Auto Components
India is emerging as a global hub for auto component sourcing.

Auto Components Industry in India

Latest update: May, 2014

Revenue of Indian auto component sector

Revenues have risen from US$ 26.5 billion in FY08 to US$ 40.6 billion in FY13 – a CAGR of 8.9 per cent.

Revenue of Indian auto component sector

Domestic market share of Indian auto component industry

Two wheelers is the largest domestic customer segment for the Indian auto components industry.

Domestic market share of Indian auto component industry

Investments in Indian auto component sector

Investments in the auto components sector increased at a CAGR of 28.4 per cent to US$ 2.3 billion in FY11.

Investments in Indian auto component sector

Auto component production in India

Engine parts account for 31 per cent of the entire product range of the auto components sector.

Auto component production in India

Updated: May, 2014

Sectoral Presentation | April, 2014

Introduction

The Indian auto industry has been recording tremendous growth over the years and has emerged as a major contributor to India’s gross domestic product (GDP). The industry currently accounts for almost 7 per cent of our GDP and employs about 19 million people both directly and indirectly.

The automotive industry occupies a significant place in the Indian economy. India is emerging as a global hub for auto component sourcing and is set to break into the league of the top five vehicle producing nations worldwide. The country is also emerging as a sourcing hub for engine components. The Indian auto component sector covers a wide range of industries, including engine parts, drive transmission and steering parts, body and chassis, suspension and braking parts, equipment and electrical parts, besides others.

The ever-increasing development in infrastructure, huge domestic market, increasing purchasing power and stable government framework have made India a favourable destination for investment, as per the vision of Automotive Mission Plan (AMP) 2006–2016.

Market Structure

The Indian auto component industry is estimated to have a US$ 66 billion turnover by 2015–16 and is expected to grow at a 14 per cent compound annual growth rate (CAGR) by 2013–2021, according to Automotive Component Manufacturers’ Association of India (ACMA) – the nodal agency for the Indian auto component industry. In addition, industry exports are estimated to reach US$ 12 billion by 2015–16.

The cumulative foreign direct investment (FDI) inflows into the Indian automobile industry during the period April 2000 to January 2014 was recorded at US$ 9,344 million, as per data published by Department of Industrial Policy and Promotion (DIPP), Government of India.

According to data released by the Society of Indian Automobile Manufacturers (SIAM), the domestic sales of automobiles during 2013–14 grew by 3.53 per cent over the same period last year. The automobile exports grew 7.21 per cent during the fiscal.

India has become a research and development (R&D) hotbed and in keeping with the global R&D trend of last year, the country is now a preferred destination for automotive R&D, according to a study on the Global Top 500 R&D spenders done by Zinnov. India's position is highlighted by the fact that 874 MNCs have set up 1,031 centres and 45 per cent of the top 500 global R&D spenders have a presence here.

India: The Global Auto Hub

  • Nissan India is currently exporting a number of child parts, engine and body parts to overseas markets. “We export to about 101 countries worldwide and there are many parts that we export from India regularly to 14 countries, including big markets like the UK, Brazil, Mexico and USA,” highlighted Mr Toshihiko Sano, Managing Director, Renault Nissan Automotive India (RNAIPL).
  • South Africa is pitching its auto component industry to Indian automakers for partnerships. Accompanied by a delegation of 27 companies, Ms Elizabeth Thabethe, Deputy Minister of Trade and Industry, South Africa, met Indian companies in a trade summit facilitated by Southern India Chamber of Commerce and Industry.
  • RSB Transmissions has entered into a partnership with DHB Automotivos, Brazil to launch auto components in India. The new range of products was unveiled at the Auto Expo 2014 Components Show at Pragati Maidan, New Delhi. "We have launched fully assembled manual/power steering gears and also auto components like steering rack & pinion, tie rod, hydraulic pump and aluminium pump in ultra-modern tech facilities in partnering with DHB Automotivos, Brazil, " said Mr S K Behera, Vice Chairman and MD of the company.
  • Volkswagen is looking at investing Rs 1,500 crore (US$ 248.55 million) over the next five years to set up a diesel engine manufacturing facility.
  • Infosys has signed a multi-year contract with Volvo Cars to provide application development services to the latter's global operations. The application development work includes maintaining applications to support multiple domains, including marketing and sales, customer service, manufacturing, product development and corporate business functions.

Furthermore, India is fast becoming a major procurement centre for Yamaha Motor for its global operations. “We are supplying around 125-130 parts from around 37 companies in India to Yamaha’s global facilities including Indonesia, Vietnam and Thailand. In the next 3-4 years, we plan to supply around 300-400 parts and double the number of vendors from India,” as per Mr Sanjiv Paul, Group Head – Purchase Operations, India Yamaha Motor (IYM).

Key Developments & Investments

  • Denso International India is working on future components for improving fuel emissions for Indian as well as global cars, two-wheelers and commercial vehicles manufacturers. The company manufactures components such as air conditioning systems, fuel pump, inter-coolers, power window motors, radiator, starter motor, and engine cooling modules from its manufacturing plants in Jhajjar and Manesar in Haryana, Bengaluru, Haridwar and Greater Noida.
  • Tata Opportunities Fund will purchase a significant minority stake in Aurangabad-based auto component maker Varroc group for US$ 60 million.
  • MRF launched main wheel tyres for the Indian Air Force (IAF)'s Sukhoi 30 MKI. These tyres were designed by MRF's inhouse R&D facilities and have been tested for ground speeds of up to 420 km an hour with loads in excess of 18 tonnes a tyre.
  • Tata Cummins, a joint venture (JV) between Cummins Inc and Tata Motors, inaugurated its third manufacturing facility located at the Cummins Megasite in Phaltan to manufacture diesel engines.

Government Initiatives

The Government of India allows 100 per cent FDI in the automotive industry through automatic route. With a special focus on exports of small cars, multi-utility vehicles (MUVs), two and three wheelers and auto components, the automotive sector’s contribution to the GDP is expected to double reaching a turnover worth US$ 145 billion in 2016, according to the AMP 2006–2016.

The Interim Budget 2014–15 added some incentives to the auto industry. To give relief to the automobile industry the excise duty has been reduced till June 30, 2014 as follows:

  • For small cars, motorcycle, scooters – the duty has been reduced from 12 per cent to 8 per cent.
  • For commercial vehicles and SUVs – the duty has been reduced from 30 per cent to 24 per cent.
  • For large and mid-segment cars – the duty has been reduced from 27/24 per cent to 24/20 per cent.

Road Ahead

The rapidly globalising world is opening new dimensions for the transportation industry, generating need for more efficient, safe and reliable modes of transportation.

Cars will become ‘smart devices on wheels’, so much so that the car will become an extension of your smartphone or vice versa. Today, several companies – including Google and Apple – are working on connected vehicles. By 2020, the industry estimates that nearly 90 per cent of vehicles on the road will be wired, while the connected car market will hit US$ 600 billion – making it the single largest market for connected devices and services. Experts predict that in future most of the additions to a car will be digital features rather than physical.

Exchange Rate Used: INR 1 = US$ 0.01626 as on April 13, 2014

References: Media Reports, Department of Industrial Policy and Promotion (DIPP), Automotive Component Manufacturers Association of India (ACMA), Union Budget 2014-15

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

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