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Automotive Industry:
Powering India’s participation in
Global Value Chains
April 2025 Automotive Industry:
Powering India’s
participation in Global
Value Chains NITI Aayog collaborated with its knowledge
partners, including CRISIL, in the preparation of
this report.
While due care has been exercised to prepare the
report using the data from various sources, NITI
Aayog does not confirm the authenticity of data
and accuracy of the methodology to prepare the
report. All data cited, including that from verified
Government sources have been interpreted
solely by our knowledge partners.
While due care has also been exercised to ensure
the accuracy of the analysis and arguments
supported by existing literature, the possibility
of alternate interpretations cannot be ruled out.
NITI Aayog shall not be held responsible for the
findings or opinions expressed in the document.
Disclaimer AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS iv
Message by Vice Chairmani
Message by Member ii
Message by CEOiii
Message by Programme Directorv
Prefacevii
Executive Summaryviii
Chapter 1: Introduction 1
1.1 Global Manufacturing Landscape 2
1.1.1 Regional Shifts and the Rise of Emerging Markets 4
1.1.2 Electric Vehicle (EV) Revolution and Its Impact on Manufacturing 4
1.1.3 The Shift to Advanced Manufacturing5
1.2 Role of the Automotive Sector in Transforming Global Manufacturing 5
1.2.1 Technology Adoption in the Automotive Industry 6
1.2.2 Industry 4.0 and the Future of Automotive Manufacturing 6
1.2.3 Sustainability and Circular Economy Practices 7
1.2.4 Linkages with Other Sectors: Electronics, AI, and Semiconductors 8
1.3 Role of the Automotive Industry in Indian Manufacturing Sector 9
1.3.1 Automotive Production and Market Overview 9
1.3.2 Government Initiatives Supporting the Automotive Sector 9
1.3.3 Emerging Trends in Indian Automotive Manufacturing 11
1.4 Interconnectedness of Indian Automobile Sector with Other Industries 11
1.5 Auto System Overview 13
Chapter 2: India’s automotive industry and its positioning in Automotive GVC17
2.1 Historical Evolution and Market Overview of the Indian Automotive Industry18
2.1.1 Automotive Market and GVC 19
2.1.2
Consumption and Trade Dynamics of Major Markets in Global Automotive sector21
2.2 Auto component GVC and India’s Trade Scenario Across Components23
2.2.1 Analysing Auto Components: Global Segmentation and India’s Contribution23
Chapter 3: Key Drivers and Challenges for India’s Participation in Automotive GVC 43
3.1 Global Trends in Auto Component GVC 44
Contents AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS v
3.2 Opportunities for India Amid Global Disruptions 49
3.2.1 India’s Position in Auto Component GVC 49
3.2.2
Factors Positioning India to become a dominant player in Auto component GVC51
3.3 Challenges in Enhancing India’s Participation in GVC 52
Chapter 4: Technological Transition Opportunities and Global Benchmarking in
Automotive Component Manufacturing 61
Chapter 5: Policy Recommendations for India’s Auto Component Sector 87
5.1 Introduction 87
5.1.1 Overview of India’s Ambition: $120 Billion Auto Component Production 87
5.1.2 Strategic need for Policy Interventions
5.1.3 Emerging and Complex Quadrant 90
5.1.4 Conventional and Complex 93
5.1.5 Emerging and Simple 94
5.1.6 Conventional and Simple 96
5.1.7 Framework 98
5.2 Summary of Fiscal and Non-Fiscal Interventions 100
Chapter 6: Interventions and Recommendations 105
6.1 Fiscal Incentives for Component Manufacturing 106
6.2 Skilling Incentives for Component Manufacturing 108
6.2.1 Scheme 2: GVC Skilling India Scheme 110
6.2.2 Non-fiscal Skilling Incentives 110
6.3 Incentives for R&D ecosystem development 112
6.3.1 Scheme 3: Fiscal Incentive for Eligible Components for R&D Support 113
6.3.2 Non-Fiscal Incentive for Eligible Components for R&D Support 113
6.4 Fiscal Incentives for Hard Infrastructure 116
6.5 Government-Facilitated IP Transfer119
6.6 Branding Support119
6.7 Expected Benifits 120
Chapter 7: Overarching List of Non-fiscal interventions and recommendations 125
7.1 Encouraging Tech Transfer and Foreign Collaboration via Joint Venture126
7.2 Enhancing Ease of Doing Business 127
7.3 Exploring Free Trade Agreements 128
7.4 Supplier Discovery and Development 129
7.5 Flexible Working Hours 132
7.6 Mission Mode Execution Strategy 133 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS i AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS ii AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS iii AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS iv AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS v AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS vi AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS vii
PREFACE
The Indian automotive industry stands at a pivotal juncture, poised to redefine its role in
the global manufacturing landscape. As the world transitions toward electric mobility,
autonomous driving, and sustainable production, the automotive sector offers India a unique
opportunity to emerge as a key player in the global value chain (GVC). This report, the
second in the series of Global Value Chains, titled “Automotive Industry: Powering India’s
participation in Global Value Chains”, explores the transformative potential of India’s auto
component industry, outlining a strategic roadmap to elevate its global salience and drive
economic prosperity. Historically, the automotive sector has been a cornerstone of industrial
growth, fostering innovation, employment, and cross-sectoral linkages. In India, the industry
has made significant strides, positioning the country as the world’s fourth-largest automobile
producer. Yet, despite this achievement, India’s share in the global traded auto component
market remains modest at just 3%, reflecting untapped potential and underlying challenges.
With a near-neutral trade balance and a cumulative cost disability of nearly 10% compared to
competitors like China, India’s auto component sector faces structural hurdles that impede its
competitiveness. These include supply chain inefficiencies, high material and equipment costs,
and limited penetration in high-precision segments like engine and transmission systems.
This report envisions a bold future where India’s automotive component production reaches
$145 billion by 2030, with auto component exports tripling to $60 billion, yielding a trade
surplus of $25 billion. Such growth promises to create 2-2.5 million additional direct jobs,
bolster ancillary industries, and elevate India’s GVC share to 8%. Achieving this ambition,
however, demands a concerted effort to address cost disadvantages, enhance infrastructure,
and integrate advanced technologies such as Industry 4.0. The shift toward electric vehicles
(EVs) and next-generation features like Advanced Driver Assistance Systems (ADAS) further
underscores the urgency of aligning India’s capabilities with global trends.
To realize this vision, we propose a comprehensive set of fiscal and non-fiscal interventions.
These include targeted operational support for identified components and capital expenditure
support for tools and dies, cluster development to strengthen supply chains, Measures for
improving R&D and skill-building initiatives to nurture talent. Equally critical are measures to
foster international collaboration through joint ventures and free trade agreements, alongside
efforts to elevate quality standards and build a globally competitive brand for Indian auto
components. This holistic approach aims not only to enhance export potential but also to
position India as a hub for high-quality, technology-driven manufacturing. As we present this
summary and the detailed findings that follow, our goal is to catalyze dialogue and action
among policymakers, industry leaders, and stakeholders. The timely implementation of these
recommendations offers a powerful pathway to unlock India’s potential, driving economic
growth, job creation, and technological advancement. We invite you to join us in this journey
to transform India’s auto component sector into a global powerhouse, contributing to a
sustainable and prosperous future. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS viii
EXECUTIVE SUMMARY
The global landscape of automobile manufacturing has undergone a remarkable transformation
over the past few centuries, driven by profound technological advancements and shifts in
economic and social patterns. From the advent of mass production to the emergence of
modern manufacturing methodologies such as Industry 4.0 and Lean manufacturing, the
automotive sector has played a pivotal role in shaping the broader manufacturing ecosystem.
As a prime driver of innovation, the automotive industry not only pioneers new manufacturing
practices and technologies but also encourages their adoption across other sectors.
Furthermore, it has been instrumental in advancing sustainable manufacturing, promoting
energy-efficient processes, and leading the transition toward a circular economy.
One of the most significant transformations in the global manufacturing landscape is the
increasing interdependence between the automotive industry and advanced sectors such as
electronics, semiconductors, and artificial intelligence. The global automotive industry is also
deeply connected to broader sectors, including steel, textiles, leather, rubber, plastics, glass,
electronics, and IT, making it one of the largest consumers of these industrial products.
Currently, the automotive sector is undergoing a major transformation, shifting from
conventional automobiles to electric vehicles (EVs) equipped with next-generation
technological features such as Advanced Driver Assistance Systems (ADAS), the Internet
of Things (IoT), and Autonomous Driving (AD). With the integration of these cutting-edge
technologies, the cost of semiconductor chips per vehicle is projected to double, rising from
$600 to $1,200 by 2030.
The global automotive component market was valued at approximately $2 trillion in 2022,
underscoring its critical role within the global automotive industry. Of this, around 30%—or
$700 billion—constitutes the traded automotive component market. Over the past five years,
the automotive sector has maintained steady growth of 4–6%, driven by rising consumer
demand and growing interest in automobile ownership.
Despite being the world’s fourth-largest automobile producer—following China, the U.S., and
Japan—India holds only a minimal 3% (~$20 billion) share in the global automotive component
traded market. This highlights India’s limited participation in global auto component trade.
Breaking down the global traded market, engine and engine components, along with drive
transmission and steering systems, account for 60% of total trade in auto components. India’s
share in these critical, high-precision segments remains relatively low at 2–4%. Given the
stringent quality and precision requirements for these components, India’s limited presence
indicates a gap in competitiveness.
India currently exports auto components worth approximately $20 billion while importing a
similar value, resulting in a near-neutral trade ratio of 0.99. This balance suggests that India’s
automotive component trade remains largely self-contained, with exports and imports nearly
offsetting each other.
India’s automotive component manufacturing sector faces a cumulative cost disability of
nearly 10% compared to China, making it less competitive in the global market. Additionally,
there is an extra cost disadvantage of approximately 20% on equipment (capital goods) AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS ix
required for component manufacturing. One of the key factors contributing to this cost gap
is material cost disability. China benefits from a well-integrated supply chain, spanning from
raw minerals to high-value-added products, whereas India lacks such depth in its supply
ecosystem. Furthermore, depreciation policies add to India’s cost disadvantage. India has a
100% depreciation rate compared to China’s 50%, leading to an additional ~3.4% cost burden.
Additional cost disabilities also arise from higher tax and financing costs, further reducing
India’s competitiveness.
Despite advantages in areas like labor, fuel, and power costs, these structural inefficiencies
make India a less attractive investment destination for automotive component manufacturing,
limiting its ability to compete globally. Complete details of fiscal disability for Automotive
manufacturing are given in the report.
This report envisions India advancing to approximately $145 billion in automotive component
production by 2030, with auto component exports expected to triple from $20 billion to $60
billion during this period. This growth would position India as a formidable player in global
markets, achieving a trade surplus of ~$25 billion and increasing its share in the global value
chain (GVC) of auto components from 3% to 8%. Such progress is projected to generate 2–2.5
million additional large-scale employment opportunities, bringing the total direct employment
in the sector to 3–4 million people. However, realizing this ambitious vision will require strategic
and focused policy initiatives to enhance competitiveness, improve infrastructure, and attract
investment in high-value automotive manufacturing.
This report outlines a comprehensive set of interventions across multiple domains to achieve
the envisioned growth in India’s automotive component industry. Components have been
prioritized based on their maturity and complexity in manufacturing and development,
ensuring a targeted approach to expansion across both the Conventional and Complex
segment and the Emerging and Complex segment. The recommended fiscal interventions
include operational expenditure (Opex) support to scale up manufacturing, with a special
focus on capital expenditure (Capex) assistance for the development of tools and dies, IP
transfer and Branding support which are crucial for automotive component manufacturing.
Cluster development is also emphasized to strengthen supply chains, reduce logistics costs,
and establish common R&D and testing facilities, thereby accelerating product development.
Additionally, skill development initiatives are highlighted to ensure a steady pipeline of talent,
which is essential for driving sectoral growth. On the non-fiscal front, the report suggests
interventions such as business improvement support to enhance global competitiveness,
encouragement of joint ventures (JVs) and free trade agreements (FTAs) to foster international
collaboration and market access, adoption of Industry 4.0 and enhanced quality standards
to improve manufacturing efficiency initiatives to position India as a key global player in the
automotive component sector. These policy measures, if effectively implemented, will be
crucial in enabling India to scale up its automotive component production, increase exports,
and strengthen its standing in global markets.
Timely and effective implementation of the recommended reforms and initiatives presents a
promising and powerful pathway for India to enhance its global value chain (GVC) salience in
the automotive sector. This, in turn, will drive accelerated economic growth, income generation,
and job creation, while strengthening the supply chain ecosystem and ancillary industries.
Additionally, it will create opportunities for skill and knowledge advancement, positioning
India as a globally recognized supplier of high-quality, technologically advanced products. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS x AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS xi AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS xii AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS xiii INTRODUCTION AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 2
1.1 GLOBAL MANUFACTURING LANDSCAPE
The global landscape of automobile manufacturing has undergone a remarkable
transformation over the past two centuries, shaped by profound technological
advances and shifts in economic and social patterns.
In the 19th century, the birth of the automobile industry was marked by the invention
of the Benz Patent-Motorwagen, constructed in 1885 by the German innovator Karl
Benz. This three-wheeled, two-seater vehicle, powered by a four-stroke, single-
cylinder engine, was patented in 1886 and stands as the world’s first automobile
powered by an internal combustion engine. The advent of this machine not only
signalled a new era of personal transport but laid the foundational stone for an
industry that would come to revolutionize global manufacturing, trade, and mobility.
As the 20th century dawned, the early automobiles were handmade, luxurious
commodities, available only to the wealthiest few. It was the visionary approach of
Henry Ford, and his introduction of the assembly line in 1913, that democratized the
automobile. Ford’s Model-T became emblematic of this shift, as the assembly line
reduced production time from over 12 hours to merely 90 minutes, reducing costs
and making cars affordable to the burgeoning middle class. This method of mass
production soon became a template for industrial manufacturing across the globe.
The rise of industry giants like General Motors and Chrysler in the United States,
Rolls-Royce and Fiat in Europe, and Nissan and Toyota in Japan diversified and
expanded the automobile industry to different corners of the world.
In the post-World War II period, the focus shifted toward operational efficiency
and quality, with pioneering practices like Total Quality Management (TQM), Toyota
Production System (TPS), Lean Manufacturing, and Six Sigma becoming central
tenets of production. These innovations led to enhanced process flows, minimized
lead times, and significant cost savings, as they were widely adopted across the
global manufacturing sector. These transformative approaches to production not
only improved operational efficiency but also played a crucial role in evolving the
concept of Tier 1, Tier 2, and Tier 3 suppliers.
The 21st century heralds a new frontier for the automotive industry, defined by
the advent of Electric Vehicles (EVs) and the increasing integration of Artificial
Intelligence (AI) and digital technologies. In response to shifting market demands and
the rising global emphasis on sustainability, traditional automakers and component
manufacturers have begun transitioning from internal combustion engine vehicles to
electric-powered alternatives. Investment strategies have evolved, with significant
resources redirected toward advanced technologies, ensuring the industry remains
at the forefront of innovation.
This evolution is part of a broader global shift in automobile manufacturing.
Historically dominated by mature economies such as the United States, Germany,
and Japan, the sector has witnessed a notable shift towards emerging markets,
driven by evolving global economic patterns, labour costs, and growing consumer
markets. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 3
In 2023, global automobile production of cars and commercial vehicles, reached
around 94 million units, rebounding from the disruptions caused by the COVID-19
pandemic. The industry’s resilience is evident in its recovery, driven by pent-up
demand, changing consumer preferences, and the rapid adoption of EVs.
China is the world’s largest automobile producer, manufacturing over 30 million
units of car and commercial vehicles in 2023, accounting for approximately 30% of
global production. Its strategy encompasses both domestic consumption and an
expansive global footprint. Leading domestic companies like BYD and Geely have
aggressively pursued the EV market, supported by strong governmental incentives,
infrastructure growth, and technological advancements. China also dominates the
global EV market, with sales exceeding 8 million units in 2023.
The United States, producing over 10 million automobiles (Cars and Commercial
vehicles), remains the second largest player, blending the legacy of giants like
General Motors and Ford with the rise of new entrants such as Tesla. Detroit,
once synonymous with U.S. automobile production, remains a manufacturing hub,
although production has shifted toward southern states and Mexico, driven by lower
labour costs and favourable trade agreements.
Japan, the third-largest automobile producer, manufactured nearly 9 million car
and commercial vehicles in 2023. Known for its innovation in fuel-efficient and
hybrid technologies, Japanese automakers like Toyota and Honda emphasize
kaizen (continuous improvement) and lean manufacturing, hallmarks of the Toyota
Production System. Despite a mature domestic market, Japan’s export-driven
automobile industry remains vital, with over 4 million vehicles exported annually,
particularly to North America and Europe.
South Korea, well known for technological advancements and R&D in automotive
industry, has a presence of major players like Hyundai and Kia. The country produced
over 4 million automobiles (Cars and Commercial) in 2023, witnessing a 13% growth
in production as compared to previous year.
Germany, renowned for luxury brands such as BMW, Mercedes-Benz, and Audi,
produces over 4 million automobiles annually. The German automotive sector,
contributing 5% to the nation’s GDP, is deeply integrated with advanced technologies
like automation and robotics. Germany’s focus on luxury and innovation, especially
in electric and autonomous driving technologies, ensures its continued relevance in
the global market, bolstered by its role as a central hub in the European automotive
supply chain, with components sourced from neighbouring countries in Eastern
Europe.
Meanwhile, India has emerged as a prominent player, ranking fourth globally with
an annual production of nearly 6 million automobile units. Indian companies such as
Maruti, Tata Motors, and Mahindra & Mahindra have established significant domestic
and export markets, especially in the small car and utility vehicle segments. Supported
by government initiatives like ‘Make in India’ and a cost-competitive workforce, India
is positioning itself as a global automotive manufacturing and export hub. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 4
1.1.1 REGIONAL SHIFTS AND THE RISE OF EMERGING MARKETS
Over the last two decades, a significant shift has occurred in global automotive
production from established industrialized economies to emerging markets.
Several factors have contributed to this rebalancing.
Cost dynamics have been a major driver, as labour costs in traditional automotive
hubs such as Western Europe and North America are significantly higher than in
emerging economies like China, India, and Mexico. This cost differential has led to
the relocation of many manufacturing facilities to lower-cost regions. For instance,
Mexico has become a critical player in North American automotive manufacturing
due to its proximity to the U.S. market, competitive labour costs, and favourable
trade policies under the United States-Mexico-Canada (USMCA) agreement. In
2023, Mexico produced approximately 4 million vehicles, with most of its output
destined for export.
Additionally, the proximity to growing markets in emerging economies not only
provides lower-cost labour but also represent rapidly expanding consumer
markets. The middle-class population in countries such as China and India have
surged, leading to greater demand for automobiles. By establishing production
facilities in these regions, global automakers can cater to local demand while also
avail the advantage of low-cost manufacturing.
Complementing these economic and market dynamics are government policies
and incentives that actively support the automotive sector in many emerging
markets. In China, for example, the government has played a pivotal role in shaping
the domestic EV market by offering substantial subsidies for EV purchases and
investing heavily in charging infrastructure. Similarly, India’s Production-Linked
Incentive (PLI) and Faster Adoption and Manufacturing of Hybrid and Electric
Vehicles (FAME) scheme aim to attract significant investment in automotive
manufacturing, particularly in electric vehicle and Plug-in Hybrid Electric Vehicles
(PHEV) segments.
1.1.2 ELECTRIC VEHICLE (EV) REVOLUTION AND ITS IMPACT ON
MANUFACTURING
The rise of electric vehicles is one of the most significant trends reshaping the
global automobile manufacturing landscape. EV sales have grown exponentially,
driven by consumer demand for sustainable mobility, regulatory pressure to
reduce carbon emissions, and technological advancements in battery technology.
China leads the world in EV production, accounting for over 50% of global EV
sales in 2022. Chinese companies such as BYD, Nio, and Xpeng have become
global leaders in the EV space, challenging established players in Europe and
North America. China’s dominance in the EV market is also supported by its
control over the global supply chain for lithium-ion batteries, with Chinese firms
like CATL being the largest battery manufacturers globally. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 5
Europe has also made significant strides in EV adoption. The European Union’s
stringent carbon emission targets and regulatory frameworks have pushed
traditional automakers such as Volkswagen, BMW, and Renault to accelerate their
transition to EV production. In 2022, EVs made up nearly 25% of all vehicle sales
in Europe, with countries like Norway and the Netherlands leading the charge.
The U.S., led by Tesla, is also witnessing rapid growth in EV production. Tesla’s
gigafactories in Nevada and Texas serve as models of high-tech, scalable EV
production. Moreover, the U.S. government’s Inflation Reduction Act (2022) and
the Chips Act (2022) has introduced significant incentives for EV production
and purchases, aimed at reducing dependence on fossil fuels and encouraging
domestic manufacturing of EV components such as batteries and semiconductors.
The rise of EVs has also led to the creation of new manufacturing hubs, particularly
for battery production. Gigafactories for battery manufacturing are being
established in regions such as China, Europe, and the U.S., driving investments in
related industries like mining for lithium and cobalt, which are critical for EV battery
production. These developments are altering traditional automotive supply chains
and creating new opportunities for collaboration and competition globally.
1.1.3 THE SHIFT TO ADVANCED MANUFACTURING
The automotive industry is at the forefront of the Industry 4.0 revolution, which
integrates advanced technologies like Artificial Intelligence (AI), Machine Learning
(ML), Additive Manufacturing, the Internet of Things (IoT), and robotics into
manufacturing processes. This shift is enhancing productivity, reducing costs, and
increasing the flexibility of production lines to cater to the growing diversity of
vehicle models, particularly with the rise of EVs and autonomous vehicles. South
Korea is a leader in adoption of automation and robotics and has deployed 1012
robots per 10,000 employees in 2022. Following are Singapore and Germany with
730 and 415 robots per 10,000 employees
1
. German manufacturers employ high
levels of automation and robotics in their production processes. Germany is a
leader in adopting Industry 4.0 practices in automotive manufacturing. Japanese
automotive plants are renowned for their use of just-in-time production and lean
manufacturing techniques, which have been further enhanced by the integration
of AI and predictive analytics. Toyota, for instance, uses advanced AI systems to
optimize its supply chain and manufacturing efficiency.
This digital transformation is not only limited to manufacturing processes but also
extends to smart factories and connected vehicles, creating new business models
and ecosystems within the global automotive sector.
1.2 ROLE OF THE AUTOMOTIVE SECTOR IN TRANSFORMING
GLOBAL MANUFACTURING
The automotive sector has long been a catalyst for industrial transformation and
innovation, driving advancements in manufacturing technologies that are now integral
to various other industries. Over the last few decades, the sector has pioneered
1 https://www.therobotreport.com/ifr-world-sets-record-for-operational-robots-in-2022/ AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 6
the adoption of cutting-edge practices, such as robotics, automation, artificial
intelligence, and digitalization. This transformation has been pivotal in enhancing
production efficiency, reducing costs, and enabling the mass customization of
products. The integration of Industry 4.0 technologies has positioned the automotive
industry at the heart of a new era of global manufacturing, reshaping supply chains
and fostering cross-sectoral linkages.
1.2.1 TECHNOLOGY ADOPTION IN THE AUTOMOTIVE INDUSTRY
The automotive sector has led the way in adopting automation and robotics,
driven by the need for precision, speed, and cost-efficiency in mass production.
The sector’s complex production processes and high volumes of output have
necessitated significant investment in automation technologies to ensure
consistency and minimize errors.
• Robot Density: According to the data published by International Federation
of Robotics (IFR), South Korea, Singapore and Germany, which are pioneer
in manufacturing, robot density in these countries are highest in the world. In
automotive manufacturing, robot density is significantly higher than in other
industries. It is one of the highly automated sectors globally. Particularly in
automotive industry, South Korea leads with a robot density of 2,867 robots
per 10,000 employees. Germany, the United States, Japan, and China follow
with densities of 1,500, 1,457, 1,422, and 772 robots per 10,000 employees,
respectively.
2
The extensive use of robotics helps manufacturers achieve high-
quality standards and scale production, especially for premium and high-tech
vehicles like electric cars.
• Automation and AI: Artificial intelligence and machine learning are transforming
automotive manufacturing by optimizing production lines, reducing downtime,
and predicting potential equipment failures. AI-driven predictive maintenance
systems are increasingly common in modern automotive factories, helping to
avoid costly disruptions. For example, BMW employs AI to monitor production
machinery, ensuring smooth operations and improving the overall efficiency
of its plants.
• Digital Twins and IoT: Another transformative innovation in automotive
manufacturing is the use of digital twins—virtual models of physical assets that
allow manufacturers to simulate, monitor, and optimize production processes
in real-time. Coupled with the Internet of Things, digital twins enhance
flexibility and reduce lead times. Toyota has employed digital twins to create
highly efficient production processes, integrating IoT sensors to provide real-
time data on machine performance and inventory management.
1.2.2 INDUSTRY 4.0 AND THE FUTURE OF AUTOMOTIVE
MANUFACTURING
The ongoing transformation of the automotive sector is closely linked to the
Industry 4.0 revolution, which integrates cyber-physical systems, big data,
2 https://ifr.org/news/one-million-robots-work-in-car-industry-worldwide-new-record AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 7
cloud computing, and automation into manufacturing processes. Automotive
manufacturing is now at the forefront of smart manufacturing, with companies
leveraging these technologies to enhance operational efficiency, improve product
quality, and reduce production costs.
• Smart Factories: Many global automakers are investing heavily in creating
smart factories, where AI, IoT, and robotics are integrated into every aspect
of the production process. Audi’s factory in Ingolstadt, Germany, serves as an
exemplar of a smart factory, where vehicles are produced with minimal human
intervention, and production lines are highly flexible, capable of producing
different models simultaneously based on real-time demand.
• Additive Manufacturing: Also known as 3D printing, additive manufacturing
is revolutionizing automotive production by enabling the creation of complex
components with reduced material waste. Ford and BMW are leading users of
3D printing technology, using it to produce everything from prototype parts
to components for final assembly. The ability to quickly and cost-effectively
produce bespoke parts is reducing development times and enabling greater
customization.
• Big Data and Analytics: Automakers are utilizing big data analytics to optimize
their supply chains, improve production efficiency, and enhance product
quality. By analysing vast amounts of data from sensors, connected vehicles,
and production lines, companies can identify patterns and make data-driven
decisions. For example, Toyota uses big data to predict maintenance needs
and optimize its just-in-time production processes.
1.2.3 SUSTAINABILITY AND CIRCULAR ECONOMY PRACTICES
The automotive industry has also been a key player in driving the shift toward more
sustainable manufacturing practices. The sector’s environmental impact, including
emissions from production and end-of-life vehicle disposal, has prompted significant
efforts to reduce carbon footprints and embrace circular economy models.
• Energy Efficiency: Automakers are increasingly integrating renewable energy
sources into their production processes. For instance, by 2030, Volkswagen
has aimed 100% of the external electricity purchases by all sites is to come
from carbon neutral sources, aligning its operations with global efforts to
mitigate climate change.
• Circular Economy: The sector is at the forefront of the circular economy,
focusing on minimizing waste, promoting the reuse and recycling of materials,
and developing closed-loop systems. For example, BMW has implemented
a comprehensive recycling program for its electric vehicle (EV) batteries,
ensuring that valuable raw materials such as lithium, cobalt, and nickel are
recovered and reused in new battery production. This not only reduces
environmental impact but also addresses the growing concern over raw
material shortages for EV production. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 8
• Sustainable Manufacturing: Automakers are increasingly employing green
manufacturing practices, such as using lightweight materials (e.g., aluminium,
high-strength steel, and carbon fibre) to reduce vehicle weight and improve
fuel efficiency. These materials are produced using less energy-intensive
processes, thus reducing overall emissions. For example, Ford has committed
to reducing the carbon footprint (Scope 1 & Scope 2 Carbon emissions) from
its operations by 76% by 2035.
1.2.4 LINKAGES WITH OTHER SECTORS: ELECTRONICS, AI, AND
SEMICONDUCTORS
One of the most significant transformations in the global manufacturing
landscape is the growing interdependence between the automotive industry and
other advanced sectors, particularly electronics, semiconductors, and artificial
intelligence.
• Semiconductors and Electronics: The shift towards electric and autonomous
vehicles has vastly increased the reliance of the automotive industry on
semiconductor chips. Advanced vehicles today are equipped with complex
electronic systems that control everything from engine performance and
safety features to infotainment and connectivity. The global semiconductor
shortage that began in 2020 underscored the critical role of semiconductors
in automotive manufacturing, with many automakers forced to halt production
due to the scarcity of chips. To address these vulnerabilities, companies like
Tesla and Ford have begun to secure direct partnerships with semiconductor
manufacturers, while others, like Toyota, have opted for a “just-in-case” supply
chain strategy, stockpiling key components.
• Artificial Intelligence and Autonomous Vehicles: AI is also reshaping the
sector by enabling the development of autonomous driving technologies.
Companies like Waymo, Tesla, and NVIDIA are pioneering advancements in AI-
based systems that allow vehicles to operate with minimal human intervention.
The implications for manufacturing are profound, as AI-driven vehicle
production will require increasingly sophisticated electronic components and
software, driving further collaboration between the automotive, electronics,
and AI sectors.
• Battery Technology: The rise of electric vehicles has also led to significant
innovations in battery technology. The automotive sector has emerged as
a key driver of advancements in lithium-ion batteries, which are now widely
used not only in vehicles but also in other industries such as consumer
electronics and energy storage. Countries like China have positioned
themselves as global leaders in battery production, with companies like
CATL (Contemporary Amperex Technology Co. Ltd.) supplying batteries to
automakers across the globe. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 9
1.3 ROLE OF THE AUTOMOTIVE INDUSTRY IN INDIAN
MANUFACTURING SECTOR
India’s automobile sector is a cornerstone of its manufacturing ecosystem, playing a
crucial role in the country’s economic growth and industrial development. As one of
the largest automotive markets in the world, India’s automobile industry contributes
nearly 7.1% to the national GDP and accounts for nearly 49% of the country’s
manufacturing GDP
3
. This contribution underscores the sector’s importance as a
driver of industrial output, employment, and technological advancement in India.
1.3.1 AUTOMOTIVE PRODUCTION AND MARKET OVERVIEW
The Indian Auto industry produced over 28 million vehicles including Passenger
Vehicles, Commercial Vehicles, Three Wheelers, Two Wheelers, and Quadricycles
in April 2023 to March 2024, making it the fourth-largest automobile producer
globally, following China, the United States and Japan. The sector encompasses
a broad spectrum of vehicles, including passenger cars, commercial vehicles,
two-wheelers, and three-wheelers, catering to both domestic consumption and
exports. The industry is dominated by a few key players which together control a
significant portion of the domestic passenger vehicle market.
• Car and Commercial Vehicles segment: In 2023-24, the Indian Automobile
market saw the production of nearly 6 million units, driven by rising demand
from the middle-class and improved affordability of vehicles. Leading
companies such as Maruti Suzuki, Tata Motors and Mahindra & Mahindra remain
prominent in this segment and have made significant inroads with their strong
portfolios of electric vehicles (EVs), and utility vehicles. On the commercial
vehicle front, companies like Ashok Leyland and Tata Motors dominate the
market. Commercial vehicles are critical to India’s infrastructure and logistics
sectors, playing a key role in freight transportation across the country’s vast
road network.
• Two-Wheeler and other Segments: India is the world’s largest producer of
two-wheelers, with over 21 million units produced annually in 2023- 24. Three-
wheelers and quadricycles have also experienced production growth, with
nearly 1 million units being produced. This rise reflects the growing demand for
compact, efficient transportation solutions, particularly in emerging markets
where these vehicles are popular for urban mobility.
1.3.2 GOVERNMENT INITIATIVES SUPPORTING THE AUTOMOTIVE
SECTOR
The Indian government has been instrumental in shaping the growth trajectory of
the automobile sector through several policy initiatives aimed at enhancing the
country’s manufacturing capabilities and positioning it as a global automotive
hub. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 10
Make in India Launched in 2014, the Make in India initiative has provided
a significant boost to the country’s manufacturing sector,
particularly in automobiles. This policy promotes domestic
manufacturing, reduces reliance on imports, and encourages
foreign direct investment.
Atmanirbhar
Bharat:
The Atmanirbhar Bharat initiative aims to foster self-sufficiency
in manufacturing and reduce the country’s dependence on
foreign components. In the automotive sector, this has resulted
in increased domestic production of critical components such
as engines, transmissions, and EV batteries. The government
has also extended support to start-ups and small and medium
enterprises (SMEs) in the automotive space, helping them
integrate into global supply chains.
FAME India
Scheme phase-I
The Faster Adoption and Manufacturing of Hybrid and Electric
Vehicles (FAME) India scheme was launched in 2015 to promote
adoption of electric/ hybrid vehicles (HEVs) in India. The
Phase-1 of the scheme was available up to 31st March, 2019 with
budget outlay of Rs 895 Cr. This phase had four focus areas i.e.,
technological development, demand generation, pilot project
and charging infrastructure components.
