Chugging along the growth path: Indian auto-component sector

~As per the Automotive Mission Plan – AMP – 2026, the exports from India for components are expected to cross INR 4.6 lakh crore or USD 70.5 billion by the year 2026. The initiative ‘Make in India’ is going to play a pivotal role in achieving higher growth in the next 11 years as per industry experts. For achieving these goals set by AMP 2026, the industry would need investments from domestic as well as international players.

With regards to exports, there was an 11.4 per cent growth witnessed by the industry. In terms of rupee level, it reached INR 68,500 crore or USD 10.5 billion in this fiscal. In the financial year 2013-14, the exports were at INR 61,400 crore or USD 9.4 billion ^[i]. As per ACMA or Automotive Component Manufacturers Association of India, the auto-components industry in India is expected at registering a turnover of USD 66 billion by the financial year 2015–16 and might reach a figure of USD 115 billion by the financial year 2020–21.

Further, the exports from the industry is projected at USD 12 billion by the financial year 2015–16 and may touch a figure USD 30 billion by the financial year 2020–21 ^[ii].

Foreign investments

Bosch Ltd – auto components maker from Germany – opened its new factory in Bidadi, in the outskirts of Bengaluru, Karnataka. For the first phase, i.e. for the building the factory, the company was seen to spend around INR 340 crore or USD 51.9 million. The company is intending to create nearly 3,000 jobs. Bosch has also started the production of common-rail fuel injection at the same factory site. The company has now being able to book a figure of INR 500 crore or USD 76.6 million in the month of September 2013 for expanding its manufacturing capabilities in Karnataka over the next seven years.

Michelin – the tyre manufacturer from France – would start producing 16,000 tonnes of bus and truck tyres from its factory based in the country, surging their production to around 45 per cent in comparison to the previous year. This company was able to showcase the first India-specific products, under the brand name Michelin X Multi, manufactured in the factory near Chennai, Tamil Nadu.

Continental AG – an international tyre manufacturer as well as automotive supplier – launched wheel alignment tyres and alloys shop in Gujarat, Ahmedabad. It has been the fourth store in the state.

WABCO – developer of auto component as well as supplier of commercial vehicles from Belgium – stated that they would manufacture the next generation technology products such as ABS – Antilock Braking System as well as AMT – Automated Manual Transmission. This would be produced under the Electronic Control Units products for the global as well as domestic markets. The company would also invest around INR 60 crore or USD 9.2 million in the country for developing new products.

Magna International Inc – maker of auto component from Canada – would be setting up two new plants in Gujarat. This is a part of their expansion plans in India.

Cluster growth

As Gujarat is now becoming a hub for global automotive, manufacturers of components are also looking at betting more in the state. It is stated that Gujarat has been able to attract investment close to INR 10,000-15,000 crore (USD 1.5 billion – USD 2.3 billion) from the suppliers in the next decade. The state has been able to attract huge investments in the past too.

Government initiatives

The Government has been looking at providing favourable policies and encouraging manufacturers for facilitating exports and augur growth.

Amendments in Foreign Trade Policy 2015–2020 has given higher hopes for the sector. The amendments include Merchandise Exports from India Scheme that aims at streamlining trade facilitation as well as easing doing business in the country. It also provides provision for hassle-free systems which now includes electronic governance as well as reduction in documentation.

With auto component being the largest employers in India, high exports together with special incentives from the Government should increase the prospect of the industry, helping in augmenting revenue figures.

The growth in the sector would further the momentum and give more chance for the Government to help the manufacturers with developing the infrastructure. The Ministry of Road Transport & Highway is now looking at providing roads as well as highways. Together with this, connectivity between the state through highways and roads may also bring a lot of manufacturers to look into innovative way to employ people and increase transportation through commercial vehicles. This would help in the growth of the auto-component segment as well.

In conclusion

In the manufacturing sector, the automotive industry now accounts for nearly 40 per cent of the market pie. This makes the sector a key in the ‘Make in India’ initiative launched by the Government.

In the next few years, the automotive components industry has been able to focus towards high investment. And with the usage of new technology and newer products that has been entering into the mainland by the way of joint ventures as well as partnership through technology even with acquisitions, auto components industry in India would improve steadily. It would also provide an edge to India in terms of providing the components to the domestic and international market by being cost competitive.

With that, the industry is highly optimistic with the Government hinting of bringing GST from April 1, 2016 onwards. This would be a boon for this sector as it would provide more incentives by giving lower interest rates and higher avenues for financing. It would also remove some customs duties on select raw materials while importing.

Further, the Ministry of Heavy Industries & Public Enterprises is focused towards making India a destination for manufacturing and designing automobiles as well as auto components. This gives an added advantage to the sector to emerge as a global market leader.

Are you planning to invest in the growing auto componenty sector in the country and require guidance on market entry? Connect with our consultants at enquiries@tecnovaglobal.com

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