Sector structure/Market size

The Indian auto component industry is one of India's sunrise industries with tremendous growth prospects. From a low-key supplier providing components to the domestic market alone, the industry has emerged as one of the key auto components centres in Asia and is today seen as a significant player in the global automotive supply chain. India is now a supplier of a range of high-value and critical automobile components to global auto makers such as General Motors, Toyota, Ford and Volkswagen amongst others.

As per an Automotive Component Manufacturers Association of India (ACMA) report, the turnover of the auto component industry was estimated at over US$ 18 billion in 2007-08, an increase of 27.2 per cent since 2002. It is likely to touch US$ 40 billion by 2015-16.

In 2006-07, the auto component sector saw sales worth around US$ 15 billion, with US$ 2.8 billion as exports.

Investments in the auto component industry were estimated at US$ 7.2 billion in 2007-08 and are likely to touch US$ 20.9 billion by 2015-16.

Exports of auto components were growing at the rate of 35 per cent during 2002-07 and touched US$ 3.6 billion in 2007-08. It is estimated to reach around US$ 20 billion-US$ 22 billion by 2015-16. A majority of Indian exports are sent to Europe and North America.

Though global recession had affected the Indian auto components industry, it is now slowly coming back on track. The auto components industry in Kanpur has seen a three-fold increase in orders in the last three months.

Destination India

According to the Investment Commission of India, global automobile manufacturers see India as a manufacturing hub for auto components and are rapidly increasing the value of components they source from India due to:

• India's cost competitiveness in terms of labour and raw material.
• Its established manufacturing base.

Makers of luxury cars are increasingly looking at making India a sourcing hub for components, besides using more local components in cars for the Indian market. BMW is likely to sign the first direct sourcing deal with local vendors by the end of this year. Skoda Auto India is looking at increasing localisation for its small car Fabia to over 50 per cent over the next two years. Mercedes Benz India expects growth in sourcing from India to continue at 10 per cent.

Foreign Investments

India enjoys a cost advantage with respect to casting and forging as manufacturing costs in India are 25 to 30 per cent lower than their western counterparts. Seeing the growing popularity of India in the automotive component sector, the Investment Commission has set a target of attracting foreign investment worth US$ 5 billion for the next seven years to increase India's share in the global auto components market from the existing 0.9 per cent to 2.5 per cent by 2015.

• Continental Automotive Components (India) Private Limited, a wholly-owned subsidiary of Germany-based Continental Corporation, is planning to invest over US$ 79.2 million in its Indian operations during the next two years ending December 2010.
• Canadian auto component major Magna International Inc is mulling options to set up an integrated manufacturing facility in India for its nine business divisions.

Domestic Investments

The market is so large and diverse that a large number of players can be absorbed to accommodate buyer needs. The sector not only has global players looking to invest and expand but leading domestic component companies are also pumping in huge sums into expanding operations. An auto park is coming up near Hyderabad with investments worth over US$ 409.30 million from around 34 automotive ancillary units. This is in addition to a US$ 245.59 million Greenfield project being set up by MLR Motors near the park.

JK Tyres is investing US$ 53.8 million in a new facility in Mysore for off-the-road (OTR) tyres.

Policy Initiatives

The government has taken many initiatives to promote foreign direct investment (FDI) in the industry.

• Automatic approval for foreign equity investment up to 100 per cent of manufacture of automobiles and components is permitted.
• The automobile industry has been delicensed.
• There are no restraints on import of components.

The government has envisaged the Automotive Mission Plan 2016 to promote growth in the sector. It targets:

• Emerging as the global favourite in the area of design and manufacture of automobiles and auto components.
• Taking the output to US$ 145 billion, accounting for more than 10 per cent of the GDP.
• Offering additional employment to 25 million people by 2016.

Looking Ahead

With investments around US$ 15 billion slated for the sector over the next few years, the prospects for India's auto market are bright.

Even though India's auto component industry has conventionally relied on exports for its profits, the domestic market itself is ripe with rapidly growing opportunities. Industry experts are hopeful that the country will be able to offset China and other Southeast Asian countries' traditional manufacturing advantage in the coming years, facilitating the industry's achievement of its targeted market value of US$ 40 billion by 2014.

Exchange rate used:
1 USD = 50.53 INR (as on March 2009)
1 USD = 50.2146 INR (as on April 2009)