FAME-India
Scheme phase-
II
The scheme implemented on pan India basis for a period of five
years commencing from 1st April, 2019 with an outlay of INR 10,000
Crore which was further enhanced to INR 11,500 Crore. This scheme
mainly focuses on supporting electrification of public & shared
transportation, and aims to support the industry through demand
incentive e-vehicles including e-buses. In addition, creation of
charging infrastructure is also supported under the Scheme.
PM E-DRIVE
Scheme
The PM Electric Drive Revolution in Innovative Vehicle
Enhancement scheme has a financial outlay of INR 10,900
crore. Effective from October 1, 2024 until March 31, 2026. Its
primary aim is to accelerate the adoption of electric vehicles
(EVs), establish charging infrastructure, and build a robust EV
manufacturing ecosystem in the country.
The PM E-DRIVE scheme aims to incentivize approximately
24.79 lakh electric two-wheelers (e-2Ws) and around 3.2 lakh
electric three-wheelers. A budget of INR 500 crore each has
been allocated for deploying e-ambulances and to incentivize
the use of e-trucks. A total of INR 4,391 crore is allocated for
the procurement of 14,028 electric buses by State Transport
Undertakings (STUs)/public transport agencies. The total outlay
for charging infrastructure under the scheme is INR 2,000 crores. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 11
PLI scheme The Production-Linked Incentive (PLI) scheme for the automotive
sector, introduced in 2021, aims to boost domestic manufacturing
of advanced automotive technologies. The scheme has a budget
of INR 25,938 crore ($ 3.5 Bn) and is focused on encouraging
the production of EV components, hydrogen fuel cells, and
other advanced automotive technologies in India. This initiative
is expected to generate significant investments and foster
technological innovations in the sector.
PLI scheme
for (Advanced
Chemistry Cell)
ACC Battery
Storage
With a budget outlay of INR 18,100 crores, introduced in 2021, this
scheme envisages to enhance India’s manufacturing capabilities of
Advanced Chemistry Cell (ACC) by setting up of Giga scale ACC
and battery manufacturing facilities in India with emphasis on
maximum domestic value addition. Beneficiary firm must ensure at
least 25% domestic value addition and raise it to 60% within 5 years.
1.3.3 EMERGING TRENDS IN INDIAN AUTOMOTIVE
MANUFACTURING
India’s automotive sector is undergoing a transformation, shaped by evolving
consumer preferences, technological advancements, and sustainability goals. The
rise of electric vehicles (EVs), coupled with innovations in autonomous driving
and connected vehicles, is pushing Indian manufacturers to rethink their strategies
and invest heavily in research and development (R&D).
• Electric Vehicles: With the government’s emphasis on electric mobility, the
Indian automotive industry is increasingly shifting toward the production of
EVs. Companies are also investing in the development of battery technologies
and charging infrastructure. The EV market is expected to grow at a compound
annual growth rate (CAGR) of over 23%
4
in the coming decade, with significant
contributions from start-ups and global partnerships.
• Autonomous and Connected Vehicles: India is also making strides in the
development of autonomous and connected vehicles, with significant
investments from both domestic and global companies. Some Indian software
companies are collaborating with global automakers to develop software
solutions for autonomous driving and connected vehicles, further positioning
India as a hub for automotive software development.
1.4 INTERCONNECTEDNESS OF INDIAN AUTOMOTIVE SECTOR
WITH OTHER INDUSTRIES
The Indian automotive sector is deeply interconnected with various parts of the
broader economy, creating strong backward and forward linkages that drive
demand for raw materials, components, and services across multiple industries.
These linkages extend to key sectors such as steel, rubber, glass, electronics,
information technology etc. making the automotive industry a critical component
4 https://economictimes.indiatimes.com/industry/renewables/with-23-cagr-global-ev-market-to-
soar-to-usd-2108-billion-by-2033-report/articleshow/113763420.cms?from=mdr AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 12
of India’s industrial value chain. Some of the industries or sectors that highlight this
interdependence are:
1. Steel: The automotive sector is a major consumer of steel in India, accounting for
approximately 15% of the country’s total steel production. Automakers rely heavily
on high-strength steel for vehicle body structures, engines, and other components.
Leading Indian steel companies such as Tata Steel and JSW Steel have established
long-term partnerships with automakers, ensuring the steady supply of advanced
steel products required for vehicle manufacturing. As the demand for lightweight
vehicles grows, steel manufacturers are also focusing on developing new grades of
high-strength steel that are both durable and lightweight.
2. Rubber and Plastics: The Indian automotive sector drives significant demand
for rubber and plastics, particularly for the production of tires, hoses, seals,
and other components. India is one of the world’s largest producers of natural
rubber, with the automotive industry consuming nearly 50% of the country’s
rubber production. Companies like MRF, Apollo Tyres, and JK Tyre are major
suppliers of tires to both domestic and global markets. In the plastics sector,
automakers are increasingly using lightweight polymer materials to improve
vehicle fuel efficiency and reduce manufacturing costs.
3. Glass: The automotive sector is a key consumer of automotive glass for
windshields, windows, and mirrors. Companies such as Asahi India Glass and
Saint-Gobain supply the Indian automobile industry with high-performance
glass that meets stringent safety and quality standards. The growing demand
for advanced driver-assistance systems and smart glass technologies is further
boosting innovation in this sector.
4. Electronics: The increasing integration of electronics into vehicles, particularly in
EVs and autonomous cars, has strengthened the linkage between the automotive
and electronics industries. Semiconductors, sensors, and microcontrollers are critical
components for modern vehicles, enabling everything from engine control units
to advanced infotainment systems. India’s burgeoning electronics manufacturing
industry is playing an essential role in supplying these components to automakers.
As part of the PLI scheme for electronics, the government is encouraging the
domestic production of automotive electronics, reducing dependence on imports.
5. IT Sector: India’s thriving information technology sector plays a pivotal role in the
design and development of software for autonomous driving, connected vehicles,
and in-car infotainment systems. Companies like Tata Consultancy Services,
Infosys, and Wipro are global leaders in providing IT solutions to automotive
giants. These companies are collaborating with automakers to develop systems
for vehicle-to-vehicle and vehicle-to-infrastructure communication, as well as
cyber security solutions for connected cars. The IT sector’s contribution to the
automotive industry has positioned India as a hub for automotive software
development and engineering services.
6. Textiles and leather Sector: Textile and leather are extensively used in automotive
industry. Its application ranges from airbag cushion for safety purpose to seat
covers, steering wheel, floor mats for enhancing the visual appearance of the
interior. Textiles and leather are predominantly used for interior applications
such as floor covering, seat covers, interior trims, seatbelts, airbag and filters. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 13
1.5 AUTO SYSTEM OVERVIEW
The below diagram illustrates the distinct components in automobile manufacturing.
Figure - 1.1 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 14 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 15 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 16 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 17
INDIA’S AUTOMOTIVE INDUSTRY
AND ITS POSITIONING IN
AUTOMOTIVE GVC AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 18
2.1 HISTORICAL EVOLUTION AND MARKET OVERVIEW OF THE
INDIAN AUTOMOTIVE INDUSTRY
India’s automotive journey started in 1942 after Hindustan Motors (HM) was
established. In 1948, HM produced its first car which was assembled in India under the
brand name Hindustan 10 (based on the 1947 Morris 10 Series M), which later evolved
into Hindustan Ambassador. At that time, most of the automotive components
that were needed to assemble the car were imported from UK. As the demand
for the automobile was increasing, the government pushed for the localization of
components and in the 1950s and 1960s, various local players including Bharat
Forge, TVS, and Sundaram entered the Indian automotive market. At that time, the
focused customers were upper and high-income segment of the population.
Representation of Automobile: An Ambassador Car
In 1981, Maruti Udyog Limited was established and produced their first car Maruti 800
in 1983 which was often referred to as “People’s car” as it was affordable, reliable,
and economical with a low service cost requirement. Maruti also started exporting
their cars to neighbouring countries like Sri Lanka, Nepal and many others.
Until 1991, the Indian market was a protected market. As a result of which, the Indian
economy was not performing well as India’s economic access was limited to global
players and investing in India was a herculean task. In 1991, the Government introduced
Liberalization, Privatization and Globalization (LPG) reforms to liberalize and open
up the Indian economy to foreign investors. As a result, various global automotive
players like Hyundai, Daimler-Benz, Toyota, Honda, Renault, Volkswagen, Ford and
many others entered the Indian market with the collaboration of Indian Industries to AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 19
set up their production plants and start their operations in India. During April 2000
to June 2024, India’s automobile sector attracted a cumulative equity FDI inflow of
approximately $ 36.26 billion representing 5.27% of the total equity FDI inflows into
the country during this period.
In the early 21st century, the Indian automotive industry saw rapid growth expansion.
Rise in middle-class income, urbanization and improved infrastructure fuelled
the domestic demand for passenger vehicles. As the world is moving towards
faster adoption of EVs, the Indian government introduced several schemes in
the last decade such as Production Linked Incentives (PLI), Faster Adoption and
Manufacturing of Hybrid and Electric Vehicles (FAME), PM E-DRIVE etc. to boost
the automotive sector, especially the EV sector.
Currently ranked as the fourth-largest automotive market globally, the Indian
automotive sector contributes 7.1% to the nation’s GDP. With a population exceeding
1.4 billion, India holds immense potential, supported by a current market size of
over $100 billion. The rapid pace of urbanization, coupled with rising disposable
incomes and a burgeoning middle class, has further fuelled the demand. Benefiting
from both a vast domestic consumer base and competitive manufacturing costs,
India emerges as a compelling destination for global automotive investors seeking
strategic opportunities.
2.1.1 AUTOMOTIVE MARKET AND GVC
Global Value Chains (GVC) refers to a phenomenon where production is broken
into activities and tasks carried out in different countries. In GVC, the operations
are spread across national borders instead of being confined to one location and
hence, a single finished product often results from manufacturing and assembly in
multiple countries, with each step in the process adding value to the end product.
The global auto component market was estimated to be around $ 2 trillion in
2022, which reflects the importance of the sector within the global automotive
industry. Over the past five years, the market has consistently expanded at a
steady annual growth rate of 4-6%. This consistent growth reflects the strong
demand for automotive components in the global market and underscores the
critical role automotive components play in supporting the larger automotive
ecosystem, which includes both traditional Internal Combustion Engine (ICE)
vehicles and the rapidly emerging Electric Vehicle (EV) segment.
The largest segment in the global automotive trade is Engine and Engine
Components, accounting for approximately 23% of the total traded value. Close
behind are Drive Transmission and Steering Components, which comprise 17% of
the market value. Suspension and braking systems, now incorporating advanced
technologies such as Advanced Driver Assistance Systems (ADAS), Autonomous
Driving (AD), Hill Hold, and Traction Control systems, are becoming increasingly
complex and represent 7% of the market. The relatively smaller market share of
cooling systems, at 5%, reflects the technological shift towards electric vehicles,
which typically demand less conventional cooling infrastructure compared to
internal combustion engines. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 20
Figure - 2.1
Approximately 70% of automotive components are produced domestically for
consumption within their respective markets, while a substantial 30% equivalent
to $700 billion—comprises the global export market. Of this traded value, Drive
Transmission and Steering components account for 38%, Engine and Engine
components contribute 22%, Suspension and Braking systems represent 9%, and
Cooling systems hold a 6% share.
Figure - 2.2 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 21
2.1.2 CONSUMPTION AND TRADE DYNAMICS OF MAJOR MARKETS
IN GLOBAL AUTOMOTIVE SECTOR
• China: China has a vast consumption market valued at approximately $810
billion, and in the calendar year 2022, its total automotive component
production was estimated at around $850 billion. Of this, nearly $740 billion
was absorbed by OEMs, while the aftermarket accounted for $70 billion.
China’s export of $70 billion worth of automotive components to the global
market underscores both the global dependency on Chinese components
and its dominant position in the global automotive industry. With imports
amounting to just $36 billion, China’s trade ratio of approximately 2 highlights
that it exports twice as much as it imports.
• USA: The United States holds the world’s second-largest automotive
consumption market, valued at approximately $356 billion. It exports around
$75 billion in automotive components but imports nearly $143 billion, yielding
a trade ratio of 0.5, indicating that U.S. imports are double of its exports.
• Japan: As the third-largest automotive consumption market globally, with an
estimated value of $228 billion, Japan exports approximately $52 billion in
automotive components while importing only $13 billion. This results in a trade
ratio of 4, highlighting that Japan exports four times of what it imports—a
reflection of its advanced manufacturing capabilities and emphasis on
innovation and continuous improvement.
• Germany: Renowned for its precision manufacturing and high-quality products,
Germany has a consumption market of around $96 billion. The country exports
approximately $93 billion in automotive components and imports $63 billion,
resulting in a trade ratio of 1.48.
• Mexico: With a consumption market of approximately $96 billion, similar to
Germany, Mexico exports about $51 billion in automotive components and
imports $44 billion, producing a trade ratio of 1.16.
• South Korea: Known for its advanced manufacturing technology and
semiconductor industry, South Korea has an automotive consumption market
valued at around $76 billion. It exports $26 billion in automotive components
while importing only $9 billion, leading to a trade ratio of 2.89.
• Poland: Situated in Eastern Europe, Poland has a relatively modest automotive
consumption market of around $8 billion. Despite this, it exports $26 billion
in automotive components and imports $16 billion, resulting in a trade ratio
of 1.63. This high ratio is driven by the lower manufacturing costs in Eastern
Europe and favourable free trade agreements.
• India: India accounts for merely 3% of the global automotive component market.
In 2022, the total value of India’s automotive and automotive component
industry was approximately $109 billion, with automotive components alone
valued at $70 billion. In 2022, India’s consumption of $70 billion was matched
by both imports and exports, each totalling $20 billion, resulting in a trade
ratio of 0.99, indicating that imports are almost equal to exports. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 22
Figure - 2.3 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 23
2.2 AUTO COMPONENT GVC AND INDIA’S TRADE SCENARIO
ACROSS COMPONENTS
2.2.1 ANALYSING AUTO COMPONENTS: GLOBAL SEGMENTATION
AND INDIA’S CONTRIBUTION
India’s automotive component exports are primarily directed toward North
America (34%), Europe (27%), and Asia (19%), with the United States as the
largest trading partner at approximately $3.5 billion (28%). Germany and Turkey
follow, contributing around $0.8 billion (7%) and $0.7 billion (5%), respectively. In
FY 2024, India’s total automotive component exports reached an estimated $12.8
billion, marking a substantial 72% growth from FY 2021.
Figure - 2.4
Source: Crisil Intelligence
On the import side, India sources 58% of its automotive components from Asia,
27% from Europe, and 9% from North America, with China as the primary supplier
at $2.8 billion (23%). Other significant suppliers include Germany (approximately
$1.6 billion, or 13%), South Korea ($1.3 billion, or 11%), Japan ($1.2 billion, or 10%),
and the United States ($1.0 billion, or 8%). In FY 2024, imports totalled about
$12.1 billion, growing ~80% compared to FY 2021. India’s reliance on imports,
particularly from China, underscores the urgent need for India to enhance its
domestic production capabilities to mitigate import dependency.
Share of Auto Components export by region / country, FY24 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 24
Figure - 2.5
Source: Crisil Intelligence
Figure - 2.6
India’s trade landscape is witnessing a promising trend, with exports outpacing
imports in recent years. Since FY19, the country’s exports have demonstrated a
robust growth trajectory, expanding at a compound annual growth rate (CAGR)
of approximately 7% as shown in Figure 2.4.
Share of Auto Components import by region / country, FY24 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 25
Figure - 2.7
In contrast, imports have grown at a relatively slower pace, with a CAGR of around
3% during the same period. This divergence underscores India’s improving trade
competitiveness and its increasing integration into global value chains. The share
of critical components in the Indian export basket has been on an upswing with
critical components (Engine and Transmission components) accounting for 65 %
of the total export basket in FY24 compared with 55% in FY14 which is explained
in the sections below.
2.2.1.1 Engine and Engine components AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 26
Engine is a machine which converts chemical energy (generated from fuel) into
mechanical energy. It is indeed the most important and crucial component of a
car that propels the vehicle, operates the vehicle and its various systems. While
Engine components consist of various parts that are designed to perform a
specific function in the operation of an Engine.
Engine and engine components are fundamental to both Internal Combustion
Engine (ICE) and Plug-In Hybrid Electric Vehicle (PHEV). In the global automotive
export market, the trade value of these components is approximately $150 billion,
representing a substantial 22% market share. Notably, 50% of the GVC for engine
and engine components is concentrated among 6 to 7 leading countries, with
Germany leading the pack, holding a significant 15% share of global exports.
India’s participation in this market is characterized by a balanced trade dynamic,
as the country imports and exports an equal share of 4%, approximately valued
at $6 billion of the total global automotive components trade.
The landscape of major exporters includes Germany (15%), USA (10%), China (8%),
Japan (8%), and Mexico (7%). In terms of imports, the United States remains the
largest importer at 20%, followed by Germany (9%), Mexico (5%), China (4%), and
India (4%). This equilibrium in trade reflects India’s strategic positioning, as it exports
4% of the estimated $150 billion global export flow in engine and engine components. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 27
Figure - 2.8
Engine and engine components can be further classified into several sub-
components, each with its own distinct market dynamics. The crankshaft and
camshaft segment, valued at approximately $9 billion, shows Germany, USA, and
China as major exporters, while the USA, China, and India are key importers. The
engine cylinder and cylinder heads market, with a total value of around $91 billion,
features Germany, USA, and China as leading exporters, while India contributes
a modest 2% to global exports and imports 4% of the traded value. The exhaust
system segment, valued at approximately $18 billion, shows Germany and China
as the primary exporters, with India holding a 1% share. In the fuel injection
system sector, also valued at $9 billion, India has a 3% export share, while the
USA dominates imports. Lastly, the piston and engine valve market, estimated
at $27 billion, sees India importing 3% and exporting 2% of the global trade.
This underscores the significance of engine and engine components within the
automotive value chain and highlights India’s evolving role in this critical sector.
AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 28Engine Components GVC Export Share
?Components
Engine Cylinder and Cylinder heads
Pistons and Engine Valve
Exhaust System
Fuel Injection System
Crankshaft and Camshaft
Figure - 2.9Engine Components GVC Import Share
?Components
Engine Cylinder and Cylinder heads
Pistons and Engine Valve
Exhaust System
Fuel Injection System
Crankshaft and Camshaft
Figure - 2.10
India’s competitiveness in Engine & components segment has been assessed by
evaluating its exports of engine components, the total world exports of engine
components, and the country’s overall export performance relative to the world to
determine relative competitiveness of India compared to other nations. Notably,
India’s global engine component competitiveness has shown a significant upward
trend, increasing from 0.5 in 2014 to 0.8 in 2023. This growth can be attributed to
the rising number of foreign collaborations, Global OEMs manufacturing in India,
increased localisation push by Automobile OEMs and the increasing proportion
of critical components in India’s exports over the past decade. To sustain and AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 29
further enhance this momentum, continued investment in boosting India’s
competitiveness is essential.
Figure - 2.11
Source: Crisil Intelligence
2.2.1.2 Drive Transmission and Steering
Drive Transmission usually refers to a system that transfers power generated from
engine to the wheels and allow the vehicle to move while Steering refers to the
system that provides direction to the vehicle and is crucial for vehicle handling.
Drive transmission and steering represent the largest segment in the global
automotive component trading market, with a substantial traded value of $270
billion, accounting for 38% market share. This highlights the critical role that
drives transmission and steering play within the automotive industry. The major
exporters in this segment include Germany (14%), the USA (12%), Japan (10%),
China (10%), Mexico (7%), and South Korea (4%). On the import side, the USA
leads with a 21% share, followed by Germany (9%), Mexico (7%), China (7%),
Canada (2%), and Brazil (2%). AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 30
Figure - 2.12
India’s position in this sector is negligible, as it exports 2% of the approximately
$270 billion global export trade and imports 1% of the global import trade,
indicating a trade surplus in the drive transmission and steering segment. The
components within this category are further fragmented and classified into
several sub-groups:
• Transmission GVC (~$29 billion): The primary exporters of transmission
components are Germany (19%), the USA (11%), Mexico (10%), Japan (9%), and
China (7%), with India holding a 2% share of the global export market. Major AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 31
importers include the USA (21%), Mexico (10%), Germany (10%), Canada (4%),
and China (4%), with India importing 1% of the total global transmission trade.
• Steering Components GVC (~$90 billion): Key exporters in this segment
are Germany (22%), Japan (18%), the USA (10%), Mexico (9%), and China
(6%), while India retains a 1% share of the global export market. The leading
importers are the USA (18%), China (13%), Germany (9%), Mexico (9%), and
Brazil (3%), with India importing 2% of the global steering components trade.
• Clutch GVC (~$12 billion): The major exporters of clutch components are
Germany (23%), China (10%), the USA (9%), Japan (8%), and Hungary (7%),
with India possessing a 1% market share in global clutch exports. The principal
importers include the USA (16%), Germany (10%), Mexico (9%), China (6%),
and Hungary (4%), while India imports 2% of the global clutch trade. ?Components
Transmission
Steering Components
Clutch
Drive Transmission and Steering Components GVC Export Share
Figure - 2.13 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 32?Components
Transmission
Steering Components
Clutch
Drive Transmission and Steering Components GVC Import Share
Figure - 2.14
The relative competitiveness of transmission component exports from India
has been on an upswing rising from 0.5 in 2014 to 1.1 in 2023. Notably, in 2022,
drive transmission and steering components accounted for a substantial 33%
of the country’s total auto component exports. Furthermore, India has made
considerable progress in reducing its reliance on imports, with the import share
declining dramatically from over 30% in FY21 to less than 10% in FY23. However,
certain segments such as engine components, body/chassis, and suspension/
braking systems continue to dominate the import landscape. The key drivers
behind this upswing in competitiveness in the transmission component market
can be attributed to a combination of factors, including government initiatives
for Auto sector, joint ventures with foreign players, foreign OEMs manufacturing
transmission systems in India, making India the export hub for certain technologies,
growing demand from global automotive hubs, and the expansion of Indian
automotive companies.
Figure 2.15
Source: Crisil Intelligence
2.2.1.3 Suspension and Braking GVC (~ $ 60 Billion)
Suspension refers to a system that connects the wheel with the upper body/
Chassis of the vehicle and is designed to absorbs the impact generated from AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 33the road, maintain contact of tyres with the ground and provides stability and
comfort during the ride while breaking refers to a system that works together
to slow down or stop the vehicle’s motion by converting the kinetic energy into
thermal energy by the use of friction.
7KHVXVSHQVLRQDQGEUDNLQJLQGXVWU\LVXQGHUJRLQJVLJQL?FDQWHYROXWLRQGULYHQ
by the rising demand for advanced features in vehicles. Within the global
automotive export market, the trade value of suspension and braking systems is
approximately $60 billion, representing a 9% market share. Major exporters in this
sector include China (15%), Mexico (11%), Germany (10%), the USA (9%), Poland
(5%), Japan (4%), and India (4%). On the import side, the USA stands out as the
largest importer, accounting for 23% of the market, followed by Germany (11%),
Mexico (7%), India (5%), and China (4%). AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 34
Figure - 2.16
India’s participation in this segment reveals a trade deficit, as the country exports
4% of the global export trade flow, while importing 5% of the total global trade.
The suspension and braking components can be further classified into two sub-
groups:
• Braking Parts GVC (~$37 billion): The leading exporters of braking parts are
China (22%), Germany (13%), the USA (7%), Italy (6%), and Japan (5%). India
holds a modest 2% market share in the global braking parts export market.
The major importers in this segment include the USA (21%), Germany (12%),
Mexico (8%), Canada (4%), and France (4%), with India importing 1% of the
total global trade in braking parts. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 35
• Suspension Parts GVC (~$23 billion): In the suspension parts sector, the
primary exporters are China (19%), Germany (16%), the USA (10%), Mexico
(10%), and Poland (5%), while India accounts for 1% of the global export
market. The major importers of suspension parts are the USA (25%), Germany
(11%), Mexico (9%), Canada (6%), and China (5%), with India also importing 1%
of the total global trade in suspension parts. Suspension and Braking Components GVC Export Share
?Components
Suspension parts
Braking Parts
Figure - 2.17 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 36Suspension and Braking Components GVC Import Share
?Components
Suspension parts
Braking Parts
Figure - 2.18
Figure - 2.19
Source: Crisil Intelligence
India’s suspension system has declined in competitiveness since 2004, lagging
countries like Poland and Turkey. The sector has also experienced a substantial
increase in imports of suspension and braking components, with a 19% CAGR
between FY19 and FY23. However, suspension systems account for only a 7%
share of the global automotive components market.
2.2.1.4 Cooling System GVC (~ $ 40 Billion)
Cooling system generally refers to a system that absorbs the heat generated from
the engine, transmission and cabin of the vehicle and dissipates the heat into the
atmosphere. Cooling system is used to manage the thermal regulation of critical
vehicle systems including engine, transmission and cabin and prevents the vehicle
from overheating, ensures vehicle performance and efficiency of the vehicle and
driver’s comfort. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 37
The global automotive export market for cooling systems is valued at approximately
$40 billion, capturing a market share of 6%. Major exporters in this segment
include China (12%), Germany (11%), the USA (10%), Mexico (7%), and the Czech
Republic (5%). On the import front, the USA is the largest importer, accounting
for 18%, followed by Germany (9%), China (5%), India (5%), and Mexico (5%).
India’s involvement in the cooling systems market indicates a trade deficit, as the
country exports 4% of the global export trade flow while importing 5% of total
global imports. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 38
Figure - 2.20
The cooling systems supply chain is further categorized into three main sub-
components, reflecting the sector’s fragmentation:
• Engine Cooling GVC (~$13 billion): The leading exporters of engine cooling
systems are Germany (20%), China (10%), the USA (9%), the Czech Republic
(9%), and Mexico (8%), with India holding a 2% share in the global export
market. The primary importers in this category are the USA (22%), Germany
(10%), Mexico (6%), China (6%), and the UK (4%), with India importing 2% of
the globally traded engine cooling systems.
• Cabin Thermal Management (TM) GVC (~$2 billion): Major exporters of cabin
thermal management systems are Germany (15%), China (15%), Slovakia (11%),
the Czech Republic (9%), and Poland (9%), while India captures a 1% share in
the global export market. The key importers in this segment include the USA
(15%), Germany (14%), China (9%), France (6%), and Belgium (5%), with India
importing a negligible share of the cabin TM systems.
• Transmission Thermal Management (TM) GVC (~$8 billion): The primary
exporters of transmission thermal management systems are China (27%),
Germany (12%), the Czech Republic (7%), Poland (6%), and the USA (6%),
with India again holding a 1% share in the global export market. The leading
importers in this category are the USA (19%), Germany (15%), Mexico (5%), the
Czech Republic (4%), and the UK (4%), with India importing 1% of the globally
traded transmission TM systems. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 39 Cooling system Components GVC Export Share
?Components
Engine Cooling
Cabin TM
Transmission TM
Figure - 2.21?Components
Engine Cooling
Cabin TM
Transmission TM
Cooling system Components GVC Import Share
Figure - 2.22 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 40 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 41 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 42 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 43
KEY DRIVERS AND CHALLENGES
FOR INDIA’S PARTICIPATION IN
AUTOMOTIVE GVC AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 44
For the automotive industry, GVCs have become a cornerstone, reflecting the increasingly
complex nature of modern vehicles comprising of thousands of individual parts sourced
from a wide variety of suppliers globally. The automotive component manufacturing
industry is one of the most important players within global value chains which was
valued at close to $2 trillion in 2023 and is expected to become approximate $2.4 trillion
industry by 2030 with the Asia Pacific region expected to grow the fastest between
2023-30, thereby reflecting the significant scale and importance of this particular sector
within the global automobile industry.
Within the Auto components industry, there are several key product categories which
form an integral part of the industry. These include engine and engine components, drive
transmission, steering components, cooling system, suspension and braking system, body
chassis etc. As technologies become rapidly advanced and complex with consumers
preferring Electric Vehicles (EVs) as compared to vehicles with Internal Combustion
Engines (ICE), electrical and electronic components along with battery components
shall become extremely important alongside growing emphasis being placed on self-
driving technologies and Advanced Driver Assisting Systems (ADAS) in vehicles.
3.1 GLOBAL TRENDS IN AUTO COMPONENT GVC
As the global auto components market continues to evolve, various factors such
as technology and geopolitical conditions like China de-risking (supply pools
shifting from China), chip wars (US-China semiconductor restrictions), and shipping
bottlenecks (conflicts in Russia-Ukraine; Middle-East) are at the forefront of the rising
growth being witnessed by the auto components industry within the automotive
industry. Four factors are at present emerging to be the key drivers of growth for
the auto components industry within global value chains.
3.1.1 ELECTRIC VEHICLES (EVS)
At global level, regulatory bodies push for reduced carbon emissions and more
sustainable forms of transportation, EVs have emerged at the forefront of automotive
innovation, thereby signalling a corresponding demand for specialised automotive
components including batteries, power electronics, charging infrastructure, etc.
By 2030, it is projected that 40% of all light vehicles sold globally will be electric,
up from just 3% in 2020. This rapid growth will be accompanied by a substantial
reduction in the number of internal combustion engine (ICE) components, with an
estimated 190 components being eliminated. This shift will not only help reduce
emissions and improve fuel efficiency but also pave the way for the development
of more sophisticated and connected vehicles.
The increasing electrification and automation of vehicles will also lead to a
significant surge in the demand for semiconductor components. The average
semiconductor content per car is expected to increase from $600 in 2022 to
$1,200 by 2030, driven by the growing need for advanced driver-assistance
systems (ADAS) and other connected technologies. In fact, it is projected that
90%
5
of all passenger vehicles sold in 2030 will be ADAS-enabled, featuring
advanced safety features such as lane departure warning, adaptive cruise control,
and automatic emergency braking. By 2040, the industry is expected to reach an
even more significant milestone, with 80% of all light vehicles sold globally being
electric, marking a major shift towards a more sustainable and environmentally
friendly transportation system.
5 Includes Level 2+ and AV ready passenger vehicles AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 45
EV Components Global Value Chain (GVC)
The global electric vehicle (EV) industry is undergoing rapid growth, with a $40–50
billion opportunity in EV components trade. This dynamic value chain is dominated
by a handful of countries, reflecting regional strengths and dependencies. EV components GVC$40-50B traded opportunity for major components with ~80% export from Top7 geos
Note: Global trade value is calculated based on market estimates for EV battery, cooling system, and powertrain components, is lower than EXIM data based on HSIN codes for CY2022 due to removal of non-EV related trade (e.g. Li-ion batteries for mobiles, etc.), to arrive at a more real istic number. However, a country’s share in trade is
based on HS code data; 1. Major export/ import items basis % of global trade for the products; Source: Trademap–Using HSN mapping for EV-specific components like battery, battery cooling and other parts, e-motors, etc. (HSNs used include 850133, 850790, 850760); BloombergNEF; data for CY 23 E ,Bain analysis
United States:
Exports: ~$1B (2%)
Imports: ~$9B (18%)
Trade ratio: 0.1
Key exports
1
: E-motors
Key destinations: Canada (25%), Australia
(10%), Japan (9%)
Key imports
1
: Battery cooling & other parts
Key sources: China (54%), S. Korea (18%),
Japan (13%)
Germany:
Exports: ~$3B (5%)
Imports: ~$9B (17%)
Trade ratio: 0.3
Key exports
1
: E-motors
Key destinations: US (18%), China (11%), Czech (8%)
Key imports
1
: Battery cooling & other parts
Key sources: China (40%), Poland (25%), Hungary (16%)
India:
Exports: ~$0.1B (0.1%)
Imports: ~$1.4B (2.7%)
Trade ratio: 0.07
Key exports
1
: E-motors
Key destinations: Germany (36%), Japan (10%), US (7%)
Key imports
1
: Across categories
Key sources: China (84%), S. Korea (7%), Japan (3%)
Poland:
Exports: ~$4B (8%)
Imports: ~$2B (3%)
Trade ratio: 2
Key exports
1
: Battery
Key destinations: Germany (49%), Mexico
(13%), France (8%)
Key imports
1
: Battery cooling & parts
Key sources: China (58%), S. Korea (19%),
Germany (8%)
Japan:
Exports: ~$2B (4%)
Imports: ~$2B (3%)
Trade ratio: 1
Key exports
1
: Battery cooling & other
parts
Key destinations: US (42%), Singapore
(9%), China (8%)
Major imports
1
: Battery
Key sources: China (64%), S. Korea
(12%), Singapore (8%)
Hungary:
Exports: ~$3B (6%)
Imports: ~$1B (2%)
Trade ratio: 3
Key exports
1
: Battery
Key destinations: Germany (42%), Czech
(11%), Belgium (10%)
Key imports
1
: Battery cooling & other parts
Key sources: China (23%), S. Korea (21%),
Poland (17%)
Net importersNet exporters
South Korea:
Exports: ~$4B (7%)
Imports: ~$3B (6%)
Trade ratio: 1.3
Key exports
1
: Battery cooling and other parts
Key destinations: US (45%), Germany (12%), China (7%)
Key imports
1
: Battery
Key sources: China (94%), US (2%), Vietnam (1%)
China:
Exports: ~$25B (50%)
Imports: ~$4B (7%)
Trade ratio: 6.3
Key exports
1
: Battery, battery cooling & other parts
Key destinations: US (20%), Germany (15%), S.
