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Nov 22, 2018

Over the last 10 years, the automotive industry in India, at large, has been experiencing a robust growth. India is on the path to becoming the third largest passenger-vehicle market in the world by 2021. The Indian auto industry produces a wide variety of vehicles, which has led to the growth of the Indian auto-components sector that manufactures a wide portfolio of products, including engine parts, drive transmission and steering parts, body and chassis, suspension and braking parts, equipment and electrical parts, besides others.

Rapid urbanisation, growth of population in metro and upcoming metro cities, an ever-growing consuming class and support from policies and regulations are all key drivers in the year-on-year growth of the industry. Keeping these factors in mind, it is evident why the Indian auto-component industry is an extremely important sector for the Indian economy and a major driver of foreign exchange and investment in the country.

While the industry has suffered marginally in the financial year of 2017, owing to the introduction of the country’s two biggest reforms—GST and demonetisation—the industry in the last two quarters is back on the growth track, posting good growth. Additionally, government policies, such as, Auto Policy 2002, Automotive Mission Plan 2016-2026, National Automotive Testing and R&D Infrastructure Projects (NATRiPs) have further aided the industry’s growth.

With regards to foreign investments, India has the advantage of providing a cost-effective manufacturing base, which keeps costs lower by 10% to 25% when compared to operations in Europe and Latin America. India also has a geographical advantage of being closer to key auto markets in Europe and the Middle East. Global auto giants are now opting for a dual-manufacturing model, which can be noticed across sectors, whether auto or tech.

The low production cost coupled with highly skilled engineering manpower and a growing demand for vehicles domestically is driving the growth. Needless to say, as a globally competitive industry that is undergoing a cascade of disruptions, it is essential for auto-component manufacturers in the country to continue focus on robust R&D, product differentiation and consistent improvement in quality to meet the consumer demands.

Typically, the evolution of the auto component industry can be tracked in three phases the pre-1980’s era, where the industry was predominantly controlled, restricted with limited growth. Post the 1980’s, with the dawn of big players, like Maruti, the industry witnessed a transformation to a more quality focused approach with better demand and volumes. However, the game changer was post the 1995 era where the market opened up globally and the industry saw a big change in demand with exports also starting to grow and the overall industry got a major push. Today, India has a distinct competitive advantage as the industry has seen exponential growth and has achieved global competitiveness, both in terms of cost and quality.

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