Revving up The Growth Engine

There the global auto parts and accessories manufacturing industry, pegged to be around $1.75 trillion, is growing by leaps and bounds, our Indian auto components industry has also seen a robust growth in the last few years. Driven by a strong surge in the domestic market, higher localization by original equipment manufacturers (OEMs), higher component content per vehicle, and increasing globalization (including exports) of several Indian suppliers, the industry is expected to reach $115 billion by FY20-21.

Organised sector dominates

The auto components sector of the country can be broadly classified into the organised and unorganized sectors. The organised sector caters to the OEMs and consists of high-value precision instruments, while the unorganized sector comprises low-valued products and caters mostly to the aftermarket category.

The manufacturing units in the unorganized sector are far higher than those in the organised one. Despite being fewer in number, the organised sector accounts for 85 percent of total industry turnover (FY15). Experts estimate that the Indian auto components aftermarket is expected to grow at 10.5 percent to touch $13 billion by 2019-20, as compared to $8.4 billion in 2016-17.

The market is split into six product segments: engine parts, drive, transmission and steering parts, body and chassis, suspension and braking parts, equipment, electrical parts, and others. ‘Engine parts’ accounts for 31 percent of the entire product range of the auto components sector followed by ‘drive transmission & steering parts’ (19 percent). ‘2 wheelers’ is the largest domestic customer segment for the industry.

The regional base of auto components manufacturers is mostly concentrated in the West, North and South of India. The main auto components manufacturing hubs in India are situated in Pune, Gurgaon and Chennai with major automotive clusters in Western India: Mumbai - Pune - Nasik - Aurangabad; Southern India: Chennai - Bangalore – Hosur; and Northern India: Delhi-Gurgaon – Faridabad. The state of Uttaranchal is also turning into an autohub, because of the industry-friendly government policy.

Government initiatives

The Government deems the automotive industry as the foremost driver of the manufacturing sector and has concrete plans chalked out for turning India into a leading destination for designing and manufacturing of automobiles and auto components.

Its special focus on exports of small cars, multi-utility vehicles (MUVs), two and three-wheelers and auto components; and the deregulation of FDI in this sector, leading to foreign companies making large investments in India, will also be contributors to help realize
the goal.

The Automotive Mission Plan 2016-26 (AMP 2026) is the collective vision of Government of India and the Indian automotive Industry outlining the growth trajectory of the Vehicles, Auto-components, and Tractor industries for the next ten years in terms of size, contribution to India’s development, global footprint, technological maturity, competitiveness, and institutional structure and capabilities.

According to AMP 2026, the Indian auto component industry aims to achieve $200 billion in revenue by 2026, with exports in the region of
$70-80 billion, and a creation of an additional 50 million jobs, and to achieve this, the industry requires $25-30 billion in investments.

Automotive Component Manu-facturers Association of India (ACMA) foresees a major change in the Indian automotive industry in the coming decade, driven by needs of safety, fuel efficiency, sustainability and customer preferences. The Indian auto components manufacturers will then be required to intensify their focus on quality and innovation more than ever to cope with
the changes.

Advantage India

Along with the industry-friendly government policies such as AMP 2026; strong support for R&D; 100 percent FDI allowance under auto components sector; reduced excise duties in motor vehicles, there are a number of other factors that make India a prospective candidate for the top slot in the global auto components sector. Growing working population and expanding middle class; high vehicle production rate; geographic proximity to key automotive markets like the Middle East and Europe are the top contributors to the success of the sector.

Competitive advantages such as : a cost-effective manu-facturing base; presence of a large pool of skilled and semi-skilled workforce amidst a strong educational system; and the cost advantage due to India being the third largest steel producer; all add up to position the country in the global best.

Export-Import stats

Aligning the national goal with the ground reality, experts predict that India’s exports of auto components could account for as much as 26 percent of the market by 2021.

In 2015-16 India’s exports of auto components grew by 3.5 percent to `70,900 crore ($10.8 billion) from Rs 68,500 crore ($11.2 billion) in 2014-15, registering a CAGR of
18 percent in the last six years.

Europe accounted for a volume share of 36 percent during FY16 in Indian auto components exports followed by Asia and North America with 25 percent each in the same year.

Key export items include hydraulic power steering systems & steering gear systems; gear boxes & parts; parts of diesel engines; parts for automobiles and earth moving equipment; drive-axles & parts; spark ignition; suspension systems; crank shafts for engines; toothed wheels; brakes and servo brakes.

Imports of auto components grew by 9.3 percent to `90,600 crore ($13.8 billion) in 2015-16 from `82,900 crore ($13.5 billion) in 2014-15; Asia and Europe contributed to 58.6 percent and 30.9 percent of
the imports respectively.

The road ahead

The industry is confident of its exports crossing $30 billion by 2020, with at least five Indian suppliers making it to the global top 100 list. Component majors have started putting in efforts in the direction by building strong sales teams in North America and Europe, they being high opportunity areas, especially for mature products and process or skill-intensive components. The Middle East, Africa and Australia are also emerging as significant aftermarkets to pursue. Improving delivery and quality systems, and extending supply chains is also on the agenda.

The growth of the auto parts sector has been achieved in the face of stiff odds. With around 19 million direct and indirect employees, the $39 billion industry still has a long way to go to make a mark on the global landscape. However, the industry has all the ingredients that make up a perfect recipe for success. It is just a matter of time until it emerges as a global powerhouse.

Highlights

The Indian auto component industry aims to achieve $200 billion in revenue by 2026, with exports in the region of $70-80 billion.
The industry is confident of its exports crossing $30 billion by 2020, with at least five Indian suppliers making it to the global top 100 list.

Author:

Poonam Pednekar
Chief Copy Editor
Magic Wand Media Inc
poonam.pednekar@magicwandmedia.org