Korea (10%)
Key imports
1
: E-motors
Key sources: Malaysia (18%), S. Korea (14%),
Japan (13%)
China has a clear dominance owing to highest export of Lithium-Ion (LI) batteries for EVs
Figure - 3.1 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 46
China’s dominance in the EV components market stems from its control over
lithium-ion battery production, a critical component for EVs. With 50% of global
exports ($25 billion) and a trade ratio of 6.3, China’s exports vastly outweigh its
imports. The country is a major supplier to key EV markets such as the United
States, Germany, and South Korea, exporting batteries, battery cooling systems,
and other essential parts. India’s EV component market is in its infancy, with
exports at only $0.1 billion and imports at $1.4 billion, resulting in a trade ratio
of 0.1. The country heavily relies on imports from China (56%), South Korea, and
Japan for batteries and cooling systems.
As illustrated in the figure below, the auto industry is poised to experience a
substantial shift towards electric vehicles, with 80% of the market transitioning
to EVs by 2040, and batteries representing 20% of the total demand in the auto
component GVC market FY 22FY 30PFY 35PFY 40P
Engine Drive TransmissionSuspension Cooling systemsBatteryElectric MotorElectronicsOthers
2.0
2.6
2.8
3.0
23%
15%
11%
6%
17%
15%
14%
12%
7%
7%
7%
7%
5%
5%
5%
7%
3%11%15%
20%
1%
2%
3%
3%
8%
8%
8%
8%
36%
37%
37%
36%
Figure - 3.2
3.1.2 TECHNOLOGY
In today’s automotive market, car companies are no longer merely assembling
mechanical parts but developing a complicated computer on wheels which is
technologically advanced. Next-gen automobile ecosystem will include OEMs,
software and service suppliers, system integrators, device manufacturers, and
telecom operators as well. For example, in India when MG Motors launched their
first car Hector
6
in the country in April 2019, it was a result of tech collaborations
with Microsoft, Adobe, Unlimit, SAP, Cisco, Gaana, TomTom, Nuance, and others.
6 https://www.businesstoday.in/magazine/industry/story/how-technology-is-transforming-the-
auto-industry-331116-2022-04-25 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 47
Globally, one of the biggest tech advancements in the automotive industry is
going to be the applicability of CASE (connected, autonomous, shared and
electric) concept in automobiles. In the concept
7
of CASE-
i. Connected refers to using various communication devices and automobile
sensors to connect to external devices and services via the internet thereby
enabling automobiles to access entertainment information, track vehicles,
automatically report breakdown and traffic situations etc.
ii. Similarly, automation will enable technology in automobiles to be utilised for
providing driver support and in some cases design fully autonomous self-
driven vehicles.
iii. Shared refers to the concept of vehicles being jointly owned and used similar
to how ride-sharing vehicles operate and function
iv. Electrification refers to EVs which run on a motor powered by electric energy
The rise of Advanced Driver Assistance Systems (ADAS) and self-driving
technologies has also proliferated the demand for incorporating more
technologically advanced auto components such as Radio Detection and Ranging
(RADAR), Light Detection and Ranging (LiDAR) sensors, cameras and powerful
computing systems which has the potential to redefine vehicle safety standards.
The global Advanced Driver Assistance Systems (ADAS) and AD system sensor
market is projected
8
to be worth $43 billion by 2030 with the global autonomous
car market expected to reach a size
9
of $115 billion by 2030.
The global ADAS and autonomous driving component market is valued at $33.5
billion in 2024 and it is projected to reach US $83.6 billion by 2032 at an annual
growth rate of 12% between 2022-30.
GLOBAL ADAS AND AUTONOMOUS DRIVING COMPONENT MARKET GROWTH
10
Figure - 3.3
7 https://mcc-ams.com/en/article/03/
8 https://www.statista.com/statistics/1076066/adas-autonomous-drive-system-sensor-market-by-type/
9 https://www.statista.com/statistics/428692/projected-size-of-global-autonomous-vehicle-
market-by-vehicle-type/
10 https://straitsresearch.com/report/adas-and-autonomous-driving-component-market AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 48
As more and more technologically advanced EV vehicles are seen on the roads,
it is also to be considered that EVs use about six times more mineral inputs than
ICE vehicles. Supply shortage of critical minerals utilized by EV batteries hamper
the progress of this sector. To maintain pace, in this segment, adequate supply of
critical minerals is important.
3.1.3. CHINA + 1 STRATEGY
While China is leading globally when it comes to manufacturing and production of
auto components, western companies have been concerned11 with the increasing
labour costs in China and the ongoing US-China trade war, which has led them to
adopt a China plus one supply chain diversification strategy for manufacturing and
producing auto components. While it is difficult in the short term to completely exit
China, since they have spent 20-30 years building out their manufacturing supply
chain. However, lot of companies are shifting from China for manufacturing and
assembly purposes while the raw material may still be coming from Chinese suppliers.
Six nations stand to benefit from the China plus one strategy which includes India,
Poland, Vietnam, Mexico, Thailand and Indonesia as these emerge as preferred
alternatives for transnational companies seeking to reconfigure their supply chains
and mitigate geopolitical risks. In the near future, it is predicted that finished
goods
12
coming out of China shall be used to cater to developing countries solely
while developed countries will be getting finished goods from Southeast Asia,
India and Mexico.
Western companies seek to benefit from diversifying their supply chains outside
China as this will help them spread their production across several countries
making companies less prone to supply chain disruptions. Further, diversification
will allow companies to operate in low-cost labour markets as China is no longer
considered one, thereby providing companies with access to new markets. An
example of a company adopting this strategy is Apple which is slowly shifting its
device assembly processes to factories in India and Vietnam.
As geopolitical tensions combined with the Russia-Ukraine war and the
ongoing wars in the Middle East are causing significant shifts in global supply
chains, companies previously reliant on China for automotive components and
semiconductors are now seeking to diversify their supply chains to mitigate risks.
This provides an opportunity for India and other South East Asian nations to step
up and position themselves as key players in global supply chains.
3.1.4 EUROPE + 1 STRATEGY
Europe is grappling with an energy crisis fuelled by rising inflation from the
ongoing Russia-Ukraine war, further intensified by the shutdown of the Nord
11 https://www.beroeinc.com/whitepaper/china-plus-one-strategy-an-imperative-to-achieve-
supply-chain-resilience
12 https://www.freightwaves.com/news/china-plus-one-strategy-offers-best-of-both-worlds-for-
manufacturers-retailers AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 49
Stream I pipeline. This disruption has severely impacted manufacturing, with
factories unable to operate at full capacity. Additionally, heating and electricity
bills have now exceeded monthly labour wages in Europe. As a result, European
manufacturers are actively exploring options for relocating their production
elsewhere. This approach has been coined the term “Europe + 1” strategy which
is similar along the lines of China plus one strategy. Further, as the EU recently
voted
13
for increasing tariffs to 45% on China made EVs being exported to EU,
manufacturers and OEMs of EVs are looking to shift their production facilities
outside China.
Major European automakers such as Volvo, BMW, and Mercedes are planning
to relocate their Chinese production facilities to neighbouring countries like
Indonesia, India and even back to Europe as well. With the recently imposed
tariffs and the Ukraine-Russia war European auto component manufacturers have
been considering shifting to the Asian region as trade tensions will continue with
China and geopolitical conflicts in the Middle East and Ukraine continue to rise.
3.2 OPPORTUNITIES FOR INDIA AMID GLOBAL DISRUPTIONS
3.2.1 INDIA’S POSITION IN AUTO COMPONENT GVC
For India, the growing auto components market represents a strategic opportunity
to enhance its position in the automotive value chain. Currently, India constitutes
almost 3% of global auto component exports.
India’s presence in the global automotive component market is relatively small.
However, India’s growing manufacturing base and cost advantages position it
suitably for potential market leader in coming years. India’s auto component
exports have risen from $7.4 billion in FY21 to $12.8 billion in FY24. Particularly,
noteworthy is the fact that since FY21, India saw a ~73% surge in exports, thereby
reflecting India’s post pandemic recovery and increasing global demand for auto
component parts. On the export front, India’s exports are heavily dominated
by Drive Transmission Systems (DTS), Engine Components, and Electrical and
Electronics components which together account for 53% of India’s total auto
component export share.
As described earlier, major countries which are India’s primary destinations for
auto component exports are North America and Europe, which account for 34%
and 27% of exports with USA standing out as a key export market for India since
28% of auto component exports are driven by its large automotive industry and
aftermarket sector. Germany is another important auto component market for
India as 7% of India’s auto components export share is taken up by Germany.
The demand for high quality automotive parts especially engine components and
transmission systems are a testament to India’s capabilities combined with the
fact that many components produced in India are used in vehicles manufactured
by global brands operating in Europe. Proximity to Africa and Southeast Asia
also provides India an opportunity to further grow its export share through such
13 https://www.bbc.com/news/articles/cly20n4d0g9o AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 50
emerging markets where demand for auto components is expected to rise as
auto sales and manufacturing grow in these countries.
Similarly, on the import front, India has witnessed a 80% increase in its
auto components imports from $6.7 billion in FY21 to $12.1 billion in FY24
dominated by engine components and body/chassis/Body-in-White (BIW). China
is the largest auto components supplier to India contributing close to 23% of
India’s imports.
Figure - 3.4
Apart from China, South Korea and Germany are significant import partners of
India as well. With the rise of the aftermarket sector, a consistent demand for
replacement parts and components needed for vehicle repairs and upgrades has
been created. The demand for imported components will see a continued rise in
India as more and more vehicles come on Indian roads and increased consumer
spending will be witnessed on vehicle maintenance and upgradation.
Today, India is renowned as a global hub for frugal and scalable engineering.
Automotive clusters of Mumbai-Pune-Nasik-Aurangabad in the West, Chennai-
Bangalore-Hosur in the South, and Delhi-Gurgaon-Faridabad in the North as well
as upcoming ones in Sri City, Anantapur and Sanand are expected to drive the
automotive and auto components industry in India. Further, with improvements
in manufacturing capabilities, government initiatives such as Make in India,
FAME, PLI scheme, PM E-Drive etc, and an increasing focus on quality and cost
competitiveness India has immense opportunity to improve upon its current share
in the auto components global value chain.
Through investing in advanced manufacturing technologies and innovation, India
can establish itself as a major player of auto components within the global market. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 51
Given, the strong supplier ecosystem and cost advantages India, is well positioned
to attract foreign investment and integrate more deeply into GVCs.
3.2.2 FACTORS POSITIONING INDIA TO BECOME A DOMINANT
PLAYER IN AUTO COMPONENT GVC
As India aims to become a leading player in the automotive global value chain,
various factors are beneficial for India to make it a leading auto component player
in GVCs. These primarily include:
1. Rising Domestic Consumption and Middle-Class Aspirations: Domestic
macroeconomic trends suggest that India’s consumption expenditure is set
to witness a substantial growth as it is expected to reach nearly $5 trillion by
2030 from $1.4 trillion in 2018.
Additionally, a growing middle class in India of close to 450 million people will
fuel growth in the consumer demand for automobiles as the demand for high
end premium vehicles grows primarily fuelled by the middle-class aspirations.
As India’s middle-class spending is expected to rise from 55% to 80% of total
consumption by 2030, the demand for vehicles accompanied with advanced
features such as advanced safety features, electric drivetrains, connectivity
features, etc. will be on higher side. This shall further see a rise in need for high
performance auto components, including more efficient engines, suspension
systems, battery components, and electronic modules.
As the increase in spending capacity of Indians keeps rising the need for
aftermarket services and replacement parts is expected to grow with rise
in vehicle ownership as well (SUVs and larger vehicles
14
make up 63% of all
passenger vehicle sales in India).
As the Government allocates INR 25,000 Crore PLI scheme
15
for the auto and
auto component sector and PM e-Drive allocates INR 10,900 crore, it is expected
that this shall motivate auto makers in India to further innovate and come out
with advanced sustainable vehicles which can withstand the futuristic demands
of consumers. Further, with strong investor and private equity support in the
automotive sector demonstrated by strong capital inflows it is expected that
the Indian automotive sector shall raise thereby fuelling innovation along with
expansion in production capabilities which shall ultimately make India an attractive
destination for domestic and foreign investors.
2. Global Geopolitical Shifts and Supply Chain Diversification: Larger global
macroeconomic trends signify that amidst geopolitical tensions more and
more automobile companies are looking to diversity their supply chain. Trade
tensions and chip wars between USA and China along with rising conflicts in
the Middle East region and between Russia and Ukraine have made China plus
one strategy a lucrative option to pursue for automobile companies in order
14 https://www.wrightresearch.in/blog/indian-consumption-theme-is-rising-indias-growing-middle-
class-and-shift-toward-premium-consumption/
15 https://auto.economictimes.indiatimes.com/news/industry/neo-middle-class-will-take-india-
mobility-sector-to-new-heights-pm/107376295 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 52
to de-risk their supply chain from China and to make their supply chain more
resilient. This shall be beneficial for India as it becomes a lucrative option to
invest in for firms and aims to position itself as a key player in global supply
chains. India possesses a favourable business environment, skilled workforce,
and supportive Government policies which make India a very attractive option
to setup their automobiles production and manufacturing facilities.
3. Technological Advancements and India’s Potential in the Global EV Market:
Technology shall play an instrumental role in order for India to become a leading
nation in the auto components GVC. As per the report published by NITI Aayog
and Rocky Mountain Institute, India could realize EV sales penetration of 30%
of private cars, 70% of commercial cars, 70% of buses and 100% of two and
three- wheelers by 2030. It is expected that there will be ~1.3 million EVs sales
penetration in India by 2030. This presents a unique opportunity for India to
develop an EV auto components market and to enhance its competitiveness
in the global value chain.
With substantial potential in manufacturing, cost competitiveness, and right
investments in technology and infrastructure, India can become a major
exporter of EV auto components. Further, with sufficient Government initiatives
and policies, India has a unique opportunity to capitalise on the shift towards
EVs globally as well as to venture into ADAS system components as more and
more vehicles look at incorporating them in vehicles.
3.3 CHALLENGES IN ENHANCING INDIA’S PARTICIPATION IN GVC
As India seeks to become a dominant player in the GVC, it is essential to identify
the various challenges it faces in order to scale up its production capacities and
rise up to the global challenges.
1. Cost competitiveness (Capex and Opex)- India’s operational cost
competitiveness is impacted by balancing the costs between sourcing
advanced technologies and investing in R&D. Top 5 sectors receiving highest
FDI Equity Inflow during FY 2023-24 are Services Sector (Finance, Banking,
Insurance, Non Fin/ Business, Outsourcing, R&D, Courier, Tech. Testing and
Analysis, Other) (16%), Computer Software & Hardware (15%), Trading (6%),
Telecommunications (6%) and Automobile Industry (5%)
16
. Significant sectors
like electronics and technology remain underfunded.
16 https://www.investindia.gov.in/foreign-direct-investment AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 53CommentsIndia disabilityCostcomponent
Increasedcost of raw materials in India compared to China
Higher import duties & freight costsin India
-9.5%
Material
Landed labour cost (including management costs) lower in
India
3.1%Employee
Higher depreciation in India compared to China (100% vs
50%)
-3.4%Depreciation
India?s avg. utility cost post-subsidies is 10-15% lower than
China
0.3%Power & fuel
Slightly higher effective tax rate in India -0.02%Tax
Prime lending rate in China at 3.45% vs MCLR in India at
9.37%
-0.1%Finance
-9.6%Overall Cost Disability
Figure - 3.5
In India, raw material costs are higher for non-traditional manufacturing due to
import dependence and high tariffs, whereas China benefits from lower costs
due to large scale production and efficient supply chains. Infrastructure and
logistics in India still lag in efficiency despite significant investment17, while
China benefits from advanced infrastructure and transport networks. Financial
costs are also high in India compared to China and Vietnam.
Another aspect affecting India’s cost competitiveness is the aspect18 related
to FTA’s India is a part of wherein, India suffers from inverted duty structures on
raw materials such as Ferroalloys, aluminium, chemical products, etc. Import
duties on machineries inflate costs, thereby affecting competitiveness.
Capital expenditure competitiveness of India is moderate due to domestic scale
constraints which hinder volume benefits in segments such as EV components
(batteries, motors).
Through a combination of strategic investments and financial incentives
nations can bolster their cost competitiveness. For example, China provides
$72 billion of EV tax breaks to stimulate consumer demand as well as support
domestic manufacturers. Similarly, USA employs financial mechanisms to
mitigate capital expenditure pressures for manufacturers by offering long
term loans of up to 25 years at treasury rates which reduces financial burdens
associated with large scale investments.
17 https://www.deccanchronicle.com/business/economics/india-needs-to-improve-cost-
competitiveness-to-attract-businesses-gtri-1815059
18 https://www.business-standard.com/economy/news/india-reviews-asean-trade-pact-to-address-
domestic-manufacturing-anomalies-124041200297_1.html AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 54
2. Quality Constraints-India’s competitiveness in the global automotive value
chain is significantly hindered by quality issues, which stem from disparities
between domestic quality standards and stringent international benchmarks.
For instance, in 2023, the rejection of 50% of iPhone covers produced at a
Hosur manufacturing plant highlighted the serious quality gaps prevalent in
Indian manufacturing. This problem is particularly acute in the SMEs sector,
where many manufacturers struggle to meet OEM standards due to a lack
of quality control and investment in advanced manufacturing processes.
Without consistent attention to quality at every stage of production, Indian
manufacturers often find themselves falling short of global requirements.
Furthermore, the inefficiency of production systems exacerbates the quality
gap. Many Indian manufacturers lack defect traceability systems, making
it difficult to identify and rectify issues in real-time. This, combined with
limited debugging capabilities, leads to an inability to ensure product quality
consistently, as required under OEM liability agreements. If India aims to
strengthen its position in the global value chain, there must be an overhaul
of quality management practices, starting with better training, technological
upgrades, and the implementation of global standardization processes.
3. Ease of Doing Business -The ease of doing business remains a significant
challenge for the automotive industry in India, largely due to the complex
regulatory environment and infrastructure constraints. Automotive firms must
navigate a web of regulations related to emissions, safety standards, and import/
export policies, which can often be inconsistent and difficult to comply with.
These stringent regulations, though necessary for environmental and safety
reasons, are not always aligned with the actual capabilities of manufacturers,
particularly SMEs. This creates delays and increases compliance costs, making
it more challenging for businesses to operate efficiently.
In addition to regulatory complexities, infrastructure limitations—such as
underdeveloped road networks, logistical bottlenecks, and inadequate charging
infrastructure for electric vehicles—create operational hurdles for automotive
firms. Moreover, inconsistent production incentives and unpredictable trade
policies add to the uncertainty, making long-term planning difficult for
manufacturers. Land acquisition issues, lengthy regulatory approval processes,
and persistent red tapeism further slows down the establishment of new
production facilities, limiting expansion and innovation. This unpredictability
discourages potential investors and hampers the growth of the automotive
sector, creating significant barriers to scaling up manufacturing capacity in
the country.
4. Lack of Innovation -One of the most critical barriers to India’s growth in the
global automotive sector is the lack of innovation, largely driven by inadequate
Research and Development (R&D) infrastructure. India currently spends less
on R&D in the world, particularly when compared to global automotive leaders
like Germany, Japan, and the United States. This underinvestment severely
limits the country’s ability to compete in emerging technologies such as EVs, AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 55
autonomous driving, and smart mobility solutions. While Indian manufacturers
excel in low-cost, high-volume production, the absence of a strong innovation
culture stifles the development of advanced products that could differentiate
the country’s offerings in global markets.
The lack of innovation is compounded by the minimal collaboration between
industry, academia, and research institutions, which limits the flow of ideas
and breakthroughs in automotive technology. Without sufficient funding
and focus on future-oriented research, Indian firms are forced to rely on
foreign technologies, which increases costs and reduce the ability to produce
cutting-edge vehicles domestically. In particular, the country lags in areas like
battery technology, ADAS (Advanced Driver Assistance Systems), and AI-
driven manufacturing—all of which are critical for the future of automotive
manufacturing. To remain competitive and achieve long-term growth, India
must significantly increase its R&D expenditure and build a robust ecosystem
that fosters innovation and technological advancement.
5. Talent and Skilling Issues - India’s automotive manufacturing sector faces
significant talent and skilling challenges, particularly as the industry transitions
toward electric vehicles (EVs), automation, and advanced manufacturing
processes. Many workers currently possess skills suited for traditional internal
combustion engine (ICE) vehicle production, but there is an increasing demand
for expertise in areas like electric powertrains, battery management, software
integration, and AI-driven manufacturing. Roles such as battery engineers,
robotics specialists, and software developers are emerging as critical to the
industry, but a significant skills gap remains in these areas. Technical training
institutes and vocational schools have not yet fully adapted their curricula to
meet the evolving demands of the automotive sector, resulting in a shortage
of qualified professionals who can handle these new technologies.
6. Limited Access to Global Markets - Limited access to global markets
remains a significant challenge for India’s automotive industry. While India
has established itself as a key low-cost manufacturing hub, its participation in
the global automotive supply chain is restricted by several factors, including
non-tariff barriers, lack of Free Trade Agreements (FTAs) with major markets,
and fierce competition from established players like China, Japan, and South
Korea. Without adequate trade deals, Indian automotive exports are subject
to high tariffs, which diminishes their competitiveness, especially in high-value
segments like electric vehicles, advanced driver-assistance systems (ADAS),
and powertrain components.
7. Inadequate R&D Infrastructure- India’s automotive sector also struggles with
inadequate R&D infrastructure, which limits its ability to innovate and compete
globally. The absence of significant R&D investment means Indian firms often
rely on outdated technologies and miss opportunities to lead in automotive
innovation. This lack of innovation is particularly problematic as global
automotive trends shift towards smart mobility, AI-driven manufacturing, and
sustainable vehicle technologies. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 56
In addition to above mentioned challenges, India also lacks advanced testing
and validation centres that are critical for developing next-generation
automotive technologies. Facilities for battery research, vehicle safety testing,
and simulation labs for autonomous vehicles are either underdeveloped or
unavailable. Without proper infrastructure in place, Indian manufacturers are
often forced to outsource R&D to foreign labs, increasing both costs and lead
times. Furthermore, the disconnect between industry and academia prevents
the kind of collaboration seen in other countries that drives innovation in
automotive technologies. This lack of ecosystem support hampers India’s
ability to compete with countries that have robust R&D capabilities and a
strong focus on automotive innovation.
Table: Comparison of research productivity and innovation metrics in selected
countries (2021-22)
19
Country Researchers
per million
inhabitants
(2021)
PhDs
produced
annually
(2021)
Publication
output
(2021)
Top 1%
most cited
articles (%
share)
Patents
granted
(2022)
(Rank)
India 262 40,813 3,06,800 0.7 30,490 (6)
USA4,452 69,525 15,06,000 1.88 3,23,410 (2)
UK4,491 27,366 2,87,200 2.35 10,578 (15)
China 1,687 53,778 9,78,100 1.12 7,98,347 (1)
S. Korea 9,082 13,882 1,09,200 1.02 1,35,180 (4)
Japan 5,638 15,804 1,71,000 0.88 2,01,420 (3)
In order to increase its share in the GVC, it is essential that there is impetus from
the private sector through investments to develop advanced auto components
and cars which are futuristic in the long run.
In addition to the specific challenges mentioned above, India currently faces a
broader issue in scaling up for GVCs, primarily due to the limited engagement of
Indian auto firms with global OEM players. This is further supported by the fact
that there is a moderate cross border industry collaboration taking place in India
which affects global integration as well as the ability to leverage international
expertise and market opportunities.
19 https://www.readipwave.com/indias-r-d-funding-landscape/ AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 57 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 58 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 59 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 60 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 61
TECHNOLOGICAL TRANSITION
OPPORTUNITIES AND GLOBAL
BENCHMARKING IN AUTOMOTIVE
COMPONENT MANUFACTURING AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 62
The global automotive components market is influenced by a complex interplay
of imports and exports across key segments such as Engine Components, Drive
Transmission Systems (DTS), Suspension and Braking, and Cooling Systems. Particularly,
engine components and DTS together account for approximately 60% of global trade in
automotive parts, with major exporting countries like Germany, the United States, China,
Japan, and Mexico utilizing their strengths to dominate the key segments in automotive
component industry.
India’s presence in the global automotive component market is modest with export
shares ranging between 2-4%; however, it is well-positioned for significant growth.
Projections indicate that India’s domestic auto component consumption could rise
from $70 billion in FY23 to $120 billion by FY30, driven by increasing disposable incomes
and an expanding middle class demand for vehicles. Despite holding only 2-3% of global
engine component exports compared to leading players like Germany and the U.S.,
India is working to strengthen its participation in GVC. A comparative analysis describes
that developed economies dominate exports across various automotive segments,
while developing economies like India is actively seeking strategic areas to enhance its
contributions.
By adopting best practices from around the globe, India can strengthen its position
in the automotive industry. For example, lessons can be drawn from Ford’s assembly
line techniques in the U.S., Toyota’s just-in-time production methods from Japan, and
Hyundai’s smart factory automation in South Korea. Additionally, China’s innovation with
BYD Blade Batteries showcases advancements in battery technology. India can establish
a presence in the GVC of the automotive industry by leveraging the key takeaways from
best practices.
4.1 GVC IMPORTS-EXPORTS BY SEGMENTS AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 63
Figure - 4.1: GVC Imports-Exports by Segment Country-wise
The global auto components market is shaped by interplay of imports and
exports across five key segments as given in Figure 4.1: Engine Components, Drive
Transmission Systems (DTS), Suspension and Braking, Cooling Systems, and Other
Components. Key segments like engine components and Drive Transmission Systems
(DTS) are the dominant players, representing around 60% of the traded components
worldwide. Countries like Germany, United States, China, Japan, and Mexico emerge
as leading exporters across most segments within the industry whereas Germany
and the United States stand out as the leading exporters across most segments
within the industry. The manufacturing capabilities of Germany and its presence
is attributed by producing high-quality, precision-engineered components, and
its commitment to innovation and R&D. Similarly, the United States maintains a
presence in export in the global market by capitalizing on its domestic market and
advanced technological infrastructure, significant investments in R&D as well as an
established network of manufacturers and suppliers.
The developed economies are performing better in exports of key segments under
automotive components but reply on imports to meet specific demands, like there
is a high import of suspension and braking segment by the US as given in Figure 4.1.
China has rapidly scaled to become a major player, showing a significant growth in
both exports and imports, particularly in engine components and DTS, representing
10% of the global market. Japan, known for its engineering and innovation excellence,
maintains a significant, with 9-10% in various segments. Mexico has established as
a cost-effective manufacturing hub with an export share of 7% to North America.
The presence of India in the global automotive component market remains relatively
modest where the export shares are between 2-4% across the key segment. For
example, India accounts for only 2-3% of global engine component exports, in
comparison to the 10-15% share held by dominant players like Germany and the AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 64
U.S. Overall, the share of export and import reveal a competitive market where
developed nations continue to lead, while developing economies like India vision
for greater influence.
To effectively engage in the GVC of auto components, it is essential to conduct an
in-depth analysis of specific components and subcomponents country-wise. This
examination will help identify the strategic areas where India can strengthen its
participation and align with the country’s vision for GVC involvement by 2030.
4.2 COUNTRY- WISE BEST PRACTICES AND COMPARATIVE
ANALYSIS OF KEY SEGMENTS
Given that the Global Value Chain (GVC) in the auto component market is
predominantly controlled by 5-6 key countries, this section presents an in-depth
comparative analysis of exports and imports across major segments on a country-by-
country basis. The objective is to pinpoint potential target shares for India’s exports
and imports within the automotive components GVC. A detailed examination is
conducted for critical segments such as engine components, drive transmission and
steering components, suspension and braking systems, and cooling systems, along
with their sub-components, as illustrated in Figure 4.2.
4.2.1 ENGINE COMPONENT GVC
The global trade of engine and engine components, valued at approximately $150
billion, showcases varying dominance among different countries across five sub-
components: Engine Cylinder & Cylinder heads, Pistons & engine valve, Exhaust
System, Fuel Injection System and Crankshaft & camshaft where 50% of value is
driven by top 6-7 countries i.e. Germany, USA, Japan, China, Mexico, Turkey, and
Canada.
• Germany: Germany is a leading exporter in several automotive segments.
It holds a 17% share of total exports in engine cylinders and cylinder
heads, along with 16% in pistons and engine valves. Additionally, Germany
contributes 18% to exhaust system exports and leads the market in fuel
injection systems with a 19% share. In crankshafts and camshafts, Germany
dominates with a 22% export share. The country also plays a significant role
in imports, particularly in crankshafts and camshafts (7%) and fuel injection
systems (9%).
• United States: The United States is a major player in imports and exports within
the automotive sector. It leads in exporting of engine cylinders and cylinder
heads (14%) as well as Crankshaft & camshaft (14%). On the import side, the
U.S. has a 23% share in pistons and engine valve, fuel injection systems (21%)
and 17% in engine cylinders and cylinder heads.
• China: China emerges as a strong key player in both imports and exports. It
holds 15% of the global export share in Pistons & Engine Valves, contributes
14% to Crankshafts & Camshafts and 11% of Fuel Injection Systems. On the AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 65
import side, China commands 6% in Pistons and engine valve, 8% in Crankshaft
& camshaft and 7% in Fuel injection system
• Japan: Japan’s presence is particularly strong in Pistons & Engine Valves,
where it contributes 13% to global exports. It also maintains a modest export
share in Engine Cylinders & Cylinder Heads (5%) and Fuel Injection Systems
(7%).
• Mexico: Mexico plays a crucial role as both an exporter and importer. It holds
an 11% export share in Pistons & Engine Valves, exports 8% of the Fuel injection
system and 6% each in Engine cylinder heads and exhaust system. Mexico also
imports 10% of Engine cylinder heads, 9% of pistons & engine valve, 7% of
Crankshaft & Camshaft, making it a critical player in this segment.
• India: India’s presence in the global market is relatively modest, contributing
2-4% across most segments. It exports 8% of Crankshaft & Camshafts while
also importing at 7% of the crankshaft and camshaft sub-component segment.
Other importers include Turkey (4%) in engine cylinders and cylinder heads, while
Canada (5%) and Hungary (4%) are significant importers of pistons and engine
valves. Czechia stands out as a key exporter of exhaust systems, holding a 7% share
of global trade, and it also imports 5% of exhaust systems. Additionally, Czechia
exports 8% of fuel injection systems. The UK exports 6% of crankshafts and
camshafts and imports 4% of fuel injection systems, while Canada imports 5% of
crankshafts and camshafts. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 66
Figure - 4.2: Engine Component GVC Country-wise
4.2.2 DRIVE TRANSMISSION AND STEERING GVC
The global trade of Drive Transmission and Steering Components, valued at
around $130 billion, involves several key countries across three sub-components:
Transmission, Steering Components, and Clutches where 45% value is driven by top
countries i.e. Germany, USA, Japan, China and Mexico, described in Figure 4.3.
• Germany: Germany leads the export market, especially in clutches, where it
holds 23% of the market. Germany also accounts for 22% of Steering Component
exports and 19% of transmission. On the import side, Germany plays a major
role as well, particularly in Transmission and Clutches with 10% and Steering
Components 9%.
• United States: The US is a key player as the largest importer in several categories.
It imports 21% of Transmission components, 18% of Steering Components and 16%
of Clutches. In terms of exports, the USA contributes 11% to global Transmission
exports and 10% in Steering Components. For Clutches, the USA is a significant
exporter with 9% of the global export trade market share.
• China: China holds a strong position in Clutches, contributing 10% to global
exports and 6% to imports. In Transmission, it accounts for 7% of exports and
4% of imports. For Steering components, China exports 6% and imports 13%,
reflecting its growing role in the global market.
• Japan: Japan is a key player in Steering Components, leading with 18% of global
exports. It also contributes 9% to Transmission exports and 8% in Clutches.
However, Japan’s role in imports is particularly small compared to other countries. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 67
• Mexico: Mexico has a balanced role, contributing 10% to both Transmission exports
and imports. Additionally, it imports and exports 9% of Steering Components,
playing a strong role in North American supply chains. For Clutches, Mexico
imports 9% of total trade of DTS.
• India: India is emerging in this market, contributing 2% to Transmission exports
and 1% to imports. It has a minor share in Steering Components and Clutches,
with 1% each in their exports and 2% each in their imports, marking significantly
balanced in global trade.
Other notable importers include Canada, which imports transmission components
at a 4% share, and Brazil, a significant importer holding a 3% share in steering
components. Hungary, meanwhile, stands out as both a major exporter and importer
of clutches, accounting for 7% of global exports and 4% of imports.
