NITI Aayog has unveiled a report today entitled “Automotive Industry: Powering India’s Participation in Global Value Chains.”

This report provides a comprehensive examination of the automotive industry in India. It identifies both the opportunities and challenges present in the sector and proposes a strategy for establishing India as a significant player in the global automotive landscape.

Major Highlights

Global Context & Trends: Emerging battery manufacturing centers in regions such as Europe and the United States are reshaping traditional supply chains and opening new avenues for collaboration. The advent of Industry 4.0 is revolutionizing automotive production through technologies like Artificial Intelligence (AI), Machine Learning (ML), the Internet of Things (IoT), and robotics. These technological advancements are giving rise to innovative business models focused on smart factories and connected vehicles. The cost of semiconductor chips per vehicle is projected to increase from $600 to $1,200 by 2030.

Global Auto Component Market: Valued at $2 trillion in 2022, with $700 billion in global trade.

Global Automobile Production: Approximately 94 million units were produced worldwide. The global market is expanding at an annual rate of 4–6% due to increasing demand.

India’s Position: India has become the fourth-largest automobile producer globally, following China, the USA, and Japan, with an annual output of nearly six million vehicles. The Indian automotive sector has developed a robust domestic and export market, particularly in the small car and utility vehicle segments. India is striving to establish itself as a manufacturing and export hub for automobiles under the 'Make in India' initiative.

Challenges

Although India ranks as the fourth-largest automobile manufacturer in the world, it holds a relatively small share of approximately 3% in the global automotive component market, valued at around $20 billion. The majority of international trade in automotive components is dominated by engine parts, drive transmission, and steering systems; however, India's participation in these precision-driven sectors is limited, ranging from just 2% to 4%. The automotive industry in India encounters several obstacles, including high operational costs, infrastructural deficiencies, moderate integration into global value chains (GVC), and insufficient investment in research and development, all of which impede its competitiveness on the global stage.

Recommendations

Operational Expenditure (Opex) Support: Enhance manufacturing capabilities by prioritizing capital expenditure (Capex) for tooling, dies, and infrastructure development.

Skill Development: Implement programs aimed at cultivating a skilled workforce essential for ongoing growth.

R&D, Government-Facilitated IP Transfer, and Branding: Offer incentives for research and development, international branding efforts to enhance product differentiation, and support for micro, small, and medium enterprises (MSMEs) through intellectual property transfers.

Cluster Development: Promote collaboration among companies by establishing shared facilities such as research and development and testing centers to fortify the supply chain.

Industry 4.0 Adoption: Advocate for the integration of digital technologies and improved manufacturing standards to boost operational efficiency.

International Collaboration: Encourage joint ventures (JVs), foreign partnerships, and free trade agreements (FTAs) to broaden access to global markets.

Ease of Doing Business: Streamline regulatory frameworks, enhance worker hour flexibility, facilitate supplier discovery and development, and improve overall business conditions for automotive enterprises.

Way Ahead

The report anticipates that India's automotive component production will expand to $145 billion, with exports increasing from $20 billion to $60 billion. This growth is expected to generate a trade surplus of around $25 billion and significantly elevate India's share of the global automotive value chain from 3% to 8%.