| India’s automotive components manufacturing industry is projected to grow significantly in the global auto supply chains. Local companies are anticipated to experience a rapid growth in market share in the upcoming years.
The auto component manufacturing industry serves as a vital sector that not only fuels the growth of the global automotive industry but also plays a pivotal role in driving macroeconomic growth, development and generating substantial employment opportunities. Additionally, the industry has witnessed remarkable growth in the demand for auto components globally, further reinforcing its importance and impact.
Importance of the Industry
Currently, the overall Indian auto components industry accounts for 2.3% of India’s GDP. Moreover, it is set to become the third largest global industry by 2025. A recently issued research states that the auto component exports from India are expected to expand five times over the next ten years. It is imperative to highlight that the sector’s shift towards sustainable mobility, which is being facilitated by the government through various initiatives, has accelerated the growth of this industry tremendously. Initiatives such the PLI scheme and FAME scheme have stirred an exponential growth in the industry.
In addition, the global push for supply-chain diversification and bolstering of the domestic Tier II and III supplier base has become a catalyst for the macroeconomic growth of the auto component segment. Despite concerns about a recession in the US and Europe’s major markets, the Automotive Component Manufacturers Association of India has stated that India’s auto component sector was valued at approximately USD $56.5 bn in FY2022, and is predicted to increase by 10%–15% till FY2024, supported by both domestic and export market demand. Additionally, as per Invest India, the auto components industry in India is expected to grow to USD $200 bn by 2026, and here is why:
• Fostering Industrialization
By attracting investments, encouraging local entrepreneurship and developing a robust supply chain, this industry has become a catalyst for the overall industrial development of the country. The sector also attracts Foreign Direct Investment (FDI), technological expertise and export capabilities due to the growth potential it poses. FDI inflows in the auto component industry bring not only capital but also knowledge transfer, technological infusion and access to global markets.
• Employment Generation
The industry creates a significant number of direct employment opportunities, ranging from skilled engineers and technicians to assembly line workers. The growth of this sector leads to job creation, thereby addressing unemployment challenges and supporting economic
development. The industry generates indirect employment as well by fostering ancillary businesses and supporting the local supply chain. Moreover, the industry is directly linked to creating several job opportunities that, otherwise, would not have reached the country.
• Export Competitiveness
The growth in auto component manufacturing has enhanced the country’s export competitiveness by producing high-quality components. Auto component exports are expected to grow and reach USD $30 bn by FY2026. Due to the huge number of players it has, India has a competitive edge over the other countries; this factor is expected to result in increasing exports in the coming years and will enable the country to become an integral part of the global automotive supply chain, contributing to foreign exchange earnings and a favourable trade balance.
• Technological Advancements and Innovation
Tanmoy Ganguli, Senior Manager, Business Analysis and Corporate Strategy, ZF India Private Limited
The technological advancements in the auto components industry are primitively spurred by Research and Development (R&D). By investing in R&D, manufacturers are able to innovate and improve design, functionality and performance of components. These innovations directly benefit the industry and contribute to technological progress. Achievements in such areas also give rise to collaborations and partnerships that, in turn, foster knowledge-sharing, facilitate technology transfer and promote innovation across the industry. Furthermore, such collaborations strengthen the entire automotive ecosystem.
Key Factors Driving Growth
The industry has been advancing at an exponential rate in the previous years. As a result, the country’s auto components industry and its export quantity and value has risen significantly. While multiple shifts in the market drive this change, a few key factors driving this are:
• Government Initiatives
In September 2021, the Government of India approved the PLI scheme for the Automotive and Auto Component Industry. The main objective of the initiative was to enhance local manufacturing capabilities and global competitiveness in the sector. The PLI scheme has not only brought about a plethora of opportunities for the industry but also addressed major issues faced by the sector, such as cost disadvantages
faced when manufacturing products locally. The push and support from the government has encouraged several companies to set up their R&D base in India, which has further caused a boom in the industry.
• Industry Shift towards Green Mobility
The budget 2023–2024 aims to promote the switch to greener transport and speed up the domestic manufacturing environment. The emphasis on boosting Electric Vehicle (EV) adoption will further expand the growth trajectory, strengthening the base even further. With the declaration of a customs tax exemption on the import of capital goods and machinery necessary for the manufacture of Li-ion batteries
that commonly power EVs, the budget ensures the desired momentum behind expanding EV sales. This will stimulate local manufacturing networks, foster a greater use of EVs throughout the nation and increase employment possibilities. This remarkable move poses to strengthen the EV ecosystem by lowering the price of EVs throughout the nation. The growth of the EV start-up environment, its emphasis on localisation and supportive government regulations will all contribute to accelerating sustainable mobility in the country.
• Introduction of Vehicle Scrappage Policy
Another significant announcement in this year’s budget was the scrappage policy for vehicles older than 20 years. This not only increases the number of newer, cleaner automobiles on the road but will also increase a demand for new cars, functioning as a kind of stimulus to boost sales. Furthermore, this will help the auto components industry as well, because original equipment manufacturers will be under the pressure to produce more cars to fill rising orders, which will increase demand for components.
• Localising of Semiconductor Chip Production
Shortage of the semiconductor chips post COVID affected several sectors across, and the automotive sector was no exception. However, the government’s allocation of ₹3,000 cr for the ‘Indian Semiconductor Mission’ aims at not only creating a robust and resilient supply chain, but also localizing and setting up a manufacturing base in the country. In a recent report by Deloitte, the Indian semiconductor market will
reach USD $55 bn by FY2026, with more than 60% of the market being driven by three industries, namely smartphones and wearables, automotive components and computing and data storage.
Conclusion
In conclusion, the auto component manufacturing industry serves as a catalyst for macroeconomic growth, with its contributions encompassing economic development, employment generation, technological progress and global competitiveness. Governments, policymakers and industry stakeholders must recognize and support this industry’s potential, fostering an environment conducive to its growth and ensuring its continued impact on national economies.