Figure - 4.3: Drive Transmission and Steering GVC Country-wise AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 68
4.2.3 SUSPENSION AND BRAKING GVC
The global trade of suspension and braking components, valued at approximately
$60 billion, highlights various countries dominance across sub-components –
Suspension parts and Braking parts where 40% of the value is driven by top
countries- Germany, USA, Japan, China and Mexico, given in Figure 4.4.
• Germany: Germany is the second-largest exporter of suspension and braking
components after China and the second-largest importer after the USA. It
exports 16% of suspension parts and 13% of braking parts, while importing 11% of
suspension parts and 12% of braking parts.
• USA: The United States is the largest importer of suspension and braking parts,
accounting for 25% and 21% of global trade, respectively. Additionally, the U.S.
exports 10% of suspension parts and 7% of braking parts.
• Japan: Japan is one of the major exporters of Braking parts with 5% of its global
trade.
• China: China leads the export market for suspension parts, holding a 19% share
of the global market, and dominates the braking parts sector with a 22% share.
Additionally, China accounts for 5% of global imports of suspension parts.
• Mexico: Mexico plays a significant role, exporting 10% of suspension parts
whereas it is importing 9% of suspension parts and 8% of braking parts.
• India: India makes a minor contribution in exports, with just 1% of suspension
parts and 2% of braking parts whereas it is importing 1% of global traded value
of suspension and braking parts.
Other significant importer is Canada importing suspension and braking parts,
accounting for 6% and 4% of global trade, respectively. Meanwhile, Poland
exports 5% of suspension parts. France imports 4% of braking parts, while Italy is
a notable exporter, contributing 6% to the global market for braking components. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 69
Figure - 4.4: Suspension and Braking GVC Country-wise
4.2.4 COOLING SYSTEM GVC
The global trade of cooling system components, valued at approximately $23 billion
in CY22, reflects significant contributions from various countries across different
segments like engine cooling, cabin thermal management (TM), and transmission
TM where 50% value is driven by top 5 countries – Germany, USA, China, Mexico and
Czechia, mentioned in Figure 4.5. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 70
• Germany: Germany is a dominant player in the export market for engine
cooling components, holding a 20% share of the global market for engine
cooling systems and 15% of the cabin thermal management component
market. Additionally, it ranks as the second-largest importer of cooling system
components worldwide, following the United States. This robust position
underscores Germany’s critical role in the automotive supply chain, particularly
in the production and distribution of essential component GVC.
• USA: The United States is the largest importer of cooling system components
globally, accounting for 22% of engine cooling components, 15% of cabin
thermal management components, and 19% of transmission thermal
management sub-components. In addition to its significant import activities,
the U.S. also exports 9% of engine cooling components and 6% of transmission
thermal management sub-components, highlighting its active role in the
global cooling component GVC.
• China: China is a leading exporter of transmission thermal management
components, holding a 27% share of the global market. In contrast, its exports of
engine cooling components are relatively modest at 10%, while it exports 15% of
cabin thermal management components. On the import side, China is a minor
player, with a 6% share of engine cooling component imports and 9% for cabin
thermal management components. This data highlights China’s significant role
in the transmission sector while indicating lower involvement in the engine
cooling and cabin thermal management Component GVC.
• Mexico: Mexico is a minor player in the global cooling system market,
exporting 8% of engine cooling components. Additionally, it imports 6% of
engine cooling components and 5% of transmission thermal management
components. This data highlights Mexico’s limited yet noteworthy participation
in the engine cooling and transmission component GVC.
• India: India has a minimal presence in the global market for engine cooling
components, with a share of only 2% in both exports and imports. Additionally,
India exports 1% of cabin thermal management and 1% of transmission thermal
management components. The country’s share in the global improte trade of
cabin thermal management components is nearly negligible but it contributes
1% in the global import trade of transmission thermal management components.
This data highlights India’s limited role in the cooling systems GVC, indicating
potential areas for growth and development.
• Czechia: Czechia is a significant exporter of cooling system components,
contributing 9% of the global market for both engine cooling and cabin
thermal management components, as well as 7% for transmission thermal
management components. On the import side, Czechia accounts for 4% of the
total global imports of transmission thermal management components. This
data highlights that Czechia has an important role in the cooling systems GVC,
highlighting its extensive manufacturing capabilities and export strength. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 71
The United Kingdom is another notable importer of cooling system components,
holding a 4% share of both engine cooling and transmission thermal management
components in the global market. Meanwhile, Slovakia stands out as a major exporter
of cabin thermal management components, contributing 11% to the global share,
while Poland follows closely with 9%. On the import side, Belgium and France are
also significant players in the cabin thermal management sector, with import shares
of 5% and 6%, respectively.
Figure - 4.5: Cooling System GVC Country-wise AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 72 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 73
4.3 EV AND TECHNOLOGICAL TRANSITION OPPORTUNITIES IN
THE AUTOMOTIVE SECTOR
The automobile industry stands to gain significantly from the shift to electric cars
(EVs), since EV-specific parts are predicted to account for about half of the vehicle’s
overall value. This change emphasizes how important it is for manufacturers to
innovate and adapt with components like electric motors, lithium-ion batteries, and
sophisticated electronics get more and more essential.
1. Increasing Demand for BEVs and PHEVs
• Market Projections: By 2030, battery electric vehicles (BEVs) and plug-in hybrid
electric vehicles (PHEVs) are expected to account for 40% of global light vehicle
sales, with over 50% in key
markets like Europe, the U.S., and China.
• Driving Factors: Growth is driven by fossil concerns, government incentives,
technological advancements, and decreasing total cost of ownership.
• Electric light-duty vehicle (LDV) sales are projected to grow significantly,
reaching 40% of total LDV sales by 2030 and nearly 55% by 2035 due to strong
policy support, improved EV models, and increasing market size. Policies in
Canada and the UK target zero-emission vehicle (ZEV) sales of 60% and 80%
for passenger LDVs, respectively, by 2030.
Figure - 4.6: EV sales share by mode and scenario, 2030 & 2035
Source: Crisil Intelligence, IEA
2. Technological Advancements: ADAS and Autonomous Driving
• ADAS Growth: Advanced Driver-Assistance Systems (ADAS) are projected to
rise from 42% of new vehicle sales in 2020 to 90% by 2030, spurred by consumer
demand for safety features and regulatory requirements. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 74
• Autonomous Driving Adoption: Technology penetration is expected to grow
from less than 1% in 2020 to over 30% by 2030, increasing the importance of
sensors, computing power, and AI in vehicles.
Figure - 4.7
3. Future of Mobility: Software and Electronics Integration
• Rising Electronics Content: The average semiconductor content per vehicle
is anticipated to double by 2030, reaching a total value of around $1,200 per
vehicle. This reflects the increasing complexity of vehicle electronics.
• Software Value Increase: Currently making up about 2% of a vehicle’s total
value, software is projected to rise to 4-5% by 2030. This growth is driven
by connected vehicle technologies and over-the-air updates, with the total
addressable market for automotive software expected to reach $80 billion.
The automotive industry’s future is poised for transformation, driven by the rapid
growth of electric vehicles, advancements in automation technologies, and a
significant increase in the role of software and electronics. Manufacturers that can
innovate and scale production will be well-positioned to capture the opportunities
arising from these shifts. Collaboration with technology partners will be essential to
meet the demands of the next generation of vehicles, ultimately shaping the future
of mobility. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 75
4.4 CASE STUDIES OF BEST PRACTICES
CASE 1: FORD’S ASSEMBLY LINE - THE USA
20
About Ford Motor Company: Founded in 1903 and headquartered in Dearborn,
Michigan, Ford Motor Company stands as one of the pioneers in automotive
manufacturing, mobility, and financing. With a global workforce of approximately
177,000 employees, Ford reported impressive revenue of $177.5 billion in 2023,
alongside a net income of $4.3 billion. Despite facing a net loss of $526 million
in the fourth quarter due to special items, the company remained resilient,
generating $46 billion in revenue during the same period. Ford continues to
focus on electric vehicle innovation and sustainability, projecting an adjusted
EBIT between $10 billion and $12 billion for 2024.The evolution of Ford Motor
Company’s manufacturing techniques from 1906 to the present provides valuable
insights for India’s automotive components sector.
Ford’s Journey of Manufacturing Innovation:
Ford’s evolution in manufacturing techniques, beginning in the early 20th century,
offers valuable lessons for India’s automotive components sector.
Phase 1 (1906-1912) – Early Innovation:
Henry Ford’s vision to employ workers from diverse technical backgrounds sparked
a wave of innovation and mechanization. With the introduction of the Model T
in 1909, demand soared, prompting Ford to open the Highland Park facility in
1910. It was here that his engineers experimented with revolutionary production
techniques, including the first movable assembly line in 1911, dramatically boosting
efficiency.
Phase 2 (1913) – The Birth of the Moving Assembly Line:
In 1913, Ford officially launched the world’s first moving assembly line, cutting
down the assembly time of the Model T from over 12 hours to less than 3 hours.
This breakthrough not only transformed Ford’s manufacturing capabilities but set
new standards for global industrial production.
Phase 3 (1917 – Present) – Global Influence:
The success of Ford’s assembly line became a global phenomenon, establishing
benchmarks for efficiency, productivity, and cost reduction. Ford’s continuous
focus on innovation, workforce development, and process improvement offers a
blueprint for manufacturers worldwide.
Key Takeaways for India: The evolution of Ford’s manufacturing techniques from
the early 1900s holds valuable lessons for India’s automotive components sector.
Ford’s approach of blending skilled labour from diverse technical fields with a
focus on mechanization and efficiency was key to its success. India can draw
inspiration from this by investing in talent development and soft infrastructure to
boost productivity, like Ford’s early strategies. Moreover, Ford’s ongoing focus on
innovation and continuous improvement serves as a guide for India to strengthen
its position in the global value chain (GVC) for automotive components. By
20 https://www.assemblymag.com/articles/91581-the-moving-assembly-line-turns-100 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 76
adopting cutting-edge techniques from other sectors and fostering a skilled
workforce, India can accelerate its growth and compete on a global scale.1906J
1912
1913
1917
Present
1909 ? Introduction of Model ? q
1910 ? Opened Highland mark Facility
1911 ? Tested movable assembly line
? Benchmarked for efficiency and
productivity
? Job Creation
? 1,00,000 in 1923
? 256,00M in 1970
? Founding member of AfAG & IATF
1913 ? Launched First moving
Assembly Line
? oeduced costs
? Enhancing efficiency
and productivity
CASE 2: TOYOTA’S JUST-IN-TIME PRODUCTION- A GLOBAL
LEADER IN EFFICIENCY - JAPAN
21
In 2023, Toyota Motor Corporation reported robust revenue of $173 billion,
reflecting a 4% increase from the previous year’s $166 billion. Over the five-year
period from FY2019 to FY2023, Toyota Industries Corporation demonstrated
significant growth, with net sales climbing from $20.1 billion to $25.6 billion.
Operating profits grew from $1.2 billion to $1.3 billion, while net profits increased
from $1.5 billion to $1.8 billion. Additionally, Toyota’s workforce expanded by
more than 10,000 employees, growing from 64,641 to 74,887, underscoring the
company’s continuous expansion and contribution to global employment.
Toyota’s Evolution of Production Techniques:
Phase 1: Foundational Concepts and Early Developments (1896-1938)
Toyota’s journey began with the groundbreaking invention of the Toyoda Power
Loom by Sakichi Toyoda in 1896. This innovation introduced a weft-breakage
automatic stopping device, which was a key step towards automated production.
By 1924, the first automatic loom with a non-stop shuttle-change motion was
developed; further enhancing production efficiency and quality control. Kiichiro
Toyoda later introduced flow production using chain conveyors for automatic
looms in 1927, laying the foundation for Toyota’s future automotive assembly
lines. By 1938, this method was implemented at Toyota’s Koromo Plant, marking
the beginning of modern production techniques.
Phase 2: Development of the Toyota Production System (TPS) (1945-1950s)
In the post-World War II era, resource shortages led Toyota to innovate its
production techniques. Kiichiro Toyoda’s Just-in-Time (JIT) philosophy, introduced
in 1949, became central to Toyota’s strategy, focusing on producing only what was
needed, precisely when it was needed. The 1950s saw the formalization of the
21 https://global.toyota/en/company/vision-and-philosophy/production-system/ AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 77
Toyota Production System (TPS), which integrated JIT, continuous improvement
(Kaizen), and employee involvement, transforming the way Toyota operated.
Phase 3: Global Recognition of TPS (1960s-1980s)
During this period, the Toyota Production System gained international recognition
as the leading model for lean manufacturing. Its focus on efficiency, waste
reduction, and continuous improvement resonated with industries worldwide,
setting new standards in production.
Phase 4: Refinements and Resilience (1990s-2020s)
In the 1990s and 2000s, Toyota continued to refine TPS to maintain its competitive
edge amid global challenges, including the impact of the COVID-19 pandemic. The
effectiveness of TPS was evident when Toyota regained its position as the top-
selling automaker in North America by 2021, demonstrating the system’s ability to
adapt and manage complex supply chain challenges.
Key Takeaways for India’s Automotive Manufacturing Industry:
India’s automotive manufacturing sector can benefit significantly from adopting
Toyota’s Just-in-Time (JIT) philosophy.
Waste Reduction & Cost Efficiency:
By producing only what is needed, when it’s needed, JIT minimizes waste and
reduces holding costs. This approach not only improves operational efficiency
but also enhances profitability by cutting down on excess inventory.
Enhanced Responsiveness:
JIT encourages greater responsiveness to market demands, enabling manufacturers
to quickly adapt to changes in customer preferences and production requirements.
This agility is particularly critical during periods of disruption, such as natural
calamities or pandemics.
Strengthened Supplier Collaboration:
Implementing JIT also fosters closer collaboration with suppliers, ensuring timely
delivery of components and a smoother flow throughout the supply chain. This
can enhance overall productivity and competitiveness for Indian manufacturers
in the global market.
By embracing the principles of Toyota’s production system, India’s automotive
industry can elevate its position in the global value chain, driving efficiency,
innovation, and long-term growth. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 781896-19381945-19501960-19801990 -Present
1. 1896 – Invented Toyoda
Power Loom
2. 1924 – Developed first
Automatic Loom with Non-
Stop Shuttle Change Motion
• 1927 – Introduced flow
production method
• 1936 – Entered in
Automotive Industry
3. 1938 – Implemented Flow
production method at
Koromo Plant
1. TPS formally recognized
globally as a lean
manufacturing model
1. Developed concept of Toyota
Production System (TPS)
2. Developed Just-In-Time
(JIT) Philosophy
1. Expanded to Global market
2. Recognized for Quality and
Safety
3. Emphasised on Kaizen on
Continuous improvement
4. Launched Hybrid
Technology
5. Focusing on Sustainability
CASE 3: HYUNDAI MOTOR GROUP’S TRANSITION TO SMART
FACTORIES IN PREPARATION FOR INDUSTRY 4.0 – SOUTH
KOREA
In 2023, Hyundai Motor Group reported revenue of $123.57 billion, a notable increase
from the $109.60 billion generated in 2022. With global sales of approx. 4.22 million
vehicles, marking a 6.9% year-on-year growth, Hyundai saw remarkable success
across key markets, including Korea, North America, Europe, and India. Despite global
challenges such as rising interest rates and inflation, the company sold an impressive
342,919 units in December 2023 alone, with 280,747 units in international markets
and 62,172 in South Korea. Looking ahead, Hyundai aims to exceed 4.24 million
vehicles in global sales for 2024, continuing its leadership in electric vehicle (EV)
innovation and strengthening its position in the automotive industry.
Hyundai’s Journey toward Smart Factories:
Phase 1: Laying the Foundation (2015-2017)
Hyundai Motor Group established its Manufacturing Engineering R&D Centre in
2015, initiating its journey into smart manufacturing. By 2016, the company began AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 79
integrating advanced technologies into its facilities. In 2017, Hyundai introduced
the Smart Tag System, which integrated position tracking sensors and wireless
communication chips to enhance assembly line efficiency, marking a key milestone
in its smart factory transition.
Phase 2: Automating Processes (2018)
In 2018, Hyundai revolutionized vehicle inspections with automated protocols
for Advanced Driver Assistance Systems (ADAS), employing six collaborative
robots to streamline the process. Additionally, Hyundai introduced the Chairless
Exoskeleton (CEX) and Vest Exoskeleton (VEX) to support factory workers,
improving both efficiency and worker health.
Phase 3: Virtual Reality and Global Implementation (2019)
Hyundai embraced virtual reality for vehicle design, allowing engineers to simulate
models and environments, enhancing design accuracy and safety checks. The
VEX exoskeleton was successfully tested in Hyundai’s Alabama and Kia’s Georgia
plants, demonstrating its effectiveness in enhancing worker productivity and
ergonomics.
Phase 4: AI Integration (2020)
Hyundai began leveraging artificial intelligence (AI) across its manufacturing
processes, focusing on quality improvements and real-time data analysis. One of
the early trials involved using deep learning to enhance paint quality, showcasing
the company’s commitment to innovation.
Phase 5: Hyundai Mobility Global Innovation Centre (2021-2022)
In 2021, Hyundai commenced the construction of its Hyundai Mobility Global
Innovation Centre (HMGIC) in Singapore, which was completed in 2022. This
centre serves as a hub for smart manufacturing technologies and future mobility
solutions, fostering an open innovation ecosystem.
Phase 6: Pioneering Smart Manufacturing (2023 and Beyond)
From 2023 onwards, Hyundai continues to advance its AI-based, IoT-assisted,
human-centred intelligent manufacturing platforms. These cutting-edge
technologies aim to reduce development costs, improve vehicle quality, and
solidify Hyundai’s vision for a sustainable and innovative future.
Key Takeaways for India:
India can draw several insights from Hyundai’s transition to smart factories.
The establishment of dedicated R&D centres, such as Hyundai’s Manufacturing
Engineering R&D Centre, highlights the importance of investing in innovation to
boost manufacturing capabilities. Adopting advanced technologies like AI and IoT
can significantly enhance productivity and quality control in Indian automotive AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 80
manufacturing, making it more competitive and cost-effective in the global market.
CASE 4: BYD BLADE BATTERY - CHINA
BYD was founded in China and named after a phrase “Build Your Dreams,” which
initially focused on batteries and electrical appliances before expanding into the
automotive industry. This transition was driven by the Chinese government’s push
to promote electric vehicles, leading BYD to manufacture cars, buses, trucks, and
forklifts. In 2023, BYD reported remarkable revenue of approximately $46 billion,
with profits soaring to $1.2 billion, showcasing a significant turnaround in its financial
performance. By 2022
22
, BYD had sold over 1.5 million electric vehicles globally,
positioning itself as a leader in the market. The BYD Blade Battery, developed by
BYD Auto Co., Ltd., represents advancement in EV battery technology.
BYD’s Blade Battery Revolution:
Phase 1: Emergence of the Blade Battery (2020-2021)
BYD introduced its ground-breaking Blade Battery in 2020 as a response to key
challenges in the EV industry, particularly regarding battery safety and efficiency.
Using Lithium Iron Phosphate (LFP) technology, the Blade Battery significantly
enhances safety compared to conventional lithium-ion batteries. It underwent
rigorous testing, demonstrating minimal thermal runaway risks, making it one of
the safest battery options in the market.
Phase 2: Gaining Global Attention (2021-2022)
By 2021, the Blade Battery had gained widespread recognition, attracting interest
from major players like Tesla. This phase marked a shift in battery technology,
with several manufacturers adopting BYD’s innovative design due to its superior
safety standards and efficiency.
Phase 3: Industry Impact and Widespread Adoption (2023)
In 2023, the Blade Battery was increasingly integrated into various EV models,
contributing to the global adoption of electric vehicles. With its lower production
costs, higher energy density, and superior safety, the Blade Battery became a
viable alternative to traditional batteries. Countries around the world recognized
the potential of this innovation to mitigate environmental impacts and accelerate
the shift to electric mobility.
Key Takeaways for India:
For India, the BYD Blade Battery presents a significant opportunity to accelerate
the growth of its EV market. By adopting this advanced battery technology,
Indian manufacturers can enhance vehicle safety, extend driving ranges, and
reduce costs. As India pushes toward net-zero emissions and increased EV
adoption, innovations like the Blade Battery could address concerns about battery
22 https://www.deccanherald.com/auto/explained-how-china-built-byd-its-tesla-killer-2890643 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 81
performance and infrastructure, enabling the production of more efficient and
environmentally friendly vehicles.
CASE 5: TATA AUTO COMP - INDIA
Tata AutoComp Systems is a leading Indian automotive components manufacturer,
catering to both domestic and global markets. Established in 1995, the company
specializes in a wide range of products, including interior and exterior components,
EV solutions, and advanced technologies. Through strategic partnerships and
R&D, Tata AutoComp has become a trusted supplier to major global OEMs. Its
focus on sustainability and innovation positions it as a key player in the evolving
automotive landscape.
Phase 1: Entry Phase (1995 – 2005):
Tata AutoComp initially focused on supplying components to the domestic
market, establishing itself as a trusted partner for leading OEMs. The company
also formed joint ventures with global leaders in the auto component industry,
such as TRAD (automotive seating) and Ficosa (automotive mirrors), bringing
advanced technologies to India. In 2002, Tata AutoComp began exporting select
components to European and Asian markets, marking the beginning of its global
aspirations.
Phase 2: Growth Phase (2006-2015):
During this period, Tata AutoComp expanded its global operations and diversified
its product portfolio. The company prioritized exporting labour-intensive
products like plastics and interior components to international markets. Between
2008 and 2010, it established manufacturing facilities in China and Latin America
and collaborated with Korean and Japanese firms to develop lightweight, fuel-
efficient components. By 2015, Tata AutoComp had become a preferred supplier
for major automakers such as Toyota, GM, and BMW.
Phase 3: Diversification and Specialization (2016-2020):
With the global shift toward electric vehicles (EVs), Tata AutoComp began focusing
on innovation in EV components and advanced technologies. The company invested
in R&D for EV-related products, including battery packs, charging systems, and
lightweight composites. In 2019, it set up an advanced engineering centre in Pune,
India, to drive innovation and provide technical support to global markets.
Phase 4: Consolidation and Global Leadership (2021-Present):
In recent years, Tata AutoComp has emphasized sustainability, digital
transformation, and the circular economy. In 2021, it announced a carbon-neutral
roadmap for its manufacturing operations by 2035 and initiated work on “Green
Factory” projects. The company also expanded its presence in North America
and Europe through partnerships with local suppliers. In 2023, it launched an AI-
driven supply chain solution to enhance efficiency and reduce costs. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 82
Key Takeaways for India:
Tata AutoComp has a total of 61 manufacturing facilities spread across the
worldwide including 8 facilities spread across North America, Latin America,
Europe and China. They have also 18 businesses (7 fully owned, 9 Joint Ventures,
2 service units) in their portfolio. Tata AutoComp’s integration into Global Value
Chains (GVCs) highlights India’s potential as a competitive player in the global
automotive industry. Its success in exporting labour-intensive products, forming
strategic global partnerships, and establishing manufacturing hubs abroad
demonstrates the value of aligning domestic capabilities with international
demand. Investments in EV components and sustainability initiatives position
India as a key contributor to evolving GVCs. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 83 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 84 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 85 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 86 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 87
POLICY RECOMMENDATIONS
FOR INDIA’S AUTO COMPONENT
SECTOR AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 88
5.1 INTRODUCTION
5.1.1 OVERVIEW OF INDIA’S AMBITION: $120 BILLION AUTO
COMPONENT PRODUCTION BY FY30
As per the Vision, India’s auto component sector is poised for substantial growth
by 2030, with plans to increase production from $70 billion in FY23 to $120
billion by FY30. It has also been envisioned to triple auto component’s exports,
growing from $20 billion to $60 billion during this period, positioning itself as
a formidable player in global markets. Domestic production is projected to rise
from $70 billion to $145 billion, driven by increasing demand and a focus on high-
quality, value-added products. This ambitious growth strategy highlights the
sector’s commitment to enhancing its contribution to both the national economy
and global supply chains. However, realizing these targets will require overcoming
significant challenges, including improving scale and cost competitiveness,
bolstering R&D capabilities, and upgrading infrastructure. Keeping above aspects
in mind, strategic policy interventions will be crucial to supporting industry growth
and elevating its global competitiveness.AutocomponentGVCambition
Capitalizeonindustrytailwinds
Vision
(FY30)
PresentScenario
(FY23)
IndiaAutocomp
consumption
IndiaExports
IndiaGVCsalience
(%shareofglobal)
Direct
Employment
$120B
$20B $60B
$0B $25B
$70B
1.5M3-4M
IndiaNetExports
3% 8%
IndiaProduction$70B $145B
GlobalAutocomp
consumption
GlobalAutocomp
GVC
$2400B $2000B
$750B $700B
Figure - 5.1
Vision for Automotive Industry FY 2030
5.1.2 STRATEGIC NEED FOR POLICY INTERVENTIONS
As seen in section 3.3, India’s automotive manufacturing sector faces a disability
of around 10% compared to China as the country on account of higher raw
material costs, steeper import duties, and increased freight costs. Moreover,
India’s depreciation rates are twice that of China, at 100% versus 50%, and the
prime lending rate is substantially higher, with China’s rate at 3.45% compared to
India’s MCLR of 9.37%. These cumulative disadvantages underscore the need for
targeted support to enhance the competitiveness of India’s automotive industry. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 89CommentsIndia disabilityCostcomponent
Increasedcost of raw materials in India compared to China
Higher import duties & freight costsin India
-9.5%
Material
Landed labour cost (including management costs) lower in
India
3.1%Employee
Higher depreciation in India compared to China (100% vs
50%)
-3.4%Depreciation
India?s avg. utility cost post-subsidies is 10-15% lower than
China
0.3%Power & fuel
Slightly higher effective tax rate in India -0.02%Tax
Prime lending rate in China at 3.45% vs MCLR in India at
9.37%
-0.1%Finance
-9.6%Overall Cost Disability
Figure - 5.2
The auto component sector plays a crucial role in India’s economic growth,
offering significant potential for job creation and export revenue. To compete
effectively on the global stage, robust policy support is of utmost importance
to overcome structural challenges, attract investments, and foster innovation.
Achieving these objectives will require a strategic blend of investments, enhanced
global competitiveness, and measures to improve the ease of doing business.
There are a whole host of components Chassis & Body, Drive transmission &
Steering, Engine, Suspension & Braking, Telematics, battery, etc. To further
understand the state of each of the components, they have been divided into
four quadrants based on their maturity and complexity as shown below in Figure
5.3. Complexity refers to the degree of difficulty in designing, developing, and
manufacturing a component or system whereas maturity refers to the degree
of development, testing, and validation of a component or system, as well as its
acceptance and adoption in the market. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 90
Classification of Automotive Component Based on Manufacturing Complexity of Technology
Figure - 5.3
Source: Crisil Intelligence
The plot reveals a clear trend, with components such as Body and Chassis,
Exhaust, and Steering, which have been staples of traditional automotive design,
clustering in the lower left quadrant, characterized by conventional technology
and relatively simple and established manufacturing processes. Components like
Driveline, Transmission Systems, and Engines, which are also conventional but
have complex manufacturing processes, are positioned in the lower right quadrant.
Components like Software defined Gauges, Motor, and Navigation systems,
which are continuously evolving and emerging technologies, are positioned in
the upper left quadrant, albeit with still manageable manufacturing complexities
while components such as Batteries, Lidars in the top right which are emerging
as well as complex. This plot provides a framework for understanding the
transformative changes underway in the automotive industry and the implications
for manufacturers, suppliers, and policymakers. Additionally, we assessed each
quadrant’s characteristics, challenges, and barriers to entry to identify areas
where innovation and investment can have the greatest impact.
5.1.3 EMERGING AND COMPLEX QUADRANT
5.1.3.1 Characteristics
This quadrant includes components that lay the foundation for the future of
global mobility. The components included are advanced in terms of technology
and complex in terms of manufacturing and functioning. They require high
R&D as well as capex investments. The items are mostly smart and require high AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 91
computational ability. The components within this quadrant not only involves
hardware that functions inside the vehicle but also the systems that are present
outside the automobile system performing executing functions of the vehicles.
Most of the technology is at a nascent stage, which provides a fair competitive
field to become a leader in the respective technological space.
This quadrant is marked by complex manufacturing processes and intricate
vehicle subsystems. It features advanced raw materials, such as high-performance
battery systems, which require sophisticated manufacturing to ensure energy
density, safety, and reliability. Additionally, the quadrant includes cutting-edge
technologies like advanced sensors, 5G connectivity, and High-Performance
Computing (HPC) and Artificial Intelligence/Machine Learning (AI/ML)
components. These components demand specialized manufacturing expertise
and precision engineering, making manufacturing challenging. Despite the
difficulties, companies that can master these complexities will be well-positioned
to capitalize on the opportunities in this space.
With a well-developed domestic automotive market, focus on this technology
adoption and its manufacturing can help India achieve meaningful market share
in the future of global mobility, at the same time ensuring our dependence on
imports for meeting domestic requirement is minimized.
5.1.3.2 Challenges
The quadrant of emerging technology and complex manufacturing offers a
challenging and complex environment, marked by technological uncertainty,
integration risks, and significant investments in research and development.
An analysis of the manufacturing process in this quadrant reveals several key
factors that contribute to its complexity. Firstly, the production of advanced
components requires a high degree of technological expertise, including
materials science, electrical engineering, and computer architecture. For instance,
the development of advanced Lidar sensors requires expertise in photonics,
optics, and semiconductor design, as seen in companies like Velodyne Lidar and
Quanergy Systems. Secondly, the integration of multiple technologies increases
the risk of errors and defects, making quality control a critical aspect of the
manufacturing process. For example, the production of 5G connectivity modules
involves the integration of multiple components, including antennas, amplifiers,
and processors, which can lead to errors and defects if not properly calibrated, as
seen in companies like Qualcomm and Intel. Finally, the production of advanced
components requires significant investments in research and development, as
well as in capital equipment and manufacturing infrastructure. For instance, the
development of advanced battery systems requires significant investments in
research and development, as well as in specialized manufacturing equipment, as
seen in companies like Tesla and LG Chem.
To thrive in this quadrant of nascent technology and complex manufacturing,
companies must be prepared to overcome three significant challenges. Firstly,
they must be willing to invest heavily in Research and Development (R&D) to AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 92
stay at the forefront of technological innovation, as the development of advanced
components requires continuous advancements in materials science, electrical
engineering, and computer architecture. Secondly, they must be prepared
to make substantial capital expenditures (Capex) to acquire and maintain the
specialized manufacturing equipment and infrastructure necessary to produce
these complex components. Finally, they must possess a highly skilled workforce
with expertise in multiple disciplines, , to design, develop, and manufacture these
advanced components.
5.1.3.3 Barriers
Figure - 5.4
The emerging and complex quadrant poses significant challenges for companies.
The complexity of manufacturing is a significant hurdle, requiring substantial
expertise and specialized machinery. Additionally, the complexity of raw
materials used adds another layer of difficulty. Technological barriers are also
very high, involving cutting-edge technologies like AI and advanced sensors,
which demand significant R&D investment and expertise. The absence of a robust
supplier ecosystem limits access to reliable and high-quality components, leading
to higher costs and delays. While capital requirements are significant, funding
is available through government incentives, venture capital, banking ecosystem
and industry partnerships. Finally, competition is relatively low, providing an
opportunity for early movers to capture market share, but it will increase as the
technology matures. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 93
5.1.4 CONVENTIONAL AND COMPLEX
5.1.4.1 Characteristics
This quadrant comprises components that are well-established in the automotive
industry, yet require sophisticated manufacturing processes and expertise. These
components have matured over time, with their technologies being refined and
optimized through years of development and iteration. While they may not be as
evolving as their emerging counterparts, they are no less critical to the functioning
of modern vehicles. Notably, many of the components in this quadrant have a high
share in India’s export market, underscoring their importance to the country’s
automotive industry.
The Conventional and Complex quadrant is characterized by powertrain and
drivetrain components that are intricate in design and demanding in terms of
manufacturing tolerances. The Engine, Transmission, Gearbox, and Torque
Converter are all examples of components that require high-precision engineering
and advanced manufacturing techniques to ensure optimal performance,
efficiency, and reliability. The raw materials used in these components, such as
steel, aluminum, and copper, are also undergoing significant advances, with the
development of new alloys and materials that offer improved strength, durability,
and sustainability. As these advances continue, we can expect to see even more
innovative and efficient components emerge from this quadrant, further solidifying
India’s position as a major player in the global automotive industry.
5.1.4.2 Challenges
The Conventional and Complex quadrant is characterized by established industries
with well-defined products and processes, but it faces significant challenges
that threaten to erode its competitiveness. One of the primary challenges
is the technology laggardness compared to other nations. For instance, while
German manufacturers have adopted advanced robotics and automation in their
production lines, many companies in this sector still rely on manual labour and
outdated machinery. This has resulted in a significant gap between the sector’s
domestic manufacturing capabilities and those of other countries, making it
difficult for companies to compete on a global scale. Furthermore, the quality
of products manufactured in this sector often lags those of other nations. For
example, while Japanese automakers are known for their high-quality vehicles
with advanced safety features, some companies in this sector still produce
vehicles with outdated safety features and lower quality materials.
