The automotive components industry occupies a significant place in the Indian economy. The Indian auto industry has been recording tremendous growth over the years and has emerged as one of the major contributor to India’s gross domestic product (GDP). The industry currently accounts for almost 7 per cent of the country’s GDP and employs about 19 million people both directly and indirectly. 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. Major global original equipment manufacturers (OEMs) plan to make India a component sourcing hub for their global operations.

Currently, India is ranked 22 among global component exporting countries. China is at the third spot on the list led by Germany and the US. The Indian auto-components industry can be broadly classified into the organised and un-organised sectors. The organised sector caters to the original equipment manufacturers (OEMs) and consists of high-value precision instruments while the un-organised sector comprises low-valued products and caters mostly to the aftermarket category.Majority of Indian auto component exports are to countries in Europe, which account for 35 per cent followed by countries in North America with 26 per cent.

Year 2013-14 has been one of the most challenging one for the auto-component industry in India - flagging vehicle sales, high capital costs, high interest rates, fluctuating exchange. After a period of rapid growth post the global economic crisis in 2008, there has been a slowdown since 2011-12, with turnover actually reducing in 2013-14 rates and slowing down of investment in manufacturing have adversely impacted the growth of the auto component industry. However, the auto component industry had used the slowdown as an opportunity to develop internal capabilities to meet the evolving needs of customers who look for value and features across vehicle segments. It has been constantly restructuring itself by adopting lean practices, mitigating risks and exploring adjacent markets such as aerospace, defence and railways to leverage better prospects. The new government has recognised the potential and the need for revival and has put in place certain measures for the industry such as allowing 49 per cent FDI in defence sector which will soon open doors for the component makers. Extension of the excise duties till the end of the year has been well received by the auto industry at large. Moreover, with the Government’s focus on infrastructure and skill development, scaling-up of the MSME sector and overall measures to sustain growth, will go a long way in attracting investments and help to facilitate the growth tangent for the industry.

The Auto Component industry in India has a strong positive multiplier effect as a key driver of economic growth. Despite a very turbulent year, the industry clocked a turnover of Rs 2,11,765 crores ($35.13 billion) in FY 2013-14, with an impressive CAGR of 14 per cent over the last six years. The industry is expected to grow up to $115 billion by 2020, with increase in vehicle production. Of this, the domestic turnover is expected to touch $85 billion and exports $30 billion. The component industry is expected to become a significant contributor -3.6 per cent, to India’s GDP, up from the current level of 2.2 per cent. To achieve this potential, the industry requires additional skilled manpower of over 1 million and cumulative investment of over $35 billion.

The US market has stabilized; Europe too has seen some improvement, while India has been able to penetrate new markets in South America and Africa. Last financial year, India’s exports grew about 6 per cent to $10.2 billion. At present, exports account for 29 per cent of total component production. By 2020, revenue from exports is expected to grow threefold to about $30 billion. Europe and the US will continue to be the sector’s largest markets, but growth will be faster in emerging geographies-- the Association of Southeast Asian Nations, Latin America and North Africa. In financial year 2015, exports are expected to increase 9-10 per cent. One of the automobile sector’s concerns is the rising component imports. Through the past two years, the gap between component exports and imports has narrowed. While exports increased to $10.2 billion in FY14 from $9.7 billion in FY13, imports declined 6.3 per cent from $13.7 billion to $12.8 billion. With the Indian automobile market expanding, all manufacturers have focused on increasing localisation.

Source:money.livemint.com