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Component industry to drive growth

Component industry to drive growth

A concerted action from automotive components manufacturers, automotive OEMs, automotive value-chain partners and policymakers, is required in order to establish India as a global manufacturing and export hub.


The Make-in-India clarion call by the Prime Minister has been able to strike a chord with the Indian auto component industry. This can be underpinned by the study done by McKinsey and Co’s joint study with ACMA titled, ‘Make in India: How the Auto Components Industry can Make it Happen’, which was also the central theme of the 55th Annual ACMA session, released at the event by Anant Geete, Union Minister for Heavy Industries & Public Enterprises. The study asserts that a concerted action from automotive components manufacturers, automotive OEMs, automotive value-chain partners and policymakers, is required in order to establish India as a global manufacturing and export hub and to attract investments in range of US$ 80-100 billion over the next decade to realise Automotive Mission Plan (AMP) 2026 aspirations. The study also highlighted that the Indian auto component industry could skyrocket fivefold to US$ 200 billion in revenue, US$ 80 billion in exports and can contribute 10 per cent of India’s manufacturing GDP by 2026.

The action plan

The study suggested that the auto component sector in India can create economic profit, greater returns than the cost of capital through a nine point agenda elucidated below:

  • Graduating from ‘make to print’ through frugal innovation
  • Grow scale and professionalise for the next wave of cost excellence
  • Improve quality capability of Tier-2 and Tier-3 suppliers
  • Invest to stay on top of evolution of emission and safety standards/adoption
  • Grow plant capacity, people skills and technology to support domestic and global expansion of OEMs
  • Build auto-electronics supply capabilities; leverage large aftermarket and execute big moves
  • Leading in simplified and low cost technology by ‘Make in India for the World’
  • Build scale and manage cyclicity through M&A and diversification
  • Embrace ‘Digital Manufacturing’ to transform productivity and quality


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However, there are certain riders to it as poor economic profit, measured by returns on cost of capital, could be one of the biggest impediments for the auto component industry in meeting targets laid down by the government’s Automotive Mission Plan, as per the study done by McKinsey.
Rajat Dhawan, Director, McKinsey India, pointed out that of the top 1,000 auto component firms, only 36 per cent are making economic profit. Besides the need to improve economic profits, Dhawan cited an improvement in the ease of doing business as one of the pre-requisites for achieving the target set for the auto components sector.

Apart from this, the industry ecosystem and the Indian government can collaborate to make India an attractive manufacturing investment destination. ACMA, automotive OEMs, and other value-chain partners can invest in improving the ecosystem by promoting ‘Brand India’, creating competitive products

(e.g. liability insurance), facilitating quality improvements, embrace digital services and promote competencies in the value chain.
The government also needs to provide continued R&D and infrastructural support while exploring strategic trade agreements and making it easier to do business in India. India currently has Free Trade Agreements (FTAs) with select countries around the world, and Preferential Trade Agreements (PTAs) with many more. An increase in the number of auto components on the list of trade items in case of existing PTAs, and an auto component angle in negotiations with countries with India-like markets could help create a global market for Indian vehicles and auto components manufacturers.

Dr. Pawan Goenka, Executive Director at Mahindra and Mahindra Ltd, in a panel discussion which followed the presentation, attributed the low economic profit to the auto industry’s heavy reliance on imports of critical components. Even as exports of auto parts have been expanding at a brisk pace, the share of imports remains high. “At Mahindra, we import less than others, but it’s still 10 per cent mostly automotive electronics and other high-end solutions,” said Goenka.

Vinod Dasari, Managing Director, Ashok Leyland Ltd, who is also the new President of SIAM, said component makers need to move up the value chain by co-developing critical parts and systems along with vehicle makers to become more profitable.

It is to be mentioned that on the back of strong exports and growing domestic automotive demand, the Indian automotive components industry has roughly tripled in size from Rs 83,000 crore (US$18 billion) in 2006 to Rs 235,000 crore (US$39 billion) in 2015. Its contribution to India’s manufacturing GDP has increased to 5 per cent. However, India’s manufacturing sector contributes only about 13 per cent of India’s GDP, while this share is about 25-35 per cent for many developing nations. This presents an opportunity for the Indian automotive components industry to lead the manufacturing sector to significantly increase its contribution to India’s GDP over the next decade, helping the nation achieve its ‘Make in India’ aspirations. For this, automotive components manufacturers in India should aspire to make not only for India but also for the world.

The road ahead

The industry would have to focus beyond manufacturing to design and development. This would make India a global automotive components manufacturing hub. Apart from proximity to a large, growing market and significant cost advantages for manufacturers, there are significant pay-offs for the country as well in terms of forex earnings, skill development and job creation.

  • Auto component industry to be worth US$200 billion by 2025-26
  • To attract investments in range of US$80-100 billion over the next decade
  • Export to be US$80 billion by 2026
  • To contribute 10 per cent of India’s manufacturing GDP by 2026

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