Another significant challenge is the lack of a skilled workforce, as the existing
workforce ages and retires, and companies struggle to find qualified replacements
with the necessary skills and expertise to operate and maintain complex
manufacturing systems. For instance, a leading aerospace company in this sector
has reported a shortage of skilled welders, resulting in production delays and
increased costs. This shortage of skilled labor is exacerbated by the lack of AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 94
investment in vocational training and education, making it difficult for companies
to find the talent they need to remain competitive. To overcome these challenges,
companies in the Conventional and Complex sector must be willing to invest in
technology upgrades, workforce development, and innovation to revitalize their
competitiveness and ensure a sustainable future. This includes embracing Industry
4.0 technologies, such as automation, artificial intelligence, and data analytics,
to improve efficiency and productivity, and closing the quality gap with other
nations.
5.1.4.3 Barriers
Figure - 5.5
The Conventional and Complex quadrant is characterized by a multitude
of barriers that hinder its growth and competitiveness. The complexity of
manufacturing processes and technological hurdles contribute to the sector’s
challenges. Furthermore, the high capital requirements and intricate raw material
sourcing and processing needs, which are becoming increasingly advanced, add
to the sector’s difficulties. Further, the supplier ecosystem, while not absent, is
dominated by a few prominent large players, limiting options and increasing
dependence on these key suppliers. These barriers can lead to increased costs,
reduced efficiency, and decreased innovation, ultimately affecting the sector’s
ability to adapt to changing market conditions.
5.1.5 EMERGING AND SIMPLE
5.1.5.1 Characteristics
This quadrant includes components that are becoming important for global
mobility. They use advanced technology but are manageable to manufacture and
operate, given their applications in numerous other industries, making production
feasible. These components also need relatively low investment. Nascency of the
technology provides a great opportunity for India to invest, both to meet local
demand and to stay competitive in the export market. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 95
This quadrant of emerging technology and simple manufacturing is characterized
by vehicle subsystems that are still evolving rapidly on the technology front
and but can still be manufactured using relatively lesser complex process. It
houses components such as Infotainment system, which is an in-car system that
provides information and entertainment, usually in the form of a screen mounted
in the car dashboard. Additionally, automotive navigation system is a computer
mapping tool used to assist drivers in locating their destination. The quadrant
also includes software define gauges which typically use software to render and
display information rather than traditional electromechanical gauges. It is also
home to certain components of electric vehicles such as electric motors which
use power from the traction battery pack and drives the vehicle’s wheels. Overall,
these components are characterized by their high degree of innovation as well as
scalability as they can grow and expand as demand increases or as they become
more refined.
5.1.5.2 Challenges
The quadrant of emerging technology and simple manufacturing is marked by
technological uncertainty, funding gap, risk aversion and talent shortage.
The regulatory landscape in India is evolving, and businesses especially dealing
with nascent technologies often struggle to keep up with changing laws, especially
related to data privacy and intellectual property. The government is introducing
new frameworks keeping in mind evolving needs, and hence companies need to
keep their product portfolio and their growth strategy in compliance with the
evolving dynamics. Also, such technologies usually require a shift in mindset, both
for businesses and consumers. Indian businesses and consumers may be slower
to adopt to new technologies due to cost concerns, trust issues and preference
for traditional methods, slowing down the market’s readiness for innovation. For
instance, in case of electric motors, the transition to electric vehicles is essential.
However, despite the availability of incentives, EV adoption in India remains below
10% across most of the vehicle categories, this is not just owing to consumer
inertia, but also due to enabling ecosystem as well as manufacturing waiting for
economies of scale to kick in.
Secondly, the introduction of emerging technologies although comparatively
simpler in nature require special knowledge and workers who can operate new
machines, maintain quality control and ensure production efficiency. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 96
5.1.5.3 Barriers
Figure - 5.6
The emerging and simple quadrant poses significant challenges for companies.
Competition is very high, due to limited R&D investment and a feasible
manufacturing process. The absence of a robust supplier ecosystem limits access
to reliable and high-quality components, leading to higher costs and delays.
Capital requirements are limited; however, funding is difficult due to emerging
technology as organizations usually like to invest in proven technologies. Finally,
capital requirement is moderate, with innovation and expertise required, but can
be managed with due efforts.
5.1.6 CONVENTIONAL AND SIMPLE
Majority of components that we currently export and required by domestic market
are in this segment
5.1.6.1 Characteristics
The conventional and simple quadrant comprises components that have reached a
high level of maturity in terms of technology and manufacturing processes. These
components are well-established in the market, with widely accepted standards
and specifications, and are produced using relatively simple and well-understood
manufacturing processes.
This quadrant is home to components such as traditional mechanical components,
electrical systems, and interior and exterior trim components. These components
are characterized by their high-volume production, low complexity, and relatively
low R&D requirements. The manufacturing processes for these components
are well-established and widely available, with many suppliers offering similar
products. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 97
The conventional and simple quadrant is marked by high competition, low
margins, and a focus on cost reduction and efficiency improvements. Companies
operating in this quadrant must be able to produce high-quality components at
low costs, with a focus on lean manufacturing, process optimization, and supply
chain management.
Overall, the quadrant is characterized by its focus on efficiency, cost reduction,
and high-volume production, with relatively simple manufacturing processes and
well-established technologies.
5.1.6.2 Challenges
Components in the conventional and simple quadrant, such as wiring harnesses
and basic interior components, involve straightforward manufacturing processes
with minimal technological advancement. These components have standardized
designs and established supply chains, making them accessible to a broader
range of manufacturers. However, maintaining quality standards is still critical,
especially for safety and durability. The main challenges here include cost
competitiveness and achieving economies of scale. Companies need to focus
on optimizing production efficiency, better access to raw materials and lean
manufacturing techniques to reduce costs and improve margins. Government
and industry associations can support small and medium enterprises (SMEs) by
offering fiscal incentives, facilitating access to low-cost capital, and providing
quality certification support to enhance market competitiveness.
5.1.6.3 Entry barriers
Figure - 5.7 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 98
The mature and simple quadrant presents moderate entry barriers for companies.
The complexity of manufacturing is low due to standardized processes and well-
established techniques, which makes production accessible to many players.
Technological barriers are minimal, as mature technologies require limited
innovation, focusing more on efficiency improvements. The supplier ecosystem
is robust, given the widespread availability of materials and components needed
for relatively simple manufacturing processes, reducing risks associated with
procurement. Capital requirements are relatively low, primarily needed for scaling
operations and incremental process improvements. Competition remains high,
driven by low entry barriers and a focus on price competitiveness. Finally, raw
material complexity is minimal, with most inputs readily available, but companies
must manage raw material as well as supply chain costs effectively. Success in
this quadrant hinges on operational efficiency and cost management rather than
technological innovation.
5.1.7 FRAMEWORK
To achieve the Vision 2030 goals, India must focus on its core competencies and
prioritize specific segments with the greatest potential. These segments should
be chosen based on market opportunity and India’s strengths. Incentives and
policy interventions, therefore, needs to be concentrated on these prioritized
segments to maximize growth and competitiveness rather than spreading them
thin across several components. Growth
Tr end
Share of ICE BOM
(excl. Assembly costs)Key sub-componentsKey systems
~23%
Cylinder, pistons,
turbochargers, exhaust, etc.
Engine
~20%
Chassis components, frame, and
body structure, exterior panels, etc.
Chassis & Body
~17%
Clutch, transmission gears, axles,
etc.Drive transmission &
Steering
~13%
Display units, infotainment,
connectivity, Inverter, DC-DC
converter, onboard charger, HV
cables etc.
Electronics &
Electrical~ 11 %Seats, airbags, seatbelts, etc.Interiors
~7%
Actuators, sensors, shock
absorbers, stabilizers, etc.
Suspension &
Braking
~5%
Radiator, thermostat, fan, water
pump, etc.
Cooling system
~2%Audio and telematicsTelematics
~2%Wheels, Tires, engine oil, etc.
Consumables &
Misc.
Key systems in ICE auto component value chain
Growth
Trend
Share of EV BOM
(excl. Assembly costs)Key sub-componentsKey systems
~28%Battery cells, BMS, Battery
~23%
Display units, infotainment,
connectivity, ADAS, Inverter, DC-DC
converter, onboardcharger, HV
cablesetc.
Electronics &
Electrical
~15%
Chassis components, frame, body
structure, exterior panels
Chassis & Body
~8%Seats, airbagsInteriors
~5%
Regenerative braking, electric brake,
shock absorber, etc.
Suspension &
Braking
~ 11 %E-drive module, drive computer, etc.
Drive transmission &
Steering
~6%HVAC systemsCooling system
~2%Audio and telematicsTelematics
~2%
Wheels, Tires, fasteners, adhesives,
and other assembly components
Consummables&
Misc (Tires)
Key systems in EV auto component value chain
PositiveNo major effectNegative
Auto Components included in PLI
Auto Components partially covered by PLI
Figure - 5.8
The Production-Linked Incentive (PLI) scheme for ACC batteries and auto
components has partially incentivized the production of these critical components,
as illustrated in the Figure 5.8. While the scheme has provided a boost to the
industry, more investments should be directed towards engine and transmission
components to further propel the Indian auto component market.
Engine and drive transmission components contribute nearly $0.8 trillion to
global consumption. Even with the advent of EVs, these components continue
to demonstrate market potential, driven by the ongoing presence of internal
combustion engine (ICE) vehicles and replacement demand. In fact, they account AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 99
for over 50% of global auto component exports, underscoring their significance in
the industry. Moreover, In India, the export mix has undergone a significant shift,
with high-value components, particularly engine and transmission system parts,
increasingly dominating the country’s export landscape as highlighted below.
Source: Crisil Intelligence
Figure - 5.9
Source: Crisil Intelligence
Figure - 5.10
Given their significant contribution to India’s export basket and substantial growth
prospects, components in the ‘Emerging & Complex’ and ‘Conventional and
Complex’ quadrants are poised to drive the country’s automotive export growth.
Incentives should be strategically focused on these two quadrants, with a specific
emphasis on engines and transmissions as other components are already covered
under the PLI scheme to capitalize on its existing strengths in these areas and
establish a larger presence in the global auto component market, as illustrated in
the figure below. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 100
Source: Crisil Intelligence
Figure - 5.11
5.2 A SUMMARY OF FISCAL AND NON-FISCAL INTERVENTIONS
IS AS UNDER:
Based on the above-mentioned quadrants, the necessary policy initiatives and
reforms to help the industry scale up production, enhance capabilities, and integrate
into global supply chains have been broadly categorized into two major heads:
i. Fiscal interventions for Production support for auto components manufacturing,
Improving India’s R&D ecosystem, Enhancing Skilling and industrial infrastructure
development; and
ii. Non-fiscal interventions encompassing technology transfer, enhancing ease of
doing business, exploring FTAs and others in the auto component sector.
Figure – 5.12 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 101 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 102 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 103 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 104 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 105
INTERVENTIONS AND
RECOMMENDATIONS AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 106
6.1 FISCAL INCENTIVES FOR COMPONENT MANUFACTURING:
Numerous government programs are designed to boost domestic production of
cutting-edge automotive technologies, draw in investments, and enhance the supply
chain. These schemes are intended to offer targeted financial incentives, foster
economies of scale, and tackle key industry hurdles. However, their effectiveness is
often undermined by a misalignment with the specific needs of the auto components
sector. Unlike assembly, which benefits from a capital-to-output ratio of 1:8 to 1:16, the
auto components industry operates with a much lower ratio of 1:1 to 1:2. This means
that investments in auto component manufacturing yield less output compared to
assembly operations.
As highlighted in Para 5.1, Indian companies and components face a cost handicap
of 10% and to bridge this gap, there is a need to provide fiscal incentives for
auto component manufacturing. While providing the incentive, it is pertinent to
incentivise only selected components as done in figure 5.11. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 107
6.1.1 SCHEME 1: PRODUCTION SUPPORT SCHEME:
The Production Support Scheme – The scheme is proposed to comprise of 2
major aspects for incentivising automotive components and tools and dies for
manufacturing of these components
i. Opex support for scaling manufacturing of components in quadrant 2 identified
in Figure 5.11
ii. Capex support for manufacturing of tools and dies for manufacturing auto
components in India
Details of the scheme is as below:
Scheme 1A: Opex support to achieve scale of components
Recommendations: New scheme with incentive rate and qualification thresholds
curated for component specific unit economics, making it attractive for manufacturing
these components in India
Target Segments: Components identified under Quadrant 2, Refer Fig 5.11.
List of eligible products:
• Engine & engine components: Engine cylinder & cylinder heads, Pistons & engine
valve, Crankshaft & camshaft
• Transmission Systems: Transmission gears, Axles
(Components that have been covered under auto-components PLI have been
excluded)
Scheme 1B: Capex support for tools and dies
Recommendations: New scheme with incentive rate and qualification thresholds
curated for specialized equipment required to manufacture focused tools and dies
for auto component manufacturing
Target Segments and List of eligible products: Tools and Dies for manufacturing of
automotive components AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 108
6.2 SKILLING INCENTIVES FOR COMPONENT MANUFACTURING:
India is home to one of the world’s largest engineer populations, yet it faces a talent
shortage of manpower in high-precision manufacturing. Companies often incur high
costs to build training infrastructure and provide specialized training, primarily due
to outdated curricula in educational institutes and graduate engineers not having
the required skills. Global companies also struggle to find local institutes that offer
the necessary skills training, often turning to partnerships with foreign universities.
Addressing this issue requires a strategic focus on developing skilled manpower to
meet short-term, medium-term, and long-term talent needs.
India has a vast pool of human resources, yet the employability of its youth remains a
significant challenge. To address this issue, the government has recently introduced
several initiatives aimed at enhancing skill development and providing employment
opportunities:
a. Employment Linked Incentive Scheme (ELI):
In the Union Budget of 2024-25, the Prime Minister’s package of ₹2 lakh crore has
been allocated to promote employment, focusing on both employers and employees,
with a particular emphasis on the Employees’ Provident Fund Organisation (EPFO).
This package includes a range of schemes:
• Scheme A: First-Time Employment Scheme: This scheme is expected to benefit
2.1 crore youth over 2 years will provide one-month wage to all persons newly
entering the workforce in all formal sectors. The eligibility limit will be a salary of
Rs. 1 lakh per month. Direct benefit transfer of one-month salary will be up to Rs.
15,000 in 3 installments to first-time employees, as registered in the EPFO.
• Scheme B: Job Creation in Manufacturing: This scheme aims to drive significant
hiring of first-time employees in the manufacturing sector, benefiting 30 lakh
youth and their employers. It offers incentives to both employees and employers
based on EPFO contributions during the first 4 years of employment. However, if
the employment ends within 12 months, the employer must refund the subsidy.
• Scheme C: Support to Employers: Financial assistance for employers hiring
additional employees. This employer-focused scheme covers all additional
employment with a salary of up to ₹1 lakh per month across all sectors. New
employees under this scheme do not need to be first-time EPFO entrants. The
government will reimburse employers up to ₹3,000 per month for 2 years towards
EPFO contributions for each additional employee. The scheme aims to incentivize
the creation of 50 lakh jobs.
Incentive rates in first 4 years: 24%: 24%: 16%: 8%
Eligibility:
• Applicable to first-time employees in the manufacturing sector. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 109
• All employers, both corporate and non-corporate, with a three-year track record
of EPFO contribution will be eligible.
• Employees must work directly for the entity that pays them salary or wage, i.e.,
an in-sourced employee.
• Employees with a wage or salary of up to Rs.1 lakh per month will be eligible,
subject to the EPFO contribution.
b. Employment and Skilling:
• Scheme D: Skilling Programme and Upgradation of Industrial Training Institutes:
This new Central Sector Scheme (CSS), with a total allocation of ₹60,000 crore,
aims to skill 20 lakh youth over the next five years. To achieve this, 1,000 Industrial
Training Institutes (ITIs) will be modernized in a hub-and-spoke model with a
strong focus on tangible outcomes. The course curriculum will be updated to
align with industry requirements, and new programs will be introduced to cater
to emerging skill demands.
• Scheme E: Prime Minister’s Internship Scheme: PM Internship Scheme has been
launched to enhance youth employability by providing internship opportunities
in top companies across the country. Scheme offers 12 months internship
opportunities for Indian citizens aged between 21 and 24 years who are not
engaged in full-time education or employment. Each intern receives a monthly
stipend of ₹5,000, along with one-time financial assistance of ₹6,000.
Eligibility:
• Indian citizen between the age of 21 and 24 years
• 10th pass, 12th pass, or a UG degree or diploma holder
• Candidates must also not have either a part-time or a full-time job already
The Indian auto component sector, set for substantial growth, needs a highly skilled
workforce to sustain and boost its global competitiveness. Addressing this critical
requirement calls for a comprehensive approach centred on skilling initiatives.
These initiatives are designed to bridge the gap between the current educational
curriculum and industry needs, attract top talent, and elevate the overall skill levels
of the workforce. To enhance the auto component sector in India, several strategic
targeted skilling initiatives are essential: AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 110
6.2.1 SCHEME 2: GVC SKILLING INDIA SCHEME:
Recommendation: To offer a incentive capped at a certain amount, to eligible
players in the Auto component industry
Target Segments: Components identified under Quadrant 1 & Quadrant 2, Refer
figure 5.11.
6.2.2 NON-FISCAL SKILLING INCENTIVES:
A multi-faceted strategy is required to facilitate short-term, medium-term and long-
term skilling requirement. Some of the skilling initiatives required are as under:
1. Attract overseas talent and motivate high-level Indian talent to return
to India: There is a need to attract highly skilled NRIs by offering various
incentives and for retaining highly skilled overseas talent. For this, India should
consider a two-pronged approach as under:
• Firstly, implement attractive incentives like providing right to purchase
residence in India to foreigners, streamlined visa processes, and guaranteed
long-term employment opportunities, mirroring China’s Thousand Talents
Program (TTP).
• Secondly, develop designated foreign townships within existing auto
component hubs, fostering a sense of community and cultural exchange.
These measures will make India a more competitive destination for global
talent, ultimately driving innovation and economic prosperity.
2. Develop specialized engineering, research and design courses: There is
a need to develop specialized engineering, research, and design courses
at Indian higher education institutions to prepare the future workforce by
focusing on advanced technologies and industry needs.
3. Support Training of Trainers (TOT) through exchange programs: Support the
Training of Trainers (TOT) program through international exchange initiatives
and partnerships with global institutes and multinational corporations (MNCs)
for curriculum development and research and development (R&D) in the
automotive component manufacturing.
4. Bridge the gap between university curricula and industry requirements:
Bridge the gap between university curricula and industry requirements by
identifying key skills, promoting apprenticeship programs, and expanding
initiatives such as the National Apprenticeship Promotion Scheme (NAPS).
5. Upgrade curricula and run specialized training courses in partnership with
OEMs and tech institutes:
• Upgrade educational curricula and develop specialized training programs
through partnerships with Original Equipment Manufacturers (OEMs) and
leading technical institutes. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 111
• Establish advisory boards comprising industry experts, academia, and
technical professionals to ensure curriculum alignment with evolving
industry needs. These boards will provide guidance on incorporating the
latest technological advancements and industry best practices into the
training modules.
• Additionally, promote e-Learning initiatives to make skill development
more accessible and flexible, allowing trainees to acquire knowledge at
their own pace while keeping up with industry standards and innovations.
This integrated approach will help create a workforce equipped with
relevant, up-to-date skills.
6. Expedite Visa approvals for training/ business visits: To facilitate the
movement of skilled professionals, especially in Auto and Auto components
industry, India could establish Memorandums of Understanding (MoUs) with
partner countries. These MoUs should aim to simplify visa regulations and
expedite the visa processing for professionals traveling for training and
development purposes. This initiative would promote knowledge exchange and
strengthen collaboration within the industry, accelerating India’s technological
progress and innovation in these sectors. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 112
6.3 INCENTIVES FOR R&D ECOSYSTEM DEVELOPMENT
The auto component sector in India is on the brink of significant growth but
faces intense global competition and rapid technological advancements. To stay
competitive and meet future demands, there is a critical need to strengthen R&D
efforts within the industry. Investing in R&D will enable the Indian auto component
sector to position them as a global leader, driving sustainable growth and expanding
export potential over the next 4-5 years.
To support R&D in this sector, the government should establish a dedicated, outcome-
based R&D fund that partially incentivises R&D expenses. This initiative would
encourage innovation by reducing the financial burden on companies. Additionally,
offering incentives for product innovation can further stimulate technological
advancements and enhance the quality and efficiency of auto components made
in India. Such efforts will not only enable Indian manufacturers to compete globally
but also promote the development of advanced technologies like electric vehicle
components, cutting-edge safety systems, and fuel-efficient parts.
A multi-faceted strategy encompassing incentives, setting up of Research institutes
and transitioning to build to design models is required to facilitate short-term,
medium-term and long-term R&D initiatives in India.
ProposalFraunhofer-Gesellschaft ModelTransition to Build-to-Design
?Setting up of Research
institutes and transitioning to
build to design models is
required to facilitate short-
term, medium-term and long-
term R&D initiatives in India
?India can establish a network of applied research
institutes, similar to the Fraunhofer-Gesellschaft
model, to foster industry-academia collaboration
?SMEs can use the cost-sharing model to invest in R&D
activities at subsidized rate.
?~30% funding from government sources
?Similar scheme for Funding Industry Relevant R&D by
DST where funding shared between SERB (Science and
Engineering Research Board) and Industry.
?SERB share shall not exceed Rs. 50 lakh for a project.
?The support from SERB shall be extended only to the
academic partner and not to the industry.
?Funding for a maximum period of three years.
?The industry share should not be less than 50 % of the total
budget
?Automotivecomponent manufcaturers
heavily rely on the Built to Print model
?Shiftto Built-to-Design model will help
component players move up the value
chain with improved margins
Figure 6.1
Fiscal policies should focus on incentivizing R&D investments and fostering
collaborations between industry and research institutions. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 113
6.3.1 SCHEME 3: FISCAL INCENTIVE FOR ELIGIBLE COMPONENTS
FOR R&D SUPPORT:
Recommendation: Implement a strategic R&D support scheme with financial
incentives across product categories to foster innovation and build globally
competitive Indian auto component manufacturers
Target Segments: Components identified under Quadrant 1 & Quadrant 2, Refer
Figure 5.11.
The R&D incentives could also be used for acquiring IP by Indian companies only on
a case-to-case basis.
6.3.2 NON-FISCAL INCENTIVE FOR ELIGIBLE COMPONENTS FOR
R&D SUPPORT:
Fraunhofer-Gesellschaft Model:
India can establish a network of applied research institutes, like the Fraunhofer-
Gesellschaft model, to foster industry-academia collaboration.
• SMEs can use the cost-sharing model to invest in R&D activities at subsidized
rate.
• ~30% funding from government sources
• A similar scheme for Funding Industry Relevant R&D by DST where funding
shared between SERB (Science and Engineering Research Board) and Industry.
»SERB share shall not exceed Rs. 50 lakhs for a project.
»The support from SERB shall be extended only to the academic partner
and not to the industry.
»Funding for a maximum period of three years.
»The industry share should not be less than 50 % of the total budget AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 114
Figure – 6.2
Figure – 6.3 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 115
Transition to Build-to-Design:
India’s manufacturing sector is currently dominated by the “Build to Print”
model, where components are produced based on customer designs, particularly
in sectors like automotive components, textiles, and light engineering, which
leverage the country’s low-cost, high-volume production capabilities. However,
to ascend the value chain and compete globally in high-tech sectors, India must
transition to the “Build to Design” model, where manufacturers design, engineer,
and produce products, thereby owning intellectual property (IP) and commanding
higher margins, enabling the country to move beyond its traditional low-cost
manufacturing image and emerge as a hub for innovative, high-value products. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 116
6.4 FISCAL INCENTIVES FOR HARD INFRASTRUCTURE
A. Developing world-class industrial infrastructure with plug and play facilities
is crucial for enhancing efficiency and reducing operational costs in the auto
component sector. Creation of Plug and Play Facilities will ensure minimal set-
up time for industries and provide common and shared infrastructure in clusters.
India’s auto clusters have successfully attracted both domestic and global
players in the automotive and auto component industries, offering access to
advanced manufacturing facilities and extensive logistics networks. However,
these clusters face significant challenges, including limited access to modern
technological tools and inadequate warehousing facilities. These limitations
impede operational efficiency and competitiveness, highlighting the need for
focused infrastructure improvements.
B. Recommendation: A scheme is proposed to develop brownfield large-scale
auto clusters with world-class facilities in collaboration with anchor players
focused on specific segments, products, or components. There is also a need
to undertake a thorough audit of existing auto clusters to evaluate utilization,
implementation problems, and the state of facilities provided. The essential
suggestions are listed below: -
i. Scale and performance: There is a need to upscale auto clusters and make
it attractive to achieve supplier agglomeration and efficiency. It is proposed
to revamp 8 existing auto clusters by undertaking a thorough audit of
these clusters. Additionally, to ensure success, monitoring metrics such
as export turnover, investment levels, and other performance indicators is
recommended for tracking progress.
ii. Provisions within a cluster: The cluster should have some common facilities
that make them attractive, which inter-alia includes:
• Common design and R&D Facilities: Enhance Auto cluster’s R&D
facilities to suit changing industry requirements (e.g., EVs, hybrid tech,
batteries, etc.) by offering design labs (with CAD, CAE, CAM software),
material research labs, Prototyping and manufacturing machinery (CNC,
3D printers) and Testing equipment (environment chambers, vibration
test chambers).
• Factories and tool rooms: Develop factories with state-of-the-art facilities
and equipment, Invest in advanced manufacturing technologies and tool
rooms (heat treatment, quality control etc.) in proximity to existing major
auto clusters.
• Testing facilities: Develop testing and validation centres such as
environment chambers, electrical and electronic testing, chemical and
material analysis, NVH testing, simulation and modelling, compliance
testing in multiple hubs for vehicle performance evaluations, durability
mileage accumulation, etc. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 117
• Training Centres: Establish comprehensive training programs in collaboration
with nearby technical universities; focus on specific skills required for the
industry in the form of technical training, equipment workshops, classrooms,
industry partnerships, and apprenticeship programs.
• Logistics & warehousing: Improved connectivity and logistics by
providing ready-built warehouses, truck terminals, customer freight
stations, connectivity to ports, raw material transportation.
• Common & social infrastructure: Ensure a sustainable, efficient, and
well-rounded ecosystem for both workers and operations by providing
housing, primary healthcare, dormitories, schools, drainage and effluent
treatment systems, solid waste management, and utilities including
power, gas, and water.Total Budget Outlay a` 2,000 Cr
Clusters Selected 8
(600-1000 Acres)
Type
Details
8 brownfield
Cluster
Common design
and testing
facilities
Design labs (with CAD,
CAE, CAM software),
material research lab,
prototyping and
manufacturing
machinery (CNC, 3D
printers), testing
equipment
(environment
chambers, vibration
test chambers)
Common Tools
and machines
Metal shop,
electronics
assembly, rapid
prototyping, 3D
printing etc.
Waste water treatment
and Effluent treatment
plant
Waste management
center, waste collection
plant, solid waste
management system etc.
Industry-grade
utilities
Uninterrupted
power supply,
deionized water,
drainage, etc.
Housing &
SocialInfra
Housing, Medical,
educational &
recreational
Common
warehousing &
logistics
Truck terminal,
parking, custom
freight station etc.
Scheme 4(Hard infrastructure)
Total of 8 clusters to support upcoming auto hubs and transition to EVs
Strategic investment for upgrading 8
existing ones, ensures an effective
solution to manage expected
10-12% growth in auto comp.
Pithampur, Sambhaji Nagar, Chennai, Ludhiana, NCR, Sri City, Pune, Rajkot
1 2 43
Figure 6.4 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 118
Figure – 6.5 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 119
6.5 GOVERNMENT-FACILITATED IP TRANSFER
To improve the strength of auto-component SME’s, improve local manufacturing and
localisation for improving competitiveness as well as reducing R&D cost, a scheme
could be formulated where the Intellectual Property rights (IP) of components
identified by the auto-component SME’s are acquired by the Government and then
democratised across MSME players for manufacturing. This helps reducing the time
and cost involved in development and helps foster competition among MSME’s.
The broad contours of the scheme are drawn out below:
• Identification of IP to be acquired: Government and industry jointly identifies
strategically valuable IP from global patent repositories
• Government Acquisition of IP: The government acquires high-potential
intellectual property (patents, technologies) from R&D institutions or startups
• IP leasing
• Targeted Support for MSMEs
Target Segments:
• Government Acquisition of IP: Government procures high-potential IPs from
global patent repositories and domestic R&D institutions (CSIR, IITs, DRDO,
startups). Aimed at building a National IP Pool. IP from National IP pool is
licensed to MSMEs on low-cost lease basis.
• Targeted MSME Support for IP Commercialization: Infrastructure, tools, and
expert mentoring support for:
»Prototyping, testing, adaptation
»Integration of IP into production
»Budget includes cost of legal support and tech transfer facilitation.
6.6 BRANDING SUPPORT
To expand their global footprint, Indian automobile component manufacturers must
prioritize investing in brand development in international markets. A robust brand
image is essential for creating top-of-mind awareness, driving customer preference
among global OEMs, and ultimately, securing a competitive edge.
Indian auto-component manufacturers must develop targeted international business-
to-business (B2B) marketing strategies that foster consistent market engagement
and meaningful relationships with global customers. One effective approach to
promoting the “Made in India” brand is by harnessing the power of digital marketing
channels, which can help reach a broader audience, enhance brand visibility, and
showcase the country’s manufacturing capabilities AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 120
Recommendation: Launch a Branding support scheme to help improve branding of
Indian auto component manufacturing companies.
6.7 EXPECTED BENEFITS:
The aforesaid interventions are anticipated to generate a multitude of benefits.
i. Stimulating production, R&D, and innovation: The interventions are expected to
create a more dynamic environment for automotive sector, fostering growth in
all these areas.
ii. Job creation: Estimates suggest the creation of 2 to 2.5 million new direct jobs,
providing significant employment opportunities along with taking the total
count of indirect jobs to 15 to 20 million.
iii. Positive net foreign exchange inflow: The growth in manufacturing is expected
to lead to a net inflow of foreign exchange, benefiting the country’s balance of
payments.
iv. Increased tax revenue from employees: The newly employed workforce as
envisaged after the potential for boosting production, R&D, and innovation,
coupled with the economic benefits of job creation, positive foreign exchange
flows, and increased tax revenue, would unleash the Potential of India’s Auto
component manufacturing ecosystem. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 121 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 122 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 123 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 124 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 125
OVERARCHING LIST OF NON-
FISCAL INTERVENTIONS AND
RECOMMENDATIONS AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 126
Overarching List of Non-Fiscal Recommendations
7.1 ENCOURAGING TECH TRANSFER AND FOREIGN
COLLABORATION VIA JOINT VENTURES:
Foreign joint ventures can be a game-changer for the Indian auto component
industry, enabling the development of high-value, mature products that cater to
the growing global demand. Complex manufacturing processes have hindered the
production of these products in India, including high-performance fuel injectors,
advanced transmission systems, and lightweight composite materials. By partnering
with foreign companies from countries like Germany, Japan, and the United States,
Indian manufacturers can gain access to cutting-edge technology, expertise, and
resources, bridging the gap in specialized manufacturing capabilities.
These partnerships can empower Indian auto component manufacturers to produce
complex products, tap into the lucrative global market, and increase their revenue.
To ensure the success of foreign joint ventures, it is essential to create a conducive
business environment that attracts foreign investment. This can be achieved
by offering incentives such as tax breaks, subsidies, and investment promotion
schemes. Additionally, the government can play the role of a facilitator by providing
support for joint venture partnerships, facilitating technology transfer, and ensuring
a smooth regulatory process to safeguard the interests of both entities, thereby
building an environment of trust (major obstacle for foreign technology players).
Furthermore, Indian companies must be willing to adopt new technologies and
processes and invest in upskilling their workforce to ensure a successful partnership.
The Chinese auto component industry has significantly benefited from tech transfer
and foreign collaborations, upgrading their technology, quality, and manufacturing
capabilities. For example, Wanxiang’s joint venture with BorgWarner has enabled
the company to produce high-performance turbochargers, such as those used in the
Ford Mustang, increasing its exports and establishing itself as a significant player in
the global turbocharger market. Similarly, Indian companies can learn from China’s
experience and leverage foreign joint ventures to enhance their competitiveness
and tap into the global market. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 127
7.2 ENHANCING EASE OF DOING BUSINESS
a. To enhance the ease of doing business in the auto component sector and improve
India’s risk perception, the government should focus on targeted interventions
such as streamlining the permit approval process and ensuring time-bound
disbursement of incentives. These measures will help reduce bureaucratic delays
and enhance overall business efficiency.
i. Streamlining permits and approvals for utilities and operations is a critical
step. This can be achieved by implementing the following:
• Pre-embedded approvals for the commencement of operations,
construction, power, property, and taxation in auto clusters.
