in 2023, fostering more inclusive workplaces across sectors, as noted in the report.
Digitalisation
The Manufacturing sector prioritised digitalisation and process optimisation to enhance productivity and competitiveness amidst supply chain disruptions and inflationary pressures. Companies invested INR 1.2 lakh crore in automation technologies and smart manufacturing initiatives to streamline operations and reduce costs. The Logistics & Transportation companies invested INR 800 crore in block chain-based traceability systems and cyber security protocols to secure supply chains and protect sensitive data from cyberattacks.
CIRI 2023
The proprietary study conducted by ICICI Lombard in collaboration with Frost and Sullivan, shows an improvement in the risk index score from 63 in 2022 to 64 in 2023. ICICI Lombard, India’s leading private general insurer continues to pioneer in creating first-of-its-kind risk indices for India Inc. and recognizing organizations for their risk governance practices through the India Risk Management Awards (IRMA).
The CIRI 2023 comprises 32 risk elements across six broad dimensions, drawing upon global risk management best practices. Its unique scale identifies optimal management of the risks companies are individually exposed to, enabling them to adopt effective practices, without over-investing.
The 2023 Risk Index shows all 20 sectors in 'Superior' or 'Optimal Risk Handling,' with nine sectors demonstrating 'Superior' handling, including Telecom & Communication, Pharmaceuticals, Healthcare Delivery, Automotive & Ancillary, Manufacturing, FMCG, Media & Gaming, New Age & Start-up, and Tourism & Hospitality. The BFSI sector showed significant improvements in cybersecurity measures but remained susceptible to global economic volatility.
The Manufacturing, Metals & Mining, and New Age sectors displayed notable advancements in their risk index scores. However, the FMCG and Biotech & Lifesciences sectors faced challenges due to dynamic consumer demands and geopolitical events, resulting in a slight downgrade in their risk index scores.
Commenting on the findings, Sandeep Goradia, Chief - Corporate Solutions Group at ICICI Lombard,said, 'The ICICI Lombard Corporate India Risk Index 2023 empowers businesses in assessing risk and navigating strategically while enhancing business value. The improved score in the fourth edition of the Corporate Risk Index is a testament to the efficient risk management practices adopted by Indian corporates in the face of global headwinds and challenges. As we move forward, companies must stay ahead of the curve and adopt comprehensive and efficient risk management practices. ICICI Lombard helps clients manage risk with bespoke services like property and engineering loss prevention, comprehensive risk assessments and cyber security solutions. These services provide a holistic view of the risk, enabling clients to enhance operational resilience for long-term stability and growth.”
Aroop Zuthsi, Global President and Managing Partner at Frost & Sullivan, appreciative of the improved risk management practices of Indian companies, stated, “The ICICI Lombard Corporate Risk Index is a definitive tool to measure the strategic risk management of corporates. The steady improvement in risk index score for the country as a whole, combined with the fact that there are no sectors below the optimal risk index category, indicates a very positive outlook for Indian corporates. In the face of a very dynamic business environment, in India and globally, it is heartening to see Indian corporates developing a clear knack for effectively managing the risks they are exposed to.”
The report summarised that India's diverse sectors demonstrated resilience and innovation in navigating through a challenging operating environment in 2023. As India continues its journey towards economic prosperity, proactive risk management and innovation will remain critical drivers of success across diverse sectors.
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