2023- 28 WITH EXPECTED GROWTH OF 6%
India has become one of Asia’s largest auto hubs and the market is to become a key player in global auto supply chains. The auto components industry in India has exhibited impressive growth in the past decade, both in terms of production and exports. With the ongoing growth of Indian auto industry combined with supporting government policies, the prospects of this industry are also promising. The country’s auto industry is a mix of foreign players along with local companies which are growing rapidly, and the market share of local companies is expected to improve over the coming years.
The government has been trying to encourage domestic manufacturing through various policies and incentives, which has helped boost local demand for components. This has led to companies increasing their focus on local production facilities and sourcing components from India rather than importing. The government is also making efforts to reduce logistics costs through various policy initiatives such as roll-on/roll-off (RoRo) services at ports that will help reduce overall transportation costs. The auto components industry, which accounts for 2.3% of India’s GDP currently, is set to become the 3rd largest globally by 2025.
Industry Performance
The auto industry accounted for 2.3% of India’s GDP and provided direct employment to 1.5 million people. By 2026, the automobile component sector will contribute 5-7% of India’s GDP. The automobile component industry turnover stood at Rs. 4.20 lakh crore (US$ 56.5 billion) between April 2021-March 2022 the industry had revenue growth of 23% as compared to FY18-19. The industry is expected to grow to US$200 billion by FY26. According to ICRA, Auto ancillaries’ revenue is estimated to increase by 8-10% in FY23.
India’s auto component’s aftermarket witnessed a 15% growth from US$8.70 billion in 2020-21 to US$ 10 billion in FY22. Strong international demand and resurgence in the local original equipment and aftermarket segments are predicted to help the Indian auto component industry grow by 20-23% in FY22. In FY22, the total output of passenger vehicles, commercial vehicles, three-wheelers, two-wheelers, and quadricycles was 22,933,230 units. Automobile export is expected to grow at a CAGR of 3.05% during 2016-2026. The Government of India expects automobile sector to attract US$ 8-10 billion in local and foreign investment by 2023.
The Indian Automobiles & Auto Components Sector is already in the strong position. Globally, it is at the forefront of many segments and the sector is gaining momentum in the global market and is also making profits. The reported margin of the industry by analyzing the key players was around 10.4% by taking into consideration the last 3 years’ data.
Industry Trends
The Covid-19 induced restrictions led to a slump in the Indian auto sector. However, the industry emerged victorious, thanks to the emergence of new technologies and innovation within the sector. To sustain the growth momentum, the industry is adopting many new trends: from increasing digital sales, expanding the used-car market to increasing safety-related measures, the sector is moving towards profitability. Rise in digital sales, SUV dominance, alternate mobility and ownership, increased acceptance of used vehicles, are some of the trends that are going to dominate the sector in 2023.
With these factors in mind, the industry is still showing huge growth potential, and here are the growth divers that is propelling the industry are:
Global sourcing hub – At least 90 of the top 100 auto-component suppliers have presence in India. India has reduced dependence on imports with high levels of localization.Cost advantage – Cost in India is 10-25% lower than that of Europe and Latin America.Role in global value chain – 100% FDI allowed through the automatic route. Presence of auto design centres, automotive training institutes, special auto parks and virtual SEZs for auto components give India an edge.Geographic proximity – Geographic proximity of key automotive manufacturing countries, including ASEAN countries and South Korea are create significant opportunities for Indian auto ancillary players.Rise of the east – Asia emerging as a growing market backed by its cost competitiveness, rising incomes, rapid urbanization, improved infrastructure, and scope for greater vehicle penetration.Trade policy – Trade policy in India is favorable with nominal restrictions on import-export.
The Indian automotive OEM industry is already in a strong position. Globally, it is at the forefront of many segments—leading in two-wheelers, segment A cars, and tractors. The industry aspires to nearly triple vehicle sales by 2026 across segments. These could be definitive tailwinds for the Indian automotive components industry, which has ambitions of its own by 2026—to double the contribution to manufacturing GDP with a four-fold growth in size and a six-fold growth in exports. The recent Union Budget announcements specific to the automotive sector have the potential to ensure that the change is fast and tectonic. The budget promises to ignite fresh demand, spur the transition to green mobility and accelerate the domestic manufacturing ecosystem. Strengthening the foundation further, the emphasis on accelerating EV adoption will further extrapolate the trajectory of growth.
With these attributes boosting the sector, the Indian Automobiles & Auto Components Sector is likely to grow 25% more than the reported growth rate and is expected to exhibit CAGR of 6% in the next five years from 2023 to 2027.
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