• Rationalizing and reducing the number of permits and approvals required
across regulatory departments at the central, state, and local levels will
further expedite processes.
• Easing land acquisition, regulatory, and compliance requirements by
addressing delays and reducing turnaround time in granting licenses and
clearances can significantly improve operational efficiency.
ii. Enabling time-bound disbursement of incentives and transfers is vital
for supporting businesses financially. This includes providing clarity in
documentation required to claim disbursements under various schemes
and resolving document audit requirements in a timely manner to maintain
consistency and expedite financial support.
iii. Improving transport connectivity and promoting sustainable practices are
essential components of this strategy. This can be achieved by following
ways:
• Investing in the enhancement of road, rail, and port infrastructure which
will ensure the efficient movement of goods and reduce logistics costs.
• Providing incentives for the adoption of green technology and
implementing strict emission norms with support measures and awareness
programs will promote sustainability. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 128
7.3 EXPLORING FREE TRADE AGREEMENTS
Figure 7.1
Upon examining export patterns, it becomes evident that countries predominantly
engage in trade with nations that have existing free trade agreements (FTAs) in place.
Mexico, a substantial exporter that contributes significantly to global exports, relies
heavily on the United States, which accounts for approximately 89% of its total exports.
The active FTA, the United States-Mexico-Canada Agreement (USMCA), facilitates
trade in automobiles and auto parts, thereby favoring North American production. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 129
Japan, a major Asian exporter, has established FTAs with all its major importing
partners. The bilateral trade agreement between Japan and its primary importer,
the United States, has led to a significant increase in trade in vehicles and auto
components since 2019. The United States accounts for 54% of Japan’s exports,
followed by China, which accounts for 17%. The Regional Comprehensive Economic
Partnership (RCEP) between Japan and China has substantially bolstered trade
relations between the two nations.
In the case of Germany, approximately 65% of its exports are directed to countries
within the European Union (EU) free trade areas. Germany’s key export destinations,
including France, Italy, and Spain, constitute around 25% of its exports and benefit
from the EU single market’s free movement of goods, services, and capital.
Additionally, Germany has established trade agreements with countries like Canada,
Mexico, and South Korea, such as the EU-Canada Comprehensive Economic and
Trade Agreement (CETA), EU-Mexico Global Agreement, and EU-South Korea Free
Trade Agreement, which further enhance its trade networks.
India’s current FTAs are primarily limited to nations like South Korea, Bhutan,
Afghanistan, Thailand, and Sri Lanka. As of 2022, India’s presence in major import
markets remains limited, with an estimated market share of around 3%. To enhance
its export prospects, India should adopt a more strategic approach to FTAs. By
expanding and diversifying its FTA network, India can potentially tap into larger
markets, access a wider consumer base, and foster greater economic integration.
Such agreements can provide Indian industries with increased market access,
reduced trade barriers, and a competitive edge, thereby catalyzing export growth
and economic development. Furthermore, strategically negotiated FTAs can
encourage foreign investment, technology transfer, and innovation, positioning
India as a more formidable player in global trade.
To improve its export competitiveness, India should focus on negotiating FTAs
with key trading partners, such as the European Union, the United States, and the
Association of Southeast Asian Nations (ASEAN). By doing so, India can increase
its market access, reduce trade barriers, and enhance its economic integration with
major trading blocs. This, in turn, can lead to increased export growth, economic
development, and a more prominent role for India in global trade.
7.4 SUPPLIER DISCOVERY AND DEVELOPMENT
Several nations, including Japan, China, etc. have implemented measures to support
MSMEs in enhancing their marketing capabilities and boosting their market presence.
Some notable initiatives undertaken by these countries include:
Japan:
• The Japanese government has established the SME Support Japan organization,
which provides a range of services to MSMEs, including financing, marketing,
and management assistance. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 130
• SME Support Japan provides support for branding and advertising to help
SMEs promote their products and services.
• With the help of branding and marketing support, Micro, Small, and Medium
Enterprises (MSMEs) in Japan are empowered to establish a strong presence
in the market and effectively compete with larger corporations.
Canada:
• The Canada Small Business Financing Program (CSBFP) is a loan guarantee
program that provides financing to small and medium-sized enterprises
(SMEs) in Canada.
• The program provides financing for marketing and advertising expenses,
such as website development, social media advertising, and trade show
participation.
• It also provides financing for export development activities, such as market
research, trade missions, and export marketing.
• The program is administered by the Government of Canada and is designed
to help SMEs access financing for marketing and other needs that they might
not otherwise qualify for.
South Korea
• The SME Support Centre is a government-funded organization that provides
a wide range of support services to MSMEs in South Korea. The centre was
established to promote the growth and development of MSMEs, which are
considered the backbone of the Korean economy.
• The centre provides marketing and branding support to help MSMEs enhance
their visibility in the domestic and international markets. This includes support
for market research, advertising, and trade show participation.
• The centre provides export promotion support, including market research,
trade mission organization, and export marketing.
With India home to several MSME’s in machine tools, auto components and
light engineering spread across clusters, discovery and development of these
MSMEs play a key role in boosting their strength as well as improving domestic
value additions.
• The government can establish a dedicated organization or an SME support
centre to provide a range of services to MSMEs in the auto-component sector,
including financing, marketing, and management assistance.
• A loan guarantee program can be introduced, to provide financing to MSMEs in
the auto-component sector for marketing and advertising expenses, such as: AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 131
* Website development and e-commerce platform integration
* Social media advertising and digital marketing
* Trade show participation and exhibition expenses
• This support centre can provide support for export development activities,
such as:
* Market research
* Export marketing and branding initiatives
* Compliance with international regulatory requirements
Figure 7.2
Eligibility:
• The enterprise must be classified as a Micro, Small, or Medium Enterprise (MSME)
as per the definition provided by the Government of India and the enterprise
must be operating in the auto-component/machine tools/light engineering
sector.
• The enterprise must be registered with the relevant authorities, such as
the Ministry of Micro, Small, and Medium Enterprises (MSME), or the State
Government’s Department of Industries.
• The enterprise must have a minimum turnover of ₹25 lakhs and a miximum turn
over of ₹100 crores.
• The enterprise must have a minimum of 10 employees.
• The enterprise must have a potential for exporting auto-components, with a
minimum export turnover of ₹10 lakhs in the previous financial year. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 132
7.5 WORKER HOUR FLEXIBILITY
The traditional Indian labor laws have imposed a cap of 10.5 hours per day, including
overtime, on working hours. This contrasts with countries like China, Denmark,
Switzerland, Norway, and Indonesia, where there is no limit on working hours. Other
countries like Bangladesh and Vietnam have slightly higher limits, with 11 hours
and 12 hours, respectively. However, the trend of flexible working hours has been
gaining traction, particularly in countries like China and Vietnam, where it has been
beneficial for manufacturing sectors.
The advantages of flexible working hours in China and Vietnam are multifaceted:
• Increased output: Flexible working hours allow continuous operations, which is
particularly beneficial in the manufacturing sectors where production needs to
be ongoing to meet demand.
• Attraction of Foreign Investment: Multinational companies often seek
environments with flexible labor regulations to optimize production schedules
and reduce operational costs.
• Reduced operational costs: By adjusting working hours, businesses can reduce
costs associated with overtime, labor, and other operational expenses.
• As a result, multinational companies often seek environments with flexible labor
regulations to optimize their production schedules and reduce operational costs.
This has led to countries like China and Vietnam becoming attractive destinations
for foreign investment, particularly in the manufacturing sector.
In India, states like Karnataka, Tamil Nadu, and Telangana have been at the forefront
of attracting foreign investment due to their business-friendly policies, strong
infrastructure, and skilled workforce. Recently, Karnataka amended its labor laws
to allow 12-hour shifts, aligning itself more closely with global manufacturing hubs
like China and Vietnam and the 4 labour codes passed by the Indian government.
This move is expected to make Karnataka a more attractive destination for foreign
investment, particularly in the manufacturing sector.
Tamil Nadu, which is home to major electronics and automobile manufacturers,
has also taken steps to enhance labor flexibility. The state has become a preferred
destination for companies like Apple, Foxconn, and Hyundai, which are looking to
expand or diversify their manufacturing base outside China.
While adopting more flexible labor laws can offer economic benefits, it’s essential to
balance these with worker welfare. Extended working hours should be accompanied
by adequate compensation and rest periods. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 133
7.6 MISSION MODE EXECUTION STRATEGY:
To drive the growth of the auto and auto parts manufacturing sector in the country and
enhance our participation in Global Value Chains, the above recommendations may
be considered for implementation. These recommendations address critical areas
such as infrastructure development, fiscal support, and technological innovation,
and require coordinated action among various Ministries/ Departments and State
Government for a holistic approach. Given the complexity and cross-ministerial/
departmental nature of these initiatives, it is suggested that they be executed
in a mission mode. To facilitate this, a dedicated unit may be established within
the Ministry of Heavy Industries (MHI) / National Manufacturing Mission (NMM)
to spearhead these reforms and oversee their implementation, ensuring efficient
coordination among stakeholders, monitoring progress, and driving significant
advancements in the automotive sector. Designed by: AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 136
Powering India’s participation in
Global Value Chains
April 2025 Automotive Industry:
Powering India’s
participation in Global
Value Chains NITI Aayog collaborated with its knowledge
partners, including CRISIL, in the preparation of
this report.
While due care has been exercised to prepare the
report using the data from various sources, NITI
Aayog does not confirm the authenticity of data
and accuracy of the methodology to prepare the
report. All data cited, including that from verified
Government sources have been interpreted
solely by our knowledge partners.
While due care has also been exercised to ensure
the accuracy of the analysis and arguments
supported by existing literature, the possibility
of alternate interpretations cannot be ruled out.
NITI Aayog shall not be held responsible for the
findings or opinions expressed in the document.
Disclaimer AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS iv
Message by Vice Chairmani
Message by Member ii
Message by CEOiii
Message by Programme Directorv
Prefacevii
Executive Summaryviii
Chapter 1: Introduction 1
1.1 Global Manufacturing Landscape 2
1.1.1 Regional Shifts and the Rise of Emerging Markets 4
1.1.2 Electric Vehicle (EV) Revolution and Its Impact on Manufacturing 4
1.1.3 The Shift to Advanced Manufacturing5
1.2 Role of the Automotive Sector in Transforming Global Manufacturing 5
1.2.1 Technology Adoption in the Automotive Industry 6
1.2.2 Industry 4.0 and the Future of Automotive Manufacturing 6
1.2.3 Sustainability and Circular Economy Practices 7
1.2.4 Linkages with Other Sectors: Electronics, AI, and Semiconductors 8
1.3 Role of the Automotive Industry in Indian Manufacturing Sector 9
1.3.1 Automotive Production and Market Overview 9
1.3.2 Government Initiatives Supporting the Automotive Sector 9
1.3.3 Emerging Trends in Indian Automotive Manufacturing 11
1.4 Interconnectedness of Indian Automobile Sector with Other Industries 11
1.5 Auto System Overview 13
Chapter 2: India’s automotive industry and its positioning in Automotive GVC17
2.1 Historical Evolution and Market Overview of the Indian Automotive Industry18
2.1.1 Automotive Market and GVC 19
2.1.2
Consumption and Trade Dynamics of Major Markets in Global Automotive sector21
2.2 Auto component GVC and India’s Trade Scenario Across Components23
2.2.1 Analysing Auto Components: Global Segmentation and India’s Contribution23
Chapter 3: Key Drivers and Challenges for India’s Participation in Automotive GVC 43
3.1 Global Trends in Auto Component GVC 44
Contents AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS v
3.2 Opportunities for India Amid Global Disruptions 49
3.2.1 India’s Position in Auto Component GVC 49
3.2.2
Factors Positioning India to become a dominant player in Auto component GVC51
3.3 Challenges in Enhancing India’s Participation in GVC 52
Chapter 4: Technological Transition Opportunities and Global Benchmarking in
Automotive Component Manufacturing 61
Chapter 5: Policy Recommendations for India’s Auto Component Sector 87
5.1 Introduction 87
5.1.1 Overview of India’s Ambition: $120 Billion Auto Component Production 87
5.1.2 Strategic need for Policy Interventions
5.1.3 Emerging and Complex Quadrant 90
5.1.4 Conventional and Complex 93
5.1.5 Emerging and Simple 94
5.1.6 Conventional and Simple 96
5.1.7 Framework 98
5.2 Summary of Fiscal and Non-Fiscal Interventions 100
Chapter 6: Interventions and Recommendations 105
6.1 Fiscal Incentives for Component Manufacturing 106
6.2 Skilling Incentives for Component Manufacturing 108
6.2.1 Scheme 2: GVC Skilling India Scheme 110
6.2.2 Non-fiscal Skilling Incentives 110
6.3 Incentives for R&D ecosystem development 112
6.3.1 Scheme 3: Fiscal Incentive for Eligible Components for R&D Support 113
6.3.2 Non-Fiscal Incentive for Eligible Components for R&D Support 113
6.4 Fiscal Incentives for Hard Infrastructure 116
6.5 Government-Facilitated IP Transfer119
6.6 Branding Support119
6.7 Expected Benifits 120
Chapter 7: Overarching List of Non-fiscal interventions and recommendations 125
7.1 Encouraging Tech Transfer and Foreign Collaboration via Joint Venture126
7.2 Enhancing Ease of Doing Business 127
7.3 Exploring Free Trade Agreements 128
7.4 Supplier Discovery and Development 129
7.5 Flexible Working Hours 132
7.6 Mission Mode Execution Strategy 133 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS i AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS ii AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS iii AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS iv AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS v AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS vi AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS vii
PREFACE
The Indian automotive industry stands at a pivotal juncture, poised to redefine its role in
the global manufacturing landscape. As the world transitions toward electric mobility,
autonomous driving, and sustainable production, the automotive sector offers India a unique
opportunity to emerge as a key player in the global value chain (GVC). This report, the
second in the series of Global Value Chains, titled “Automotive Industry: Powering India’s
participation in Global Value Chains”, explores the transformative potential of India’s auto
component industry, outlining a strategic roadmap to elevate its global salience and drive
economic prosperity. Historically, the automotive sector has been a cornerstone of industrial
growth, fostering innovation, employment, and cross-sectoral linkages. In India, the industry
has made significant strides, positioning the country as the world’s fourth-largest automobile
producer. Yet, despite this achievement, India’s share in the global traded auto component
market remains modest at just 3%, reflecting untapped potential and underlying challenges.
With a near-neutral trade balance and a cumulative cost disability of nearly 10% compared to
competitors like China, India’s auto component sector faces structural hurdles that impede its
competitiveness. These include supply chain inefficiencies, high material and equipment costs,
and limited penetration in high-precision segments like engine and transmission systems.
This report envisions a bold future where India’s automotive component production reaches
$145 billion by 2030, with auto component exports tripling to $60 billion, yielding a trade
surplus of $25 billion. Such growth promises to create 2-2.5 million additional direct jobs,
bolster ancillary industries, and elevate India’s GVC share to 8%. Achieving this ambition,
however, demands a concerted effort to address cost disadvantages, enhance infrastructure,
and integrate advanced technologies such as Industry 4.0. The shift toward electric vehicles
(EVs) and next-generation features like Advanced Driver Assistance Systems (ADAS) further
underscores the urgency of aligning India’s capabilities with global trends.
To realize this vision, we propose a comprehensive set of fiscal and non-fiscal interventions.
These include targeted operational support for identified components and capital expenditure
support for tools and dies, cluster development to strengthen supply chains, Measures for
improving R&D and skill-building initiatives to nurture talent. Equally critical are measures to
foster international collaboration through joint ventures and free trade agreements, alongside
efforts to elevate quality standards and build a globally competitive brand for Indian auto
components. This holistic approach aims not only to enhance export potential but also to
position India as a hub for high-quality, technology-driven manufacturing. As we present this
summary and the detailed findings that follow, our goal is to catalyze dialogue and action
among policymakers, industry leaders, and stakeholders. The timely implementation of these
recommendations offers a powerful pathway to unlock India’s potential, driving economic
growth, job creation, and technological advancement. We invite you to join us in this journey
to transform India’s auto component sector into a global powerhouse, contributing to a
sustainable and prosperous future. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS viii
EXECUTIVE SUMMARY
The global landscape of automobile manufacturing has undergone a remarkable transformation
over the past few centuries, driven by profound technological advancements and shifts in
economic and social patterns. From the advent of mass production to the emergence of
modern manufacturing methodologies such as Industry 4.0 and Lean manufacturing, the
automotive sector has played a pivotal role in shaping the broader manufacturing ecosystem.
As a prime driver of innovation, the automotive industry not only pioneers new manufacturing
practices and technologies but also encourages their adoption across other sectors.
Furthermore, it has been instrumental in advancing sustainable manufacturing, promoting
energy-efficient processes, and leading the transition toward a circular economy.
One of the most significant transformations in the global manufacturing landscape is the
increasing interdependence between the automotive industry and advanced sectors such as
electronics, semiconductors, and artificial intelligence. The global automotive industry is also
deeply connected to broader sectors, including steel, textiles, leather, rubber, plastics, glass,
electronics, and IT, making it one of the largest consumers of these industrial products.
Currently, the automotive sector is undergoing a major transformation, shifting from
conventional automobiles to electric vehicles (EVs) equipped with next-generation
technological features such as Advanced Driver Assistance Systems (ADAS), the Internet
of Things (IoT), and Autonomous Driving (AD). With the integration of these cutting-edge
technologies, the cost of semiconductor chips per vehicle is projected to double, rising from
$600 to $1,200 by 2030.
The global automotive component market was valued at approximately $2 trillion in 2022,
underscoring its critical role within the global automotive industry. Of this, around 30%—or
$700 billion—constitutes the traded automotive component market. Over the past five years,
the automotive sector has maintained steady growth of 4–6%, driven by rising consumer
demand and growing interest in automobile ownership.
Despite being the world’s fourth-largest automobile producer—following China, the U.S., and
Japan—India holds only a minimal 3% (~$20 billion) share in the global automotive component
traded market. This highlights India’s limited participation in global auto component trade.
Breaking down the global traded market, engine and engine components, along with drive
transmission and steering systems, account for 60% of total trade in auto components. India’s
share in these critical, high-precision segments remains relatively low at 2–4%. Given the
stringent quality and precision requirements for these components, India’s limited presence
indicates a gap in competitiveness.
India currently exports auto components worth approximately $20 billion while importing a
similar value, resulting in a near-neutral trade ratio of 0.99. This balance suggests that India’s
automotive component trade remains largely self-contained, with exports and imports nearly
offsetting each other.
India’s automotive component manufacturing sector faces a cumulative cost disability of
nearly 10% compared to China, making it less competitive in the global market. Additionally,
there is an extra cost disadvantage of approximately 20% on equipment (capital goods) AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS ix
required for component manufacturing. One of the key factors contributing to this cost gap
is material cost disability. China benefits from a well-integrated supply chain, spanning from
raw minerals to high-value-added products, whereas India lacks such depth in its supply
ecosystem. Furthermore, depreciation policies add to India’s cost disadvantage. India has a
100% depreciation rate compared to China’s 50%, leading to an additional ~3.4% cost burden.
Additional cost disabilities also arise from higher tax and financing costs, further reducing
India’s competitiveness.
Despite advantages in areas like labor, fuel, and power costs, these structural inefficiencies
make India a less attractive investment destination for automotive component manufacturing,
limiting its ability to compete globally. Complete details of fiscal disability for Automotive
manufacturing are given in the report.
This report envisions India advancing to approximately $145 billion in automotive component
production by 2030, with auto component exports expected to triple from $20 billion to $60
billion during this period. This growth would position India as a formidable player in global
markets, achieving a trade surplus of ~$25 billion and increasing its share in the global value
chain (GVC) of auto components from 3% to 8%. Such progress is projected to generate 2–2.5
million additional large-scale employment opportunities, bringing the total direct employment
in the sector to 3–4 million people. However, realizing this ambitious vision will require strategic
and focused policy initiatives to enhance competitiveness, improve infrastructure, and attract
investment in high-value automotive manufacturing.
This report outlines a comprehensive set of interventions across multiple domains to achieve
the envisioned growth in India’s automotive component industry. Components have been
prioritized based on their maturity and complexity in manufacturing and development,
ensuring a targeted approach to expansion across both the Conventional and Complex
segment and the Emerging and Complex segment. The recommended fiscal interventions
include operational expenditure (Opex) support to scale up manufacturing, with a special
focus on capital expenditure (Capex) assistance for the development of tools and dies, IP
transfer and Branding support which are crucial for automotive component manufacturing.
Cluster development is also emphasized to strengthen supply chains, reduce logistics costs,
and establish common R&D and testing facilities, thereby accelerating product development.
Additionally, skill development initiatives are highlighted to ensure a steady pipeline of talent,
which is essential for driving sectoral growth. On the non-fiscal front, the report suggests
interventions such as business improvement support to enhance global competitiveness,
encouragement of joint ventures (JVs) and free trade agreements (FTAs) to foster international
collaboration and market access, adoption of Industry 4.0 and enhanced quality standards
to improve manufacturing efficiency initiatives to position India as a key global player in the
automotive component sector. These policy measures, if effectively implemented, will be
crucial in enabling India to scale up its automotive component production, increase exports,
and strengthen its standing in global markets.
Timely and effective implementation of the recommended reforms and initiatives presents a
promising and powerful pathway for India to enhance its global value chain (GVC) salience in
the automotive sector. This, in turn, will drive accelerated economic growth, income generation,
and job creation, while strengthening the supply chain ecosystem and ancillary industries.
Additionally, it will create opportunities for skill and knowledge advancement, positioning
India as a globally recognized supplier of high-quality, technologically advanced products. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS x AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS xi AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS xii AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS xiii INTRODUCTION AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 2
1.1 GLOBAL MANUFACTURING LANDSCAPE
The global landscape of automobile manufacturing has undergone a remarkable
transformation over the past two centuries, shaped by profound technological
advances and shifts in economic and social patterns.
In the 19th century, the birth of the automobile industry was marked by the invention
of the Benz Patent-Motorwagen, constructed in 1885 by the German innovator Karl
Benz. This three-wheeled, two-seater vehicle, powered by a four-stroke, single-
cylinder engine, was patented in 1886 and stands as the world’s first automobile
powered by an internal combustion engine. The advent of this machine not only
signalled a new era of personal transport but laid the foundational stone for an
industry that would come to revolutionize global manufacturing, trade, and mobility.
As the 20th century dawned, the early automobiles were handmade, luxurious
commodities, available only to the wealthiest few. It was the visionary approach of
Henry Ford, and his introduction of the assembly line in 1913, that democratized the
automobile. Ford’s Model-T became emblematic of this shift, as the assembly line
reduced production time from over 12 hours to merely 90 minutes, reducing costs
and making cars affordable to the burgeoning middle class. This method of mass
production soon became a template for industrial manufacturing across the globe.
The rise of industry giants like General Motors and Chrysler in the United States,
Rolls-Royce and Fiat in Europe, and Nissan and Toyota in Japan diversified and
expanded the automobile industry to different corners of the world.
In the post-World War II period, the focus shifted toward operational efficiency
and quality, with pioneering practices like Total Quality Management (TQM), Toyota
Production System (TPS), Lean Manufacturing, and Six Sigma becoming central
tenets of production. These innovations led to enhanced process flows, minimized
lead times, and significant cost savings, as they were widely adopted across the
global manufacturing sector. These transformative approaches to production not
only improved operational efficiency but also played a crucial role in evolving the
concept of Tier 1, Tier 2, and Tier 3 suppliers.
The 21st century heralds a new frontier for the automotive industry, defined by
the advent of Electric Vehicles (EVs) and the increasing integration of Artificial
Intelligence (AI) and digital technologies. In response to shifting market demands and
the rising global emphasis on sustainability, traditional automakers and component
manufacturers have begun transitioning from internal combustion engine vehicles to
electric-powered alternatives. Investment strategies have evolved, with significant
resources redirected toward advanced technologies, ensuring the industry remains
at the forefront of innovation.
This evolution is part of a broader global shift in automobile manufacturing.
Historically dominated by mature economies such as the United States, Germany,
and Japan, the sector has witnessed a notable shift towards emerging markets,
driven by evolving global economic patterns, labour costs, and growing consumer
markets. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 3
In 2023, global automobile production of cars and commercial vehicles, reached
around 94 million units, rebounding from the disruptions caused by the COVID-19
pandemic. The industry’s resilience is evident in its recovery, driven by pent-up
demand, changing consumer preferences, and the rapid adoption of EVs.
China is the world’s largest automobile producer, manufacturing over 30 million
units of car and commercial vehicles in 2023, accounting for approximately 30% of
global production. Its strategy encompasses both domestic consumption and an
expansive global footprint. Leading domestic companies like BYD and Geely have
aggressively pursued the EV market, supported by strong governmental incentives,
infrastructure growth, and technological advancements. China also dominates the
global EV market, with sales exceeding 8 million units in 2023.
The United States, producing over 10 million automobiles (Cars and Commercial
vehicles), remains the second largest player, blending the legacy of giants like
General Motors and Ford with the rise of new entrants such as Tesla. Detroit,
once synonymous with U.S. automobile production, remains a manufacturing hub,
although production has shifted toward southern states and Mexico, driven by lower
labour costs and favourable trade agreements.
Japan, the third-largest automobile producer, manufactured nearly 9 million car
and commercial vehicles in 2023. Known for its innovation in fuel-efficient and
hybrid technologies, Japanese automakers like Toyota and Honda emphasize
kaizen (continuous improvement) and lean manufacturing, hallmarks of the Toyota
Production System. Despite a mature domestic market, Japan’s export-driven
automobile industry remains vital, with over 4 million vehicles exported annually,
particularly to North America and Europe.
South Korea, well known for technological advancements and R&D in automotive
industry, has a presence of major players like Hyundai and Kia. The country produced
over 4 million automobiles (Cars and Commercial) in 2023, witnessing a 13% growth
in production as compared to previous year.
Germany, renowned for luxury brands such as BMW, Mercedes-Benz, and Audi,
produces over 4 million automobiles annually. The German automotive sector,
contributing 5% to the nation’s GDP, is deeply integrated with advanced technologies
like automation and robotics. Germany’s focus on luxury and innovation, especially
in electric and autonomous driving technologies, ensures its continued relevance in
the global market, bolstered by its role as a central hub in the European automotive
supply chain, with components sourced from neighbouring countries in Eastern
Europe.
Meanwhile, India has emerged as a prominent player, ranking fourth globally with
an annual production of nearly 6 million automobile units. Indian companies such as
Maruti, Tata Motors, and Mahindra & Mahindra have established significant domestic
and export markets, especially in the small car and utility vehicle segments. Supported
by government initiatives like ‘Make in India’ and a cost-competitive workforce, India
is positioning itself as a global automotive manufacturing and export hub. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 4
1.1.1 REGIONAL SHIFTS AND THE RISE OF EMERGING MARKETS
Over the last two decades, a significant shift has occurred in global automotive
production from established industrialized economies to emerging markets.
Several factors have contributed to this rebalancing.
Cost dynamics have been a major driver, as labour costs in traditional automotive
hubs such as Western Europe and North America are significantly higher than in
emerging economies like China, India, and Mexico. This cost differential has led to
the relocation of many manufacturing facilities to lower-cost regions. For instance,
Mexico has become a critical player in North American automotive manufacturing
due to its proximity to the U.S. market, competitive labour costs, and favourable
trade policies under the United States-Mexico-Canada (USMCA) agreement. In
2023, Mexico produced approximately 4 million vehicles, with most of its output
destined for export.
Additionally, the proximity to growing markets in emerging economies not only
provides lower-cost labour but also represent rapidly expanding consumer
markets. The middle-class population in countries such as China and India have
surged, leading to greater demand for automobiles. By establishing production
facilities in these regions, global automakers can cater to local demand while also
avail the advantage of low-cost manufacturing.
Complementing these economic and market dynamics are government policies
and incentives that actively support the automotive sector in many emerging
markets. In China, for example, the government has played a pivotal role in shaping
the domestic EV market by offering substantial subsidies for EV purchases and
investing heavily in charging infrastructure. Similarly, India’s Production-Linked
Incentive (PLI) and Faster Adoption and Manufacturing of Hybrid and Electric
Vehicles (FAME) scheme aim to attract significant investment in automotive
manufacturing, particularly in electric vehicle and Plug-in Hybrid Electric Vehicles
(PHEV) segments.
1.1.2 ELECTRIC VEHICLE (EV) REVOLUTION AND ITS IMPACT ON
MANUFACTURING
The rise of electric vehicles is one of the most significant trends reshaping the
global automobile manufacturing landscape. EV sales have grown exponentially,
driven by consumer demand for sustainable mobility, regulatory pressure to
reduce carbon emissions, and technological advancements in battery technology.
China leads the world in EV production, accounting for over 50% of global EV
sales in 2022. Chinese companies such as BYD, Nio, and Xpeng have become
global leaders in the EV space, challenging established players in Europe and
North America. China’s dominance in the EV market is also supported by its
control over the global supply chain for lithium-ion batteries, with Chinese firms
like CATL being the largest battery manufacturers globally. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 5
Europe has also made significant strides in EV adoption. The European Union’s
stringent carbon emission targets and regulatory frameworks have pushed
traditional automakers such as Volkswagen, BMW, and Renault to accelerate their
transition to EV production. In 2022, EVs made up nearly 25% of all vehicle sales
in Europe, with countries like Norway and the Netherlands leading the charge.
The U.S., led by Tesla, is also witnessing rapid growth in EV production. Tesla’s
gigafactories in Nevada and Texas serve as models of high-tech, scalable EV
production. Moreover, the U.S. government’s Inflation Reduction Act (2022) and
the Chips Act (2022) has introduced significant incentives for EV production
and purchases, aimed at reducing dependence on fossil fuels and encouraging
domestic manufacturing of EV components such as batteries and semiconductors.
The rise of EVs has also led to the creation of new manufacturing hubs, particularly
for battery production. Gigafactories for battery manufacturing are being
established in regions such as China, Europe, and the U.S., driving investments in
related industries like mining for lithium and cobalt, which are critical for EV battery
production. These developments are altering traditional automotive supply chains
and creating new opportunities for collaboration and competition globally.
1.1.3 THE SHIFT TO ADVANCED MANUFACTURING
The automotive industry is at the forefront of the Industry 4.0 revolution, which
integrates advanced technologies like Artificial Intelligence (AI), Machine Learning
(ML), Additive Manufacturing, the Internet of Things (IoT), and robotics into
manufacturing processes. This shift is enhancing productivity, reducing costs, and
increasing the flexibility of production lines to cater to the growing diversity of
vehicle models, particularly with the rise of EVs and autonomous vehicles. South
Korea is a leader in adoption of automation and robotics and has deployed 1012
robots per 10,000 employees in 2022. Following are Singapore and Germany with
730 and 415 robots per 10,000 employees
1
. German manufacturers employ high
levels of automation and robotics in their production processes. Germany is a
leader in adopting Industry 4.0 practices in automotive manufacturing. Japanese
automotive plants are renowned for their use of just-in-time production and lean
manufacturing techniques, which have been further enhanced by the integration
of AI and predictive analytics. Toyota, for instance, uses advanced AI systems to
optimize its supply chain and manufacturing efficiency.
This digital transformation is not only limited to manufacturing processes but also
extends to smart factories and connected vehicles, creating new business models
and ecosystems within the global automotive sector.
1.2 ROLE OF THE AUTOMOTIVE SECTOR IN TRANSFORMING
GLOBAL MANUFACTURING
The automotive sector has long been a catalyst for industrial transformation and
innovation, driving advancements in manufacturing technologies that are now integral
to various other industries. Over the last few decades, the sector has pioneered
1 https://www.therobotreport.com/ifr-world-sets-record-for-operational-robots-in-2022/ AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 6
the adoption of cutting-edge practices, such as robotics, automation, artificial
intelligence, and digitalization. This transformation has been pivotal in enhancing
production efficiency, reducing costs, and enabling the mass customization of
products. The integration of Industry 4.0 technologies has positioned the automotive
industry at the heart of a new era of global manufacturing, reshaping supply chains
and fostering cross-sectoral linkages.
1.2.1 TECHNOLOGY ADOPTION IN THE AUTOMOTIVE INDUSTRY
The automotive sector has led the way in adopting automation and robotics,
driven by the need for precision, speed, and cost-efficiency in mass production.
The sector’s complex production processes and high volumes of output have
necessitated significant investment in automation technologies to ensure
consistency and minimize errors.
• Robot Density: According to the data published by International Federation
of Robotics (IFR), South Korea, Singapore and Germany, which are pioneer
in manufacturing, robot density in these countries are highest in the world. In
automotive manufacturing, robot density is significantly higher than in other
industries. It is one of the highly automated sectors globally. Particularly in
automotive industry, South Korea leads with a robot density of 2,867 robots
per 10,000 employees. Germany, the United States, Japan, and China follow
with densities of 1,500, 1,457, 1,422, and 772 robots per 10,000 employees,
respectively.
