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Auto Components

October, 2011

Indian Auto Components Industry: Brief Introduction

With a surging Indian automobile industry, the inter-related Indian auto component industry is heading strong towards a high growth trajectory. The US$ 30 billion industry is anticipated to grow on the back of robust domestic demand.

The Indian auto component industry recorded its highest year-on-year (y-o-y) growth of 34.2 per cent in 2010-11, raking in revenue of US$ 39.9 billion; major contribution coming from exports at US$ 5 billion and fresh investment from the US at around US$ 2 billion.

Indian Auto Components Industry Profile

Two-thirds of the components manufactured by the industry in India are accounted for by two and three-wheelers, along with passenger cars. However, a national survey by Ikon Marketing Consultants has revealed that components' demand for commercial vehicles has shown magnificent growth during 2006-2011.

Going by the product range, 31 per cent of the market share is formed by the engine parts followed by drive transmission and steering parts at 19 per cent. Other products like body and chassis parts, suspension and breaking parts, equipment and electrical parts also contribute significantly in overall industry turnover.

Among the major export destinations for Indian auto components, Europe leads the way with 36 per cent of the share, followed by Asia (28 per cent) and North America (23 per cent).

Destination India

Indian auto component manufacturers have proven their mettle product-development by providing genuine and reasonably priced automotive parts to auto companies across the world which has made India a major global outsourcing hub in this field as well. For instance, Gujarat that rolled out red carpet for auto makers like Tata Nano is on the world map as a major auto hub. Auto giants like Ford Motor and Peugeot Citroen have lined up investments worth around US$ 2 billion to build new plants in the state.

Rajkot is another hub that has more than 500 auto component manufacturers, of which around 50 supply parts to OEMs and the remainder are small and medium enterprises (SMEs) that supply to the retail market. The industry in Rajkot makes over 300 types of parts for the automobile industry and employs about 10,000 people.

Indian Auto Components Industry: Key Developments and Investments

  • Indian auto-component manufacturers are now focusing their efforts to develop research and development (R&D) capability of their own in order to achieve competitive edge on the global map. Technological innovations being the major driver for growth in the years to come, companies are working to improve their resource efficiency, implementing new techniques and putting in place lean management mechanisms. The Indian government plans to increase the expenditure on R&D to 2 per cent by 2012, which is currently around 0.8 per cent of the gross domestic product (GDP).
  • India's largest head lamp maker Lumax Industries has planned an investment of Rs 150 crore (US$ 30.86 million) to set up three green field manufacturing units while Jay Bharat Maruti (JBM) would invest Rs 500 crore (US$ 102.86 million) in 2011-12 to expand capacities across its facilities and set up new ones.
  • Marking a milestone for India's auto component industry, Hero Honda would become the one-n-only international supplier of gearboxes for BMW's motorbikes for domestic as well as foreign markets.
  • ZF Hero Chassis Systems, which currently supplies axle assembly to General Motors India, is in talks with Suzuki and Honda to supply components in India. As a part of its expansion spree, the company will also make an investment of Rs 100 crore (US$ 20.57 million) to set up new plant in the country. It has already decided to set up a plant in the National Capital Region (NCR) to produce chassis frames, axle systems and sheet metal components for the domestic car market.

ZF Hero Chassis Systems is a joint venture (JV) between Hero Motors and German auto component major ZF.

Government Initiatives

The Indian government is in the process of forming a National Automotive Board (NAB) which would become a formal set-up to look into the issue of recall of vehicles and hence improve manufacturing standards. The prospective body, to oversee technical and safety aspects of vehicles, will have representatives from all the nodal ministries and automotive bodies such as the Automotive Research Association of India (ARAI).

In a first-of-its-kind public-private partnership, automotive components manufacturer Tata AutoComp Systems Ltd has signed a memorandum of understanding (MoU) with the Government of Gujarat for imparting vocational training to rural youth to widen employment opportunities for them. The agreement, focussed to fill-in the skilled manpower shortage faced by the auto industry, would facilitate revamp of the State's Industrial Training Institutes (ITIs), launch of skill development programmes and introduction of modular employable skills (MES) courses. Tata AutoComp will train nearly 1,500 youth in Gujarat annually through this MoU.

Meanwhile, following the discussions between the visiting Soe Thein, Myanmar Minister of Industry and Mr Praful Patel, India's Minister of Heavy Industries and Public Enterprises, Tata Motors has proposed to set-up a bus-assembly facility in the neighbouring country along with supply of passenger vehicles to them. The discussions entailed mutual industrial collaboration between the two nations.

Road Ahead

According to industry experts, the Indian auto component industry will cross US$ 100 billion mark by 2020, growing at a Compound Annual Growth Rate (CAGR) of 15 per cent while its share in the world's is also likely to grow to over 3 per cent by 2015-16. For the year 2011-12, the industry is expected to grow 12-15 per cent.

Not only domestic demand, India is poised to scale new heights in terms of exports as well. Automotive Component Manufacturers Association of India (ACMA) expects exports to be worth US$ 29 billion by 2020-21, growing at a CAGR of 18.8 per cent through 2011-21.

[Exchange Rate Used as on October 29, 2011: INR 1 = US$ 0.0206]

References: Press Releases, Industry statistics report by Automotive Component Manufacturers Association of India (ACMA).