2
The extensive use of robotics helps manufacturers achieve high-
quality standards and scale production, especially for premium and high-tech
vehicles like electric cars.
• Automation and AI: Artificial intelligence and machine learning are transforming
automotive manufacturing by optimizing production lines, reducing downtime,
and predicting potential equipment failures. AI-driven predictive maintenance
systems are increasingly common in modern automotive factories, helping to
avoid costly disruptions. For example, BMW employs AI to monitor production
machinery, ensuring smooth operations and improving the overall efficiency
of its plants.
• Digital Twins and IoT: Another transformative innovation in automotive
manufacturing is the use of digital twins—virtual models of physical assets that
allow manufacturers to simulate, monitor, and optimize production processes
in real-time. Coupled with the Internet of Things, digital twins enhance
flexibility and reduce lead times. Toyota has employed digital twins to create
highly efficient production processes, integrating IoT sensors to provide real-
time data on machine performance and inventory management.
1.2.2 INDUSTRY 4.0 AND THE FUTURE OF AUTOMOTIVE
MANUFACTURING
The ongoing transformation of the automotive sector is closely linked to the
Industry 4.0 revolution, which integrates cyber-physical systems, big data,
2 https://ifr.org/news/one-million-robots-work-in-car-industry-worldwide-new-record AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 7
cloud computing, and automation into manufacturing processes. Automotive
manufacturing is now at the forefront of smart manufacturing, with companies
leveraging these technologies to enhance operational efficiency, improve product
quality, and reduce production costs.
• Smart Factories: Many global automakers are investing heavily in creating
smart factories, where AI, IoT, and robotics are integrated into every aspect
of the production process. Audi’s factory in Ingolstadt, Germany, serves as an
exemplar of a smart factory, where vehicles are produced with minimal human
intervention, and production lines are highly flexible, capable of producing
different models simultaneously based on real-time demand.
• Additive Manufacturing: Also known as 3D printing, additive manufacturing
is revolutionizing automotive production by enabling the creation of complex
components with reduced material waste. Ford and BMW are leading users of
3D printing technology, using it to produce everything from prototype parts
to components for final assembly. The ability to quickly and cost-effectively
produce bespoke parts is reducing development times and enabling greater
customization.
• Big Data and Analytics: Automakers are utilizing big data analytics to optimize
their supply chains, improve production efficiency, and enhance product
quality. By analysing vast amounts of data from sensors, connected vehicles,
and production lines, companies can identify patterns and make data-driven
decisions. For example, Toyota uses big data to predict maintenance needs
and optimize its just-in-time production processes.
1.2.3 SUSTAINABILITY AND CIRCULAR ECONOMY PRACTICES
The automotive industry has also been a key player in driving the shift toward more
sustainable manufacturing practices. The sector’s environmental impact, including
emissions from production and end-of-life vehicle disposal, has prompted significant
efforts to reduce carbon footprints and embrace circular economy models.
• Energy Efficiency: Automakers are increasingly integrating renewable energy
sources into their production processes. For instance, by 2030, Volkswagen
has aimed 100% of the external electricity purchases by all sites is to come
from carbon neutral sources, aligning its operations with global efforts to
mitigate climate change.
• Circular Economy: The sector is at the forefront of the circular economy,
focusing on minimizing waste, promoting the reuse and recycling of materials,
and developing closed-loop systems. For example, BMW has implemented
a comprehensive recycling program for its electric vehicle (EV) batteries,
ensuring that valuable raw materials such as lithium, cobalt, and nickel are
recovered and reused in new battery production. This not only reduces
environmental impact but also addresses the growing concern over raw
material shortages for EV production. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 8
• Sustainable Manufacturing: Automakers are increasingly employing green
manufacturing practices, such as using lightweight materials (e.g., aluminium,
high-strength steel, and carbon fibre) to reduce vehicle weight and improve
fuel efficiency. These materials are produced using less energy-intensive
processes, thus reducing overall emissions. For example, Ford has committed
to reducing the carbon footprint (Scope 1 & Scope 2 Carbon emissions) from
its operations by 76% by 2035.
1.2.4 LINKAGES WITH OTHER SECTORS: ELECTRONICS, AI, AND
SEMICONDUCTORS
One of the most significant transformations in the global manufacturing
landscape is the growing interdependence between the automotive industry and
other advanced sectors, particularly electronics, semiconductors, and artificial
intelligence.
• Semiconductors and Electronics: The shift towards electric and autonomous
vehicles has vastly increased the reliance of the automotive industry on
semiconductor chips. Advanced vehicles today are equipped with complex
electronic systems that control everything from engine performance and
safety features to infotainment and connectivity. The global semiconductor
shortage that began in 2020 underscored the critical role of semiconductors
in automotive manufacturing, with many automakers forced to halt production
due to the scarcity of chips. To address these vulnerabilities, companies like
Tesla and Ford have begun to secure direct partnerships with semiconductor
manufacturers, while others, like Toyota, have opted for a “just-in-case” supply
chain strategy, stockpiling key components.
• Artificial Intelligence and Autonomous Vehicles: AI is also reshaping the
sector by enabling the development of autonomous driving technologies.
Companies like Waymo, Tesla, and NVIDIA are pioneering advancements in AI-
based systems that allow vehicles to operate with minimal human intervention.
The implications for manufacturing are profound, as AI-driven vehicle
production will require increasingly sophisticated electronic components and
software, driving further collaboration between the automotive, electronics,
and AI sectors.
• Battery Technology: The rise of electric vehicles has also led to significant
innovations in battery technology. The automotive sector has emerged as
a key driver of advancements in lithium-ion batteries, which are now widely
used not only in vehicles but also in other industries such as consumer
electronics and energy storage. Countries like China have positioned
themselves as global leaders in battery production, with companies like
CATL (Contemporary Amperex Technology Co. Ltd.) supplying batteries to
automakers across the globe. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 9
1.3 ROLE OF THE AUTOMOTIVE INDUSTRY IN INDIAN
MANUFACTURING SECTOR
India’s automobile sector is a cornerstone of its manufacturing ecosystem, playing a
crucial role in the country’s economic growth and industrial development. As one of
the largest automotive markets in the world, India’s automobile industry contributes
nearly 7.1% to the national GDP and accounts for nearly 49% of the country’s
manufacturing GDP
3
. This contribution underscores the sector’s importance as a
driver of industrial output, employment, and technological advancement in India.
1.3.1 AUTOMOTIVE PRODUCTION AND MARKET OVERVIEW
The Indian Auto industry produced over 28 million vehicles including Passenger
Vehicles, Commercial Vehicles, Three Wheelers, Two Wheelers, and Quadricycles
in April 2023 to March 2024, making it the fourth-largest automobile producer
globally, following China, the United States and Japan. The sector encompasses
a broad spectrum of vehicles, including passenger cars, commercial vehicles,
two-wheelers, and three-wheelers, catering to both domestic consumption and
exports. The industry is dominated by a few key players which together control a
significant portion of the domestic passenger vehicle market.
• Car and Commercial Vehicles segment: In 2023-24, the Indian Automobile
market saw the production of nearly 6 million units, driven by rising demand
from the middle-class and improved affordability of vehicles. Leading
companies such as Maruti Suzuki, Tata Motors and Mahindra & Mahindra remain
prominent in this segment and have made significant inroads with their strong
portfolios of electric vehicles (EVs), and utility vehicles. On the commercial
vehicle front, companies like Ashok Leyland and Tata Motors dominate the
market. Commercial vehicles are critical to India’s infrastructure and logistics
sectors, playing a key role in freight transportation across the country’s vast
road network.
• Two-Wheeler and other Segments: India is the world’s largest producer of
two-wheelers, with over 21 million units produced annually in 2023- 24. Three-
wheelers and quadricycles have also experienced production growth, with
nearly 1 million units being produced. This rise reflects the growing demand for
compact, efficient transportation solutions, particularly in emerging markets
where these vehicles are popular for urban mobility.
1.3.2 GOVERNMENT INITIATIVES SUPPORTING THE AUTOMOTIVE
SECTOR
The Indian government has been instrumental in shaping the growth trajectory of
the automobile sector through several policy initiatives aimed at enhancing the
country’s manufacturing capabilities and positioning it as a global automotive
hub. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 10
Make in India Launched in 2014, the Make in India initiative has provided
a significant boost to the country’s manufacturing sector,
particularly in automobiles. This policy promotes domestic
manufacturing, reduces reliance on imports, and encourages
foreign direct investment.
Atmanirbhar
Bharat:
The Atmanirbhar Bharat initiative aims to foster self-sufficiency
in manufacturing and reduce the country’s dependence on
foreign components. In the automotive sector, this has resulted
in increased domestic production of critical components such
as engines, transmissions, and EV batteries. The government
has also extended support to start-ups and small and medium
enterprises (SMEs) in the automotive space, helping them
integrate into global supply chains.
FAME India
Scheme phase-I
The Faster Adoption and Manufacturing of Hybrid and Electric
Vehicles (FAME) India scheme was launched in 2015 to promote
adoption of electric/ hybrid vehicles (HEVs) in India. The
Phase-1 of the scheme was available up to 31st March, 2019 with
budget outlay of Rs 895 Cr. This phase had four focus areas i.e.,
technological development, demand generation, pilot project
and charging infrastructure components.
FAME-India
Scheme phase-
II
The scheme implemented on pan India basis for a period of five
years commencing from 1st April, 2019 with an outlay of INR 10,000
Crore which was further enhanced to INR 11,500 Crore. This scheme
mainly focuses on supporting electrification of public & shared
transportation, and aims to support the industry through demand
incentive e-vehicles including e-buses. In addition, creation of
charging infrastructure is also supported under the Scheme.
PM E-DRIVE
Scheme
The PM Electric Drive Revolution in Innovative Vehicle
Enhancement scheme has a financial outlay of INR 10,900
crore. Effective from October 1, 2024 until March 31, 2026. Its
primary aim is to accelerate the adoption of electric vehicles
(EVs), establish charging infrastructure, and build a robust EV
manufacturing ecosystem in the country.
The PM E-DRIVE scheme aims to incentivize approximately
24.79 lakh electric two-wheelers (e-2Ws) and around 3.2 lakh
electric three-wheelers. A budget of INR 500 crore each has
been allocated for deploying e-ambulances and to incentivize
the use of e-trucks. A total of INR 4,391 crore is allocated for
the procurement of 14,028 electric buses by State Transport
Undertakings (STUs)/public transport agencies. The total outlay
for charging infrastructure under the scheme is INR 2,000 crores. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 11
PLI scheme The Production-Linked Incentive (PLI) scheme for the automotive
sector, introduced in 2021, aims to boost domestic manufacturing
of advanced automotive technologies. The scheme has a budget
of INR 25,938 crore ($ 3.5 Bn) and is focused on encouraging
the production of EV components, hydrogen fuel cells, and
other advanced automotive technologies in India. This initiative
is expected to generate significant investments and foster
technological innovations in the sector.
PLI scheme
for (Advanced
Chemistry Cell)
ACC Battery
Storage
With a budget outlay of INR 18,100 crores, introduced in 2021, this
scheme envisages to enhance India’s manufacturing capabilities of
Advanced Chemistry Cell (ACC) by setting up of Giga scale ACC
and battery manufacturing facilities in India with emphasis on
maximum domestic value addition. Beneficiary firm must ensure at
least 25% domestic value addition and raise it to 60% within 5 years.
1.3.3 EMERGING TRENDS IN INDIAN AUTOMOTIVE
MANUFACTURING
India’s automotive sector is undergoing a transformation, shaped by evolving
consumer preferences, technological advancements, and sustainability goals. The
rise of electric vehicles (EVs), coupled with innovations in autonomous driving
and connected vehicles, is pushing Indian manufacturers to rethink their strategies
and invest heavily in research and development (R&D).
• Electric Vehicles: With the government’s emphasis on electric mobility, the
Indian automotive industry is increasingly shifting toward the production of
EVs. Companies are also investing in the development of battery technologies
and charging infrastructure. The EV market is expected to grow at a compound
annual growth rate (CAGR) of over 23%
4
in the coming decade, with significant
contributions from start-ups and global partnerships.
• Autonomous and Connected Vehicles: India is also making strides in the
development of autonomous and connected vehicles, with significant
investments from both domestic and global companies. Some Indian software
companies are collaborating with global automakers to develop software
solutions for autonomous driving and connected vehicles, further positioning
India as a hub for automotive software development.
1.4 INTERCONNECTEDNESS OF INDIAN AUTOMOTIVE SECTOR
WITH OTHER INDUSTRIES
The Indian automotive sector is deeply interconnected with various parts of the
broader economy, creating strong backward and forward linkages that drive
demand for raw materials, components, and services across multiple industries.
These linkages extend to key sectors such as steel, rubber, glass, electronics,
information technology etc. making the automotive industry a critical component
4 https://economictimes.indiatimes.com/industry/renewables/with-23-cagr-global-ev-market-to-
soar-to-usd-2108-billion-by-2033-report/articleshow/113763420.cms?from=mdr AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 12
of India’s industrial value chain. Some of the industries or sectors that highlight this
interdependence are:
1. Steel: The automotive sector is a major consumer of steel in India, accounting for
approximately 15% of the country’s total steel production. Automakers rely heavily
on high-strength steel for vehicle body structures, engines, and other components.
Leading Indian steel companies such as Tata Steel and JSW Steel have established
long-term partnerships with automakers, ensuring the steady supply of advanced
steel products required for vehicle manufacturing. As the demand for lightweight
vehicles grows, steel manufacturers are also focusing on developing new grades of
high-strength steel that are both durable and lightweight.
2. Rubber and Plastics: The Indian automotive sector drives significant demand
for rubber and plastics, particularly for the production of tires, hoses, seals,
and other components. India is one of the world’s largest producers of natural
rubber, with the automotive industry consuming nearly 50% of the country’s
rubber production. Companies like MRF, Apollo Tyres, and JK Tyre are major
suppliers of tires to both domestic and global markets. In the plastics sector,
automakers are increasingly using lightweight polymer materials to improve
vehicle fuel efficiency and reduce manufacturing costs.
3. Glass: The automotive sector is a key consumer of automotive glass for
windshields, windows, and mirrors. Companies such as Asahi India Glass and
Saint-Gobain supply the Indian automobile industry with high-performance
glass that meets stringent safety and quality standards. The growing demand
for advanced driver-assistance systems and smart glass technologies is further
boosting innovation in this sector.
4. Electronics: The increasing integration of electronics into vehicles, particularly in
EVs and autonomous cars, has strengthened the linkage between the automotive
and electronics industries. Semiconductors, sensors, and microcontrollers are critical
components for modern vehicles, enabling everything from engine control units
to advanced infotainment systems. India’s burgeoning electronics manufacturing
industry is playing an essential role in supplying these components to automakers.
As part of the PLI scheme for electronics, the government is encouraging the
domestic production of automotive electronics, reducing dependence on imports.
5. IT Sector: India’s thriving information technology sector plays a pivotal role in the
design and development of software for autonomous driving, connected vehicles,
and in-car infotainment systems. Companies like Tata Consultancy Services,
Infosys, and Wipro are global leaders in providing IT solutions to automotive
giants. These companies are collaborating with automakers to develop systems
for vehicle-to-vehicle and vehicle-to-infrastructure communication, as well as
cyber security solutions for connected cars. The IT sector’s contribution to the
automotive industry has positioned India as a hub for automotive software
development and engineering services.
6. Textiles and leather Sector: Textile and leather are extensively used in automotive
industry. Its application ranges from airbag cushion for safety purpose to seat
covers, steering wheel, floor mats for enhancing the visual appearance of the
interior. Textiles and leather are predominantly used for interior applications
such as floor covering, seat covers, interior trims, seatbelts, airbag and filters. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 13
1.5 AUTO SYSTEM OVERVIEW
The below diagram illustrates the distinct components in automobile manufacturing.
Figure - 1.1 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 14 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 15 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 16 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 17
INDIA’S AUTOMOTIVE INDUSTRY
AND ITS POSITIONING IN
AUTOMOTIVE GVC AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 18
2.1 HISTORICAL EVOLUTION AND MARKET OVERVIEW OF THE
INDIAN AUTOMOTIVE INDUSTRY
India’s automotive journey started in 1942 after Hindustan Motors (HM) was
established. In 1948, HM produced its first car which was assembled in India under the
brand name Hindustan 10 (based on the 1947 Morris 10 Series M), which later evolved
into Hindustan Ambassador. At that time, most of the automotive components
that were needed to assemble the car were imported from UK. As the demand
for the automobile was increasing, the government pushed for the localization of
components and in the 1950s and 1960s, various local players including Bharat
Forge, TVS, and Sundaram entered the Indian automotive market. At that time, the
focused customers were upper and high-income segment of the population.
Representation of Automobile: An Ambassador Car
In 1981, Maruti Udyog Limited was established and produced their first car Maruti 800
in 1983 which was often referred to as “People’s car” as it was affordable, reliable,
and economical with a low service cost requirement. Maruti also started exporting
their cars to neighbouring countries like Sri Lanka, Nepal and many others.
Until 1991, the Indian market was a protected market. As a result of which, the Indian
economy was not performing well as India’s economic access was limited to global
players and investing in India was a herculean task. In 1991, the Government introduced
Liberalization, Privatization and Globalization (LPG) reforms to liberalize and open
up the Indian economy to foreign investors. As a result, various global automotive
players like Hyundai, Daimler-Benz, Toyota, Honda, Renault, Volkswagen, Ford and
many others entered the Indian market with the collaboration of Indian Industries to AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 19
set up their production plants and start their operations in India. During April 2000
to June 2024, India’s automobile sector attracted a cumulative equity FDI inflow of
approximately $ 36.26 billion representing 5.27% of the total equity FDI inflows into
the country during this period.
In the early 21st century, the Indian automotive industry saw rapid growth expansion.
Rise in middle-class income, urbanization and improved infrastructure fuelled
the domestic demand for passenger vehicles. As the world is moving towards
faster adoption of EVs, the Indian government introduced several schemes in
the last decade such as Production Linked Incentives (PLI), Faster Adoption and
Manufacturing of Hybrid and Electric Vehicles (FAME), PM E-DRIVE etc. to boost
the automotive sector, especially the EV sector.
Currently ranked as the fourth-largest automotive market globally, the Indian
automotive sector contributes 7.1% to the nation’s GDP. With a population exceeding
1.4 billion, India holds immense potential, supported by a current market size of
over $100 billion. The rapid pace of urbanization, coupled with rising disposable
incomes and a burgeoning middle class, has further fuelled the demand. Benefiting
from both a vast domestic consumer base and competitive manufacturing costs,
India emerges as a compelling destination for global automotive investors seeking
strategic opportunities.
2.1.1 AUTOMOTIVE MARKET AND GVC
Global Value Chains (GVC) refers to a phenomenon where production is broken
into activities and tasks carried out in different countries. In GVC, the operations
are spread across national borders instead of being confined to one location and
hence, a single finished product often results from manufacturing and assembly in
multiple countries, with each step in the process adding value to the end product.
The global auto component market was estimated to be around $ 2 trillion in
2022, which reflects the importance of the sector within the global automotive
industry. Over the past five years, the market has consistently expanded at a
steady annual growth rate of 4-6%. This consistent growth reflects the strong
demand for automotive components in the global market and underscores the
critical role automotive components play in supporting the larger automotive
ecosystem, which includes both traditional Internal Combustion Engine (ICE)
vehicles and the rapidly emerging Electric Vehicle (EV) segment.
The largest segment in the global automotive trade is Engine and Engine
Components, accounting for approximately 23% of the total traded value. Close
behind are Drive Transmission and Steering Components, which comprise 17% of
the market value. Suspension and braking systems, now incorporating advanced
technologies such as Advanced Driver Assistance Systems (ADAS), Autonomous
Driving (AD), Hill Hold, and Traction Control systems, are becoming increasingly
complex and represent 7% of the market. The relatively smaller market share of
cooling systems, at 5%, reflects the technological shift towards electric vehicles,
which typically demand less conventional cooling infrastructure compared to
internal combustion engines. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 20
Figure - 2.1
Approximately 70% of automotive components are produced domestically for
consumption within their respective markets, while a substantial 30% equivalent
to $700 billion—comprises the global export market. Of this traded value, Drive
Transmission and Steering components account for 38%, Engine and Engine
components contribute 22%, Suspension and Braking systems represent 9%, and
Cooling systems hold a 6% share.
Figure - 2.2 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 21
2.1.2 CONSUMPTION AND TRADE DYNAMICS OF MAJOR MARKETS
IN GLOBAL AUTOMOTIVE SECTOR
• China: China has a vast consumption market valued at approximately $810
billion, and in the calendar year 2022, its total automotive component
production was estimated at around $850 billion. Of this, nearly $740 billion
was absorbed by OEMs, while the aftermarket accounted for $70 billion.
China’s export of $70 billion worth of automotive components to the global
market underscores both the global dependency on Chinese components
and its dominant position in the global automotive industry. With imports
amounting to just $36 billion, China’s trade ratio of approximately 2 highlights
that it exports twice as much as it imports.
• USA: The United States holds the world’s second-largest automotive
consumption market, valued at approximately $356 billion. It exports around
$75 billion in automotive components but imports nearly $143 billion, yielding
a trade ratio of 0.5, indicating that U.S. imports are double of its exports.
• Japan: As the third-largest automotive consumption market globally, with an
estimated value of $228 billion, Japan exports approximately $52 billion in
automotive components while importing only $13 billion. This results in a trade
ratio of 4, highlighting that Japan exports four times of what it imports—a
reflection of its advanced manufacturing capabilities and emphasis on
innovation and continuous improvement.
• Germany: Renowned for its precision manufacturing and high-quality products,
Germany has a consumption market of around $96 billion. The country exports
approximately $93 billion in automotive components and imports $63 billion,
resulting in a trade ratio of 1.48.
• Mexico: With a consumption market of approximately $96 billion, similar to
Germany, Mexico exports about $51 billion in automotive components and
imports $44 billion, producing a trade ratio of 1.16.
• South Korea: Known for its advanced manufacturing technology and
semiconductor industry, South Korea has an automotive consumption market
valued at around $76 billion. It exports $26 billion in automotive components
while importing only $9 billion, leading to a trade ratio of 2.89.
• Poland: Situated in Eastern Europe, Poland has a relatively modest automotive
consumption market of around $8 billion. Despite this, it exports $26 billion
in automotive components and imports $16 billion, resulting in a trade ratio
of 1.63. This high ratio is driven by the lower manufacturing costs in Eastern
Europe and favourable free trade agreements.
• India: India accounts for merely 3% of the global automotive component market.
In 2022, the total value of India’s automotive and automotive component
industry was approximately $109 billion, with automotive components alone
valued at $70 billion. In 2022, India’s consumption of $70 billion was matched
by both imports and exports, each totalling $20 billion, resulting in a trade
ratio of 0.99, indicating that imports are almost equal to exports. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 22
Figure - 2.3 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 23
2.2 AUTO COMPONENT GVC AND INDIA’S TRADE SCENARIO
ACROSS COMPONENTS
2.2.1 ANALYSING AUTO COMPONENTS: GLOBAL SEGMENTATION
AND INDIA’S CONTRIBUTION
India’s automotive component exports are primarily directed toward North
America (34%), Europe (27%), and Asia (19%), with the United States as the
largest trading partner at approximately $3.5 billion (28%). Germany and Turkey
follow, contributing around $0.8 billion (7%) and $0.7 billion (5%), respectively. In
FY 2024, India’s total automotive component exports reached an estimated $12.8
billion, marking a substantial 72% growth from FY 2021.
Figure - 2.4
Source: Crisil Intelligence
On the import side, India sources 58% of its automotive components from Asia,
27% from Europe, and 9% from North America, with China as the primary supplier
at $2.8 billion (23%). Other significant suppliers include Germany (approximately
$1.6 billion, or 13%), South Korea ($1.3 billion, or 11%), Japan ($1.2 billion, or 10%),
and the United States ($1.0 billion, or 8%). In FY 2024, imports totalled about
$12.1 billion, growing ~80% compared to FY 2021. India’s reliance on imports,
particularly from China, underscores the urgent need for India to enhance its
domestic production capabilities to mitigate import dependency.
Share of Auto Components export by region / country, FY24 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 24
Figure - 2.5
Source: Crisil Intelligence
Figure - 2.6
India’s trade landscape is witnessing a promising trend, with exports outpacing
imports in recent years. Since FY19, the country’s exports have demonstrated a
robust growth trajectory, expanding at a compound annual growth rate (CAGR)
of approximately 7% as shown in Figure 2.4.
Share of Auto Components import by region / country, FY24 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 25
Figure - 2.7
In contrast, imports have grown at a relatively slower pace, with a CAGR of around
3% during the same period. This divergence underscores India’s improving trade
competitiveness and its increasing integration into global value chains. The share
of critical components in the Indian export basket has been on an upswing with
critical components (Engine and Transmission components) accounting for 65 %
of the total export basket in FY24 compared with 55% in FY14 which is explained
in the sections below.
2.2.1.1 Engine and Engine components AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 26
Engine is a machine which converts chemical energy (generated from fuel) into
mechanical energy. It is indeed the most important and crucial component of a
car that propels the vehicle, operates the vehicle and its various systems. While
Engine components consist of various parts that are designed to perform a
specific function in the operation of an Engine.
Engine and engine components are fundamental to both Internal Combustion
Engine (ICE) and Plug-In Hybrid Electric Vehicle (PHEV). In the global automotive
export market, the trade value of these components is approximately $150 billion,
representing a substantial 22% market share. Notably, 50% of the GVC for engine
and engine components is concentrated among 6 to 7 leading countries, with
Germany leading the pack, holding a significant 15% share of global exports.
India’s participation in this market is characterized by a balanced trade dynamic,
as the country imports and exports an equal share of 4%, approximately valued
at $6 billion of the total global automotive components trade.
The landscape of major exporters includes Germany (15%), USA (10%), China (8%),
Japan (8%), and Mexico (7%). In terms of imports, the United States remains the
largest importer at 20%, followed by Germany (9%), Mexico (5%), China (4%), and
India (4%). This equilibrium in trade reflects India’s strategic positioning, as it exports
4% of the estimated $150 billion global export flow in engine and engine components. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 27
Figure - 2.8
Engine and engine components can be further classified into several sub-
components, each with its own distinct market dynamics. The crankshaft and
camshaft segment, valued at approximately $9 billion, shows Germany, USA, and
China as major exporters, while the USA, China, and India are key importers. The
engine cylinder and cylinder heads market, with a total value of around $91 billion,
features Germany, USA, and China as leading exporters, while India contributes
a modest 2% to global exports and imports 4% of the traded value. The exhaust
system segment, valued at approximately $18 billion, shows Germany and China
as the primary exporters, with India holding a 1% share. In the fuel injection
system sector, also valued at $9 billion, India has a 3% export share, while the
USA dominates imports. Lastly, the piston and engine valve market, estimated
at $27 billion, sees India importing 3% and exporting 2% of the global trade.
This underscores the significance of engine and engine components within the
automotive value chain and highlights India’s evolving role in this critical sector.
AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 28Engine Components GVC Export Share
?Components
Engine Cylinder and Cylinder heads
Pistons and Engine Valve
Exhaust System
Fuel Injection System
Crankshaft and Camshaft
Figure - 2.9Engine Components GVC Import Share
?Components
Engine Cylinder and Cylinder heads
Pistons and Engine Valve
Exhaust System
Fuel Injection System
Crankshaft and Camshaft
Figure - 2.10
India’s competitiveness in Engine & components segment has been assessed by
evaluating its exports of engine components, the total world exports of engine
components, and the country’s overall export performance relative to the world to
determine relative competitiveness of India compared to other nations. Notably,
India’s global engine component competitiveness has shown a significant upward
trend, increasing from 0.5 in 2014 to 0.8 in 2023. This growth can be attributed to
the rising number of foreign collaborations, Global OEMs manufacturing in India,
increased localisation push by Automobile OEMs and the increasing proportion
of critical components in India’s exports over the past decade. To sustain and AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 29
further enhance this momentum, continued investment in boosting India’s
competitiveness is essential.
Figure - 2.11
Source: Crisil Intelligence
2.2.1.2 Drive Transmission and Steering
Drive Transmission usually refers to a system that transfers power generated from
engine to the wheels and allow the vehicle to move while Steering refers to the
system that provides direction to the vehicle and is crucial for vehicle handling.
Drive transmission and steering represent the largest segment in the global
automotive component trading market, with a substantial traded value of $270
billion, accounting for 38% market share. This highlights the critical role that
drives transmission and steering play within the automotive industry. The major
exporters in this segment include Germany (14%), the USA (12%), Japan (10%),
China (10%), Mexico (7%), and South Korea (4%). On the import side, the USA
leads with a 21% share, followed by Germany (9%), Mexico (7%), China (7%),
Canada (2%), and Brazil (2%). AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 30
Figure - 2.12
India’s position in this sector is negligible, as it exports 2% of the approximately
$270 billion global export trade and imports 1% of the global import trade,
indicating a trade surplus in the drive transmission and steering segment. The
components within this category are further fragmented and classified into
several sub-groups:
• Transmission GVC (~$29 billion): The primary exporters of transmission
components are Germany (19%), the USA (11%), Mexico (10%), Japan (9%), and
China (7%), with India holding a 2% share of the global export market. Major AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 31
importers include the USA (21%), Mexico (10%), Germany (10%), Canada (4%),
and China (4%), with India importing 1% of the total global transmission trade.
• Steering Components GVC (~$90 billion): Key exporters in this segment
are Germany (22%), Japan (18%), the USA (10%), Mexico (9%), and China
(6%), while India retains a 1% share of the global export market. The leading
importers are the USA (18%), China (13%), Germany (9%), Mexico (9%), and
Brazil (3%), with India importing 2% of the global steering components trade.
• Clutch GVC (~$12 billion): The major exporters of clutch components are
Germany (23%), China (10%), the USA (9%), Japan (8%), and Hungary (7%),
with India possessing a 1% market share in global clutch exports. The principal
importers include the USA (16%), Germany (10%), Mexico (9%), China (6%),
and Hungary (4%), while India imports 2% of the global clutch trade. ?Components
Transmission
Steering Components
Clutch
Drive Transmission and Steering Components GVC Export Share
Figure - 2.13 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 32?Components
Transmission
Steering Components
Clutch
Drive Transmission and Steering Components GVC Import Share
Figure - 2.14
The relative competitiveness of transmission component exports from India
has been on an upswing rising from 0.5 in 2014 to 1.1 in 2023. Notably, in 2022,
drive transmission and steering components accounted for a substantial 33%
of the country’s total auto component exports. Furthermore, India has made
considerable progress in reducing its reliance on imports, with the import share
declining dramatically from over 30% in FY21 to less than 10% in FY23. However,
certain segments such as engine components, body/chassis, and suspension/
braking systems continue to dominate the import landscape. The key drivers
behind this upswing in competitiveness in the transmission component market
can be attributed to a combination of factors, including government initiatives
for Auto sector, joint ventures with foreign players, foreign OEMs manufacturing
transmission systems in India, making India the export hub for certain technologies,
growing demand from global automotive hubs, and the expansion of Indian
automotive companies.
Figure 2.15
Source: Crisil Intelligence
2.2.1.3 Suspension and Braking GVC (~ $ 60 Billion)
Suspension refers to a system that connects the wheel with the upper body/
Chassis of the vehicle and is designed to absorbs the impact generated from AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 33the road, maintain contact of tyres with the ground and provides stability and
comfort during the ride while breaking refers to a system that works together
to slow down or stop the vehicle’s motion by converting the kinetic energy into
thermal energy by the use of friction.
7KHVXVSHQVLRQDQGEUDNLQJLQGXVWU\LVXQGHUJRLQJVLJQL?FDQWHYROXWLRQGULYHQ
by the rising demand for advanced features in vehicles. Within the global
automotive export market, the trade value of suspension and braking systems is
approximately $60 billion, representing a 9% market share. Major exporters in this
sector include China (15%), Mexico (11%), Germany (10%), the USA (9%), Poland
(5%), Japan (4%), and India (4%). On the import side, the USA stands out as the
largest importer, accounting for 23% of the market, followed by Germany (11%),
Mexico (7%), India (5%), and China (4%). AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 34
Figure - 2.16
India’s participation in this segment reveals a trade deficit, as the country exports
4% of the global export trade flow, while importing 5% of the total global trade.
The suspension and braking components can be further classified into two sub-
groups:
• Braking Parts GVC (~$37 billion): The leading exporters of braking parts are
China (22%), Germany (13%), the USA (7%), Italy (6%), and Japan (5%). India
holds a modest 2% market share in the global braking parts export market.
The major importers in this segment include the USA (21%), Germany (12%),
Mexico (8%), Canada (4%), and France (4%), with India importing 1% of the
total global trade in braking parts. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 35
• Suspension Parts GVC (~$23 billion): In the suspension parts sector, the
primary exporters are China (19%), Germany (16%), the USA (10%), Mexico
(10%), and Poland (5%), while India accounts for 1% of the global export
market. The major importers of suspension parts are the USA (25%), Germany
(11%), Mexico (9%), Canada (6%), and China (5%), with India also importing 1%
of the total global trade in suspension parts. Suspension and Braking Components GVC Export Share
?Components
Suspension parts
Braking Parts
Figure - 2.17 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 36Suspension and Braking Components GVC Import Share
?Components
Suspension parts
Braking Parts
Figure - 2.18
Figure - 2.19
Source: Crisil Intelligence
India’s suspension system has declined in competitiveness since 2004, lagging
countries like Poland and Turkey. The sector has also experienced a substantial
increase in imports of suspension and braking components, with a 19% CAGR
between FY19 and FY23. However, suspension systems account for only a 7%
share of the global automotive components market.
2.2.1.4 Cooling System GVC (~ $ 40 Billion)
Cooling system generally refers to a system that absorbs the heat generated from
the engine, transmission and cabin of the vehicle and dissipates the heat into the
atmosphere. Cooling system is used to manage the thermal regulation of critical
vehicle systems including engine, transmission and cabin and prevents the vehicle
from overheating, ensures vehicle performance and efficiency of the vehicle and
driver’s comfort. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 37
The global automotive export market for cooling systems is valued at approximately
$40 billion, capturing a market share of 6%. Major exporters in this segment
include China (12%), Germany (11%), the USA (10%), Mexico (7%), and the Czech
Republic (5%). On the import front, the USA is the largest importer, accounting
for 18%, followed by Germany (9%), China (5%), India (5%), and Mexico (5%).
India’s involvement in the cooling systems market indicates a trade deficit, as the
country exports 4% of the global export trade flow while importing 5% of total
global imports. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 38
Figure - 2.20
The cooling systems supply chain is further categorized into three main sub-
components, reflecting the sector’s fragmentation:
• Engine Cooling GVC (~$13 billion): The leading exporters of engine cooling
systems are Germany (20%), China (10%), the USA (9%), the Czech Republic
(9%), and Mexico (8%), with India holding a 2% share in the global export
market. The primary importers in this category are the USA (22%), Germany
(10%), Mexico (6%), China (6%), and the UK (4%), with India importing 2% of
the globally traded engine cooling systems.
• Cabin Thermal Management (TM) GVC (~$2 billion): Major exporters of cabin
thermal management systems are Germany (15%), China (15%), Slovakia (11%),
the Czech Republic (9%), and Poland (9%), while India captures a 1% share in
the global export market. The key importers in this segment include the USA
(15%), Germany (14%), China (9%), France (6%), and Belgium (5%), with India
importing a negligible share of the cabin TM systems.
• Transmission Thermal Management (TM) GVC (~$8 billion): The primary
exporters of transmission thermal management systems are China (27%),
Germany (12%), the Czech Republic (7%), Poland (6%), and the USA (6%),
with India again holding a 1% share in the global export market. The leading
importers in this category are the USA (19%), Germany (15%), Mexico (5%), the
Czech Republic (4%), and the UK (4%), with India importing 1% of the globally
traded transmission TM systems. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 39 Cooling system Components GVC Export Share
?Components
Engine Cooling
Cabin TM
Transmission TM
Figure - 2.21?Components
Engine Cooling
Cabin TM
Transmission TM
Cooling system Components GVC Import Share
Figure - 2.22 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 40 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 41 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 42 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 43
KEY DRIVERS AND CHALLENGES
FOR INDIA’S PARTICIPATION IN
AUTOMOTIVE GVC AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 44
For the automotive industry, GVCs have become a cornerstone, reflecting the increasingly
complex nature of modern vehicles comprising of thousands of individual parts sourced
from a wide variety of suppliers globally. The automotive component manufacturing
industry is one of the most important players within global value chains which was
valued at close to $2 trillion in 2023 and is expected to become approximate $2.4 trillion
industry by 2030 with the Asia Pacific region expected to grow the fastest between
2023-30, thereby reflecting the significant scale and importance of this particular sector
within the global automobile industry.
Within the Auto components industry, there are several key product categories which
form an integral part of the industry. These include engine and engine components, drive
transmission, steering components, cooling system, suspension and braking system, body
chassis etc. As technologies become rapidly advanced and complex with consumers
preferring Electric Vehicles (EVs) as compared to vehicles with Internal Combustion
Engines (ICE), electrical and electronic components along with battery components
shall become extremely important alongside growing emphasis being placed on self-
driving technologies and Advanced Driver Assisting Systems (ADAS) in vehicles.
3.1 GLOBAL TRENDS IN AUTO COMPONENT GVC
As the global auto components market continues to evolve, various factors such
as technology and geopolitical conditions like China de-risking (supply pools
shifting from China), chip wars (US-China semiconductor restrictions), and shipping
bottlenecks (conflicts in Russia-Ukraine; Middle-East) are at the forefront of the rising
growth being witnessed by the auto components industry within the automotive
industry. Four factors are at present emerging to be the key drivers of growth for
the auto components industry within global value chains.
3.1.1 ELECTRIC VEHICLES (EVS)
At global level, regulatory bodies push for reduced carbon emissions and more
sustainable forms of transportation, EVs have emerged at the forefront of automotive
innovation, thereby signalling a corresponding demand for specialised automotive
components including batteries, power electronics, charging infrastructure, etc.
By 2030, it is projected that 40% of all light vehicles sold globally will be electric,
up from just 3% in 2020. This rapid growth will be accompanied by a substantial
reduction in the number of internal combustion engine (ICE) components, with an
estimated 190 components being eliminated. This shift will not only help reduce
emissions and improve fuel efficiency but also pave the way for the development
of more sophisticated and connected vehicles.
The increasing electrification and automation of vehicles will also lead to a
significant surge in the demand for semiconductor components. The average
semiconductor content per car is expected to increase from $600 in 2022 to
$1,200 by 2030, driven by the growing need for advanced driver-assistance
systems (ADAS) and other connected technologies. In fact, it is projected that
90%
5
of all passenger vehicles sold in 2030 will be ADAS-enabled, featuring
advanced safety features such as lane departure warning, adaptive cruise control,
and automatic emergency braking. By 2040, the industry is expected to reach an
even more significant milestone, with 80% of all light vehicles sold globally being
electric, marking a major shift towards a more sustainable and environmentally
friendly transportation system.
5 Includes Level 2+ and AV ready passenger vehicles AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 45
EV Components Global Value Chain (GVC)
The global electric vehicle (EV) industry is undergoing rapid growth, with a $40–50
billion opportunity in EV components trade. This dynamic value chain is dominated
by a handful of countries, reflecting regional strengths and dependencies. EV components GVC$40-50B traded opportunity for major components with ~80% export from Top7 geos
Note: Global trade value is calculated based on market estimates for EV battery, cooling system, and powertrain components, is lower than EXIM data based on HSIN codes for CY2022 due to removal of non-EV related trade (e.g. Li-ion batteries for mobiles, etc.), to arrive at a more real istic number. However, a country’s share in trade is
based on HS code data; 1. Major export/ import items basis % of global trade for the products; Source: Trademap–Using HSN mapping for EV-specific components like battery, battery cooling and other parts, e-motors, etc. (HSNs used include 850133, 850790, 850760); BloombergNEF; data for CY 23 E ,Bain analysis
United States:
Exports: ~$1B (2%)
Imports: ~$9B (18%)
Trade ratio: 0.1
Key exports
1
: E-motors
Key destinations: Canada (25%), Australia
(10%), Japan (9%)
Key imports
1
: Battery cooling & other parts
Key sources: China (54%), S. Korea (18%),
Japan (13%)
Germany:
Exports: ~$3B (5%)
Imports: ~$9B (17%)
Trade ratio: 0.3
Key exports
1
: E-motors
Key destinations: US (18%), China (11%), Czech (8%)
Key imports
1
: Battery cooling & other parts
Key sources: China (40%), Poland (25%), Hungary (16%)
India:
Exports: ~$0.1B (0.1%)
Imports: ~$1.4B (2.7%)
Trade ratio: 0.07
Key exports
1
: E-motors
Key destinations: Germany (36%), Japan (10%), US (7%)
Key imports
1
: Across categories
Key sources: China (84%), S. Korea (7%), Japan (3%)
Poland:
Exports: ~$4B (8%)
Imports: ~$2B (3%)
Trade ratio: 2
Key exports
1
: Battery
Key destinations: Germany (49%), Mexico
(13%), France (8%)
Key imports
1
: Battery cooling & parts
Key sources: China (58%), S. Korea (19%),
Germany (8%)
Japan:
Exports: ~$2B (4%)
Imports: ~$2B (3%)
Trade ratio: 1
Key exports
1
: Battery cooling & other
parts
Key destinations: US (42%), Singapore
(9%), China (8%)
Major imports
1
: Battery
Key sources: China (64%), S. Korea
(12%), Singapore (8%)
Hungary:
Exports: ~$3B (6%)
Imports: ~$1B (2%)
Trade ratio: 3
Key exports
1
: Battery
Key destinations: Germany (42%), Czech
(11%), Belgium (10%)
Key imports
1
: Battery cooling & other parts
Key sources: China (23%), S. Korea (21%),
Poland (17%)
Net importersNet exporters
South Korea:
Exports: ~$4B (7%)
Imports: ~$3B (6%)
Trade ratio: 1.3
Key exports
1
: Battery cooling and other parts
Key destinations: US (45%), Germany (12%), China (7%)
Key imports
1
: Battery
Key sources: China (94%), US (2%), Vietnam (1%)
China:
Exports: ~$25B (50%)
Imports: ~$4B (7%)
Trade ratio: 6.3
Key exports
1
: Battery, battery cooling & other parts
Key destinations: US (20%), Germany (15%), S.
Korea (10%)
Key imports
1
: E-motors
Key sources: Malaysia (18%), S. Korea (14%),
Japan (13%)
China has a clear dominance owing to highest export of Lithium-Ion (LI) batteries for EVs
Figure - 3.1 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 46
China’s dominance in the EV components market stems from its control over
lithium-ion battery production, a critical component for EVs. With 50% of global
exports ($25 billion) and a trade ratio of 6.3, China’s exports vastly outweigh its
imports. The country is a major supplier to key EV markets such as the United
States, Germany, and South Korea, exporting batteries, battery cooling systems,
and other essential parts. India’s EV component market is in its infancy, with
exports at only $0.1 billion and imports at $1.4 billion, resulting in a trade ratio
of 0.1. The country heavily relies on imports from China (56%), South Korea, and
Japan for batteries and cooling systems.
As illustrated in the figure below, the auto industry is poised to experience a
substantial shift towards electric vehicles, with 80% of the market transitioning
to EVs by 2040, and batteries representing 20% of the total demand in the auto
component GVC market FY 22FY 30PFY 35PFY 40P
Engine Drive TransmissionSuspension Cooling systemsBatteryElectric MotorElectronicsOthers
2.0
2.6
2.8
3.0
23%
15%
11%
6%
17%
15%
14%
12%
7%
7%
7%
7%
5%
5%
5%
7%
3%11%15%
20%
1%
2%
3%
3%
8%
8%
8%
8%
36%
37%
37%
36%
Figure - 3.2
3.1.2 TECHNOLOGY
In today’s automotive market, car companies are no longer merely assembling
mechanical parts but developing a complicated computer on wheels which is
technologically advanced. Next-gen automobile ecosystem will include OEMs,
software and service suppliers, system integrators, device manufacturers, and
telecom operators as well. For example, in India when MG Motors launched their
first car Hector
6
in the country in April 2019, it was a result of tech collaborations
with Microsoft, Adobe, Unlimit, SAP, Cisco, Gaana, TomTom, Nuance, and others.
6 https://www.businesstoday.in/magazine/industry/story/how-technology-is-transforming-the-
auto-industry-331116-2022-04-25 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 47
Globally, one of the biggest tech advancements in the automotive industry is
going to be the applicability of CASE (connected, autonomous, shared and
electric) concept in automobiles. In the concept
7
of CASE-
i. Connected refers to using various communication devices and automobile
sensors to connect to external devices and services via the internet thereby
enabling automobiles to access entertainment information, track vehicles,
automatically report breakdown and traffic situations etc.
ii. Similarly, automation will enable technology in automobiles to be utilised for
providing driver support and in some cases design fully autonomous self-
driven vehicles.
iii. Shared refers to the concept of vehicles being jointly owned and used similar
to how ride-sharing vehicles operate and function
iv. Electrification refers to EVs which run on a motor powered by electric energy
The rise of Advanced Driver Assistance Systems (ADAS) and self-driving
technologies has also proliferated the demand for incorporating more
technologically advanced auto components such as Radio Detection and Ranging
(RADAR), Light Detection and Ranging (LiDAR) sensors, cameras and powerful
computing systems which has the potential to redefine vehicle safety standards.
The global Advanced Driver Assistance Systems (ADAS) and AD system sensor
market is projected
8
to be worth $43 billion by 2030 with the global autonomous
car market expected to reach a size
9
of $115 billion by 2030.
The global ADAS and autonomous driving component market is valued at $33.5
billion in 2024 and it is projected to reach US $83.6 billion by 2032 at an annual
growth rate of 12% between 2022-30.
GLOBAL ADAS AND AUTONOMOUS DRIVING COMPONENT MARKET GROWTH
10
Figure - 3.3
7 https://mcc-ams.com/en/article/03/
8 https://www.statista.com/statistics/1076066/adas-autonomous-drive-system-sensor-market-by-type/
9 https://www.statista.com/statistics/428692/projected-size-of-global-autonomous-vehicle-
market-by-vehicle-type/
10 https://straitsresearch.com/report/adas-and-autonomous-driving-component-market AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 48
As more and more technologically advanced EV vehicles are seen on the roads,
it is also to be considered that EVs use about six times more mineral inputs than
ICE vehicles. Supply shortage of critical minerals utilized by EV batteries hamper
the progress of this sector. To maintain pace, in this segment, adequate supply of
critical minerals is important.
3.1.3. CHINA + 1 STRATEGY
While China is leading globally when it comes to manufacturing and production of
auto components, western companies have been concerned11 with the increasing
labour costs in China and the ongoing US-China trade war, which has led them to
adopt a China plus one supply chain diversification strategy for manufacturing and
producing auto components. While it is difficult in the short term to completely exit
China, since they have spent 20-30 years building out their manufacturing supply
chain. However, lot of companies are shifting from China for manufacturing and
assembly purposes while the raw material may still be coming from Chinese suppliers.
Six nations stand to benefit from the China plus one strategy which includes India,
Poland, Vietnam, Mexico, Thailand and Indonesia as these emerge as preferred
alternatives for transnational companies seeking to reconfigure their supply chains
and mitigate geopolitical risks. In the near future, it is predicted that finished
goods
12
coming out of China shall be used to cater to developing countries solely
while developed countries will be getting finished goods from Southeast Asia,
India and Mexico.
Western companies seek to benefit from diversifying their supply chains outside
China as this will help them spread their production across several countries
making companies less prone to supply chain disruptions. Further, diversification
will allow companies to operate in low-cost labour markets as China is no longer
considered one, thereby providing companies with access to new markets. An
example of a company adopting this strategy is Apple which is slowly shifting its
device assembly processes to factories in India and Vietnam.
As geopolitical tensions combined with the Russia-Ukraine war and the
ongoing wars in the Middle East are causing significant shifts in global supply
chains, companies previously reliant on China for automotive components and
semiconductors are now seeking to diversify their supply chains to mitigate risks.
This provides an opportunity for India and other South East Asian nations to step
up and position themselves as key players in global supply chains.
3.1.4 EUROPE + 1 STRATEGY
Europe is grappling with an energy crisis fuelled by rising inflation from the
ongoing Russia-Ukraine war, further intensified by the shutdown of the Nord
11 https://www.beroeinc.com/whitepaper/china-plus-one-strategy-an-imperative-to-achieve-
supply-chain-resilience
12 https://www.freightwaves.com/news/china-plus-one-strategy-offers-best-of-both-worlds-for-
manufacturers-retailers AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 49
Stream I pipeline. This disruption has severely impacted manufacturing, with
factories unable to operate at full capacity. Additionally, heating and electricity
bills have now exceeded monthly labour wages in Europe. As a result, European
manufacturers are actively exploring options for relocating their production
elsewhere. This approach has been coined the term “Europe + 1” strategy which
is similar along the lines of China plus one strategy. Further, as the EU recently
voted
13
for increasing tariffs to 45% on China made EVs being exported to EU,
manufacturers and OEMs of EVs are looking to shift their production facilities
outside China.
Major European automakers such as Volvo, BMW, and Mercedes are planning
to relocate their Chinese production facilities to neighbouring countries like
Indonesia, India and even back to Europe as well. With the recently imposed
tariffs and the Ukraine-Russia war European auto component manufacturers have
been considering shifting to the Asian region as trade tensions will continue with
China and geopolitical conflicts in the Middle East and Ukraine continue to rise.
3.2 OPPORTUNITIES FOR INDIA AMID GLOBAL DISRUPTIONS
3.2.1 INDIA’S POSITION IN AUTO COMPONENT GVC
For India, the growing auto components market represents a strategic opportunity
to enhance its position in the automotive value chain. Currently, India constitutes
almost 3% of global auto component exports.
India’s presence in the global automotive component market is relatively small.
However, India’s growing manufacturing base and cost advantages position it
suitably for potential market leader in coming years. India’s auto component
exports have risen from $7.4 billion in FY21 to $12.8 billion in FY24. Particularly,
noteworthy is the fact that since FY21, India saw a ~73% surge in exports, thereby
reflecting India’s post pandemic recovery and increasing global demand for auto
component parts. On the export front, India’s exports are heavily dominated
by Drive Transmission Systems (DTS), Engine Components, and Electrical and
Electronics components which together account for 53% of India’s total auto
component export share.
As described earlier, major countries which are India’s primary destinations for
auto component exports are North America and Europe, which account for 34%
and 27% of exports with USA standing out as a key export market for India since
28% of auto component exports are driven by its large automotive industry and
aftermarket sector. Germany is another important auto component market for
India as 7% of India’s auto components export share is taken up by Germany.
The demand for high quality automotive parts especially engine components and
transmission systems are a testament to India’s capabilities combined with the
fact that many components produced in India are used in vehicles manufactured
by global brands operating in Europe. Proximity to Africa and Southeast Asia
also provides India an opportunity to further grow its export share through such
13 https://www.bbc.com/news/articles/cly20n4d0g9o AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 50
emerging markets where demand for auto components is expected to rise as
auto sales and manufacturing grow in these countries.
Similarly, on the import front, India has witnessed a 80% increase in its
auto components imports from $6.7 billion in FY21 to $12.1 billion in FY24
dominated by engine components and body/chassis/Body-in-White (BIW). China
is the largest auto components supplier to India contributing close to 23% of
India’s imports.
Figure - 3.4
Apart from China, South Korea and Germany are significant import partners of
India as well. With the rise of the aftermarket sector, a consistent demand for
replacement parts and components needed for vehicle repairs and upgrades has
been created. The demand for imported components will see a continued rise in
India as more and more vehicles come on Indian roads and increased consumer
spending will be witnessed on vehicle maintenance and upgradation.
Today, India is renowned as a global hub for frugal and scalable engineering.
Automotive clusters of Mumbai-Pune-Nasik-Aurangabad in the West, Chennai-
Bangalore-Hosur in the South, and Delhi-Gurgaon-Faridabad in the North as well
as upcoming ones in Sri City, Anantapur and Sanand are expected to drive the
automotive and auto components industry in India. Further, with improvements
in manufacturing capabilities, government initiatives such as Make in India,
FAME, PLI scheme, PM E-Drive etc, and an increasing focus on quality and cost
competitiveness India has immense opportunity to improve upon its current share
in the auto components global value chain.
Through investing in advanced manufacturing technologies and innovation, India
can establish itself as a major player of auto components within the global market. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 51
Given, the strong supplier ecosystem and cost advantages India, is well positioned
to attract foreign investment and integrate more deeply into GVCs.
3.2.2 FACTORS POSITIONING INDIA TO BECOME A DOMINANT
PLAYER IN AUTO COMPONENT GVC
As India aims to become a leading player in the automotive global value chain,
various factors are beneficial for India to make it a leading auto component player
in GVCs. These primarily include:
1. Rising Domestic Consumption and Middle-Class Aspirations: Domestic
macroeconomic trends suggest that India’s consumption expenditure is set
to witness a substantial growth as it is expected to reach nearly $5 trillion by
2030 from $1.4 trillion in 2018.
Additionally, a growing middle class in India of close to 450 million people will
fuel growth in the consumer demand for automobiles as the demand for high
end premium vehicles grows primarily fuelled by the middle-class aspirations.
As India’s middle-class spending is expected to rise from 55% to 80% of total
consumption by 2030, the demand for vehicles accompanied with advanced
features such as advanced safety features, electric drivetrains, connectivity
features, etc. will be on higher side. This shall further see a rise in need for high
performance auto components, including more efficient engines, suspension
systems, battery components, and electronic modules.
As the increase in spending capacity of Indians keeps rising the need for
aftermarket services and replacement parts is expected to grow with rise
in vehicle ownership as well (SUVs and larger vehicles
14
make up 63% of all
passenger vehicle sales in India).
As the Government allocates INR 25,000 Crore PLI scheme
15
for the auto and
auto component sector and PM e-Drive allocates INR 10,900 crore, it is expected
that this shall motivate auto makers in India to further innovate and come out
with advanced sustainable vehicles which can withstand the futuristic demands
of consumers. Further, with strong investor and private equity support in the
automotive sector demonstrated by strong capital inflows it is expected that
the Indian automotive sector shall raise thereby fuelling innovation along with
expansion in production capabilities which shall ultimately make India an attractive
destination for domestic and foreign investors.
2. Global Geopolitical Shifts and Supply Chain Diversification: Larger global
macroeconomic trends signify that amidst geopolitical tensions more and
more automobile companies are looking to diversity their supply chain. Trade
tensions and chip wars between USA and China along with rising conflicts in
the Middle East region and between Russia and Ukraine have made China plus
one strategy a lucrative option to pursue for automobile companies in order
14 https://www.wrightresearch.in/blog/indian-consumption-theme-is-rising-indias-growing-middle-
class-and-shift-toward-premium-consumption/
15 https://auto.economictimes.indiatimes.com/news/industry/neo-middle-class-will-take-india-
mobility-sector-to-new-heights-pm/107376295 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 52
to de-risk their supply chain from China and to make their supply chain more
resilient. This shall be beneficial for India as it becomes a lucrative option to
invest in for firms and aims to position itself as a key player in global supply
chains. India possesses a favourable business environment, skilled workforce,
and supportive Government policies which make India a very attractive option
to setup their automobiles production and manufacturing facilities.
3. Technological Advancements and India’s Potential in the Global EV Market:
Technology shall play an instrumental role in order for India to become a leading
nation in the auto components GVC. As per the report published by NITI Aayog
and Rocky Mountain Institute, India could realize EV sales penetration of 30%
of private cars, 70% of commercial cars, 70% of buses and 100% of two and
three- wheelers by 2030. It is expected that there will be ~1.3 million EVs sales
penetration in India by 2030. This presents a unique opportunity for India to
develop an EV auto components market and to enhance its competitiveness
in the global value chain.
With substantial potential in manufacturing, cost competitiveness, and right
investments in technology and infrastructure, India can become a major
exporter of EV auto components. Further, with sufficient Government initiatives
and policies, India has a unique opportunity to capitalise on the shift towards
EVs globally as well as to venture into ADAS system components as more and
more vehicles look at incorporating them in vehicles.
3.3 CHALLENGES IN ENHANCING INDIA’S PARTICIPATION IN GVC
As India seeks to become a dominant player in the GVC, it is essential to identify
the various challenges it faces in order to scale up its production capacities and
rise up to the global challenges.
1. Cost competitiveness (Capex and Opex)- India’s operational cost
competitiveness is impacted by balancing the costs between sourcing
advanced technologies and investing in R&D. Top 5 sectors receiving highest
FDI Equity Inflow during FY 2023-24 are Services Sector (Finance, Banking,
Insurance, Non Fin/ Business, Outsourcing, R&D, Courier, Tech. Testing and
Analysis, Other) (16%), Computer Software & Hardware (15%), Trading (6%),
Telecommunications (6%) and Automobile Industry (5%)
16
. Significant sectors
like electronics and technology remain underfunded.
16 https://www.investindia.gov.in/foreign-direct-investment AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 53CommentsIndia disabilityCostcomponent
Increasedcost of raw materials in India compared to China
Higher import duties & freight costsin India
-9.5%
Material
Landed labour cost (including management costs) lower in
India
3.1%Employee
Higher depreciation in India compared to China (100% vs
50%)
-3.4%Depreciation
India?s avg. utility cost post-subsidies is 10-15% lower than
China
0.3%Power & fuel
Slightly higher effective tax rate in India -0.02%Tax
Prime lending rate in China at 3.45% vs MCLR in India at
9.37%
-0.1%Finance
-9.6%Overall Cost Disability
Figure - 3.5
In India, raw material costs are higher for non-traditional manufacturing due to
import dependence and high tariffs, whereas China benefits from lower costs
due to large scale production and efficient supply chains. Infrastructure and
logistics in India still lag in efficiency despite significant investment17, while
China benefits from advanced infrastructure and transport networks. Financial
costs are also high in India compared to China and Vietnam.
Another aspect affecting India’s cost competitiveness is the aspect18 related
to FTA’s India is a part of wherein, India suffers from inverted duty structures on
raw materials such as Ferroalloys, aluminium, chemical products, etc. Import
duties on machineries inflate costs, thereby affecting competitiveness.
Capital expenditure competitiveness of India is moderate due to domestic scale
constraints which hinder volume benefits in segments such as EV components
(batteries, motors).
Through a combination of strategic investments and financial incentives
nations can bolster their cost competitiveness. For example, China provides
$72 billion of EV tax breaks to stimulate consumer demand as well as support
domestic manufacturers. Similarly, USA employs financial mechanisms to
mitigate capital expenditure pressures for manufacturers by offering long
term loans of up to 25 years at treasury rates which reduces financial burdens
associated with large scale investments.
17 https://www.deccanchronicle.com/business/economics/india-needs-to-improve-cost-
competitiveness-to-attract-businesses-gtri-1815059
18 https://www.business-standard.com/economy/news/india-reviews-asean-trade-pact-to-address-
domestic-manufacturing-anomalies-124041200297_1.html AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 54
2. Quality Constraints-India’s competitiveness in the global automotive value
chain is significantly hindered by quality issues, which stem from disparities
between domestic quality standards and stringent international benchmarks.
For instance, in 2023, the rejection of 50% of iPhone covers produced at a
Hosur manufacturing plant highlighted the serious quality gaps prevalent in
Indian manufacturing. This problem is particularly acute in the SMEs sector,
where many manufacturers struggle to meet OEM standards due to a lack
of quality control and investment in advanced manufacturing processes.
Without consistent attention to quality at every stage of production, Indian
manufacturers often find themselves falling short of global requirements.
Furthermore, the inefficiency of production systems exacerbates the quality
gap. Many Indian manufacturers lack defect traceability systems, making
it difficult to identify and rectify issues in real-time. This, combined with
limited debugging capabilities, leads to an inability to ensure product quality
consistently, as required under OEM liability agreements. If India aims to
strengthen its position in the global value chain, there must be an overhaul
of quality management practices, starting with better training, technological
upgrades, and the implementation of global standardization processes.
3. Ease of Doing Business -The ease of doing business remains a significant
challenge for the automotive industry in India, largely due to the complex
regulatory environment and infrastructure constraints. Automotive firms must
navigate a web of regulations related to emissions, safety standards, and import/
export policies, which can often be inconsistent and difficult to comply with.
These stringent regulations, though necessary for environmental and safety
reasons, are not always aligned with the actual capabilities of manufacturers,
particularly SMEs. This creates delays and increases compliance costs, making
it more challenging for businesses to operate efficiently.
In addition to regulatory complexities, infrastructure limitations—such as
underdeveloped road networks, logistical bottlenecks, and inadequate charging
infrastructure for electric vehicles—create operational hurdles for automotive
firms. Moreover, inconsistent production incentives and unpredictable trade
policies add to the uncertainty, making long-term planning difficult for
manufacturers. Land acquisition issues, lengthy regulatory approval processes,
and persistent red tapeism further slows down the establishment of new
production facilities, limiting expansion and innovation. This unpredictability
discourages potential investors and hampers the growth of the automotive
sector, creating significant barriers to scaling up manufacturing capacity in
the country.
4. Lack of Innovation -One of the most critical barriers to India’s growth in the
global automotive sector is the lack of innovation, largely driven by inadequate
Research and Development (R&D) infrastructure. India currently spends less
on R&D in the world, particularly when compared to global automotive leaders
like Germany, Japan, and the United States. This underinvestment severely
limits the country’s ability to compete in emerging technologies such as EVs, AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 55
autonomous driving, and smart mobility solutions. While Indian manufacturers
excel in low-cost, high-volume production, the absence of a strong innovation
culture stifles the development of advanced products that could differentiate
the country’s offerings in global markets.
The lack of innovation is compounded by the minimal collaboration between
industry, academia, and research institutions, which limits the flow of ideas
and breakthroughs in automotive technology. Without sufficient funding
and focus on future-oriented research, Indian firms are forced to rely on
foreign technologies, which increases costs and reduce the ability to produce
cutting-edge vehicles domestically. In particular, the country lags in areas like
battery technology, ADAS (Advanced Driver Assistance Systems), and AI-
driven manufacturing—all of which are critical for the future of automotive
manufacturing. To remain competitive and achieve long-term growth, India
must significantly increase its R&D expenditure and build a robust ecosystem
that fosters innovation and technological advancement.
5. Talent and Skilling Issues - India’s automotive manufacturing sector faces
significant talent and skilling challenges, particularly as the industry transitions
toward electric vehicles (EVs), automation, and advanced manufacturing
processes. Many workers currently possess skills suited for traditional internal
combustion engine (ICE) vehicle production, but there is an increasing demand
for expertise in areas like electric powertrains, battery management, software
integration, and AI-driven manufacturing. Roles such as battery engineers,
robotics specialists, and software developers are emerging as critical to the
industry, but a significant skills gap remains in these areas. Technical training
institutes and vocational schools have not yet fully adapted their curricula to
meet the evolving demands of the automotive sector, resulting in a shortage
of qualified professionals who can handle these new technologies.
6. Limited Access to Global Markets - Limited access to global markets
remains a significant challenge for India’s automotive industry. While India
has established itself as a key low-cost manufacturing hub, its participation in
the global automotive supply chain is restricted by several factors, including
non-tariff barriers, lack of Free Trade Agreements (FTAs) with major markets,
and fierce competition from established players like China, Japan, and South
Korea. Without adequate trade deals, Indian automotive exports are subject
to high tariffs, which diminishes their competitiveness, especially in high-value
segments like electric vehicles, advanced driver-assistance systems (ADAS),
and powertrain components.
7. Inadequate R&D Infrastructure- India’s automotive sector also struggles with
inadequate R&D infrastructure, which limits its ability to innovate and compete
globally. The absence of significant R&D investment means Indian firms often
rely on outdated technologies and miss opportunities to lead in automotive
innovation. This lack of innovation is particularly problematic as global
automotive trends shift towards smart mobility, AI-driven manufacturing, and
sustainable vehicle technologies. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 56
In addition to above mentioned challenges, India also lacks advanced testing
and validation centres that are critical for developing next-generation
automotive technologies. Facilities for battery research, vehicle safety testing,
and simulation labs for autonomous vehicles are either underdeveloped or
unavailable. Without proper infrastructure in place, Indian manufacturers are
often forced to outsource R&D to foreign labs, increasing both costs and lead
times. Furthermore, the disconnect between industry and academia prevents
the kind of collaboration seen in other countries that drives innovation in
automotive technologies. This lack of ecosystem support hampers India’s
ability to compete with countries that have robust R&D capabilities and a
strong focus on automotive innovation.
Table: Comparison of research productivity and innovation metrics in selected
countries (2021-22)
19
Country Researchers
per million
inhabitants
(2021)
PhDs
produced
annually
(2021)
Publication
output
(2021)
Top 1%
most cited
articles (%
share)
Patents
granted
(2022)
(Rank)
India 262 40,813 3,06,800 0.7 30,490 (6)
USA4,452 69,525 15,06,000 1.88 3,23,410 (2)
UK4,491 27,366 2,87,200 2.35 10,578 (15)
China 1,687 53,778 9,78,100 1.12 7,98,347 (1)
S. Korea 9,082 13,882 1,09,200 1.02 1,35,180 (4)
Japan 5,638 15,804 1,71,000 0.88 2,01,420 (3)
In order to increase its share in the GVC, it is essential that there is impetus from
the private sector through investments to develop advanced auto components
and cars which are futuristic in the long run.
In addition to the specific challenges mentioned above, India currently faces a
broader issue in scaling up for GVCs, primarily due to the limited engagement of
Indian auto firms with global OEM players. This is further supported by the fact
that there is a moderate cross border industry collaboration taking place in India
which affects global integration as well as the ability to leverage international
expertise and market opportunities.
19 https://www.readipwave.com/indias-r-d-funding-landscape/ AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 57 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 58 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 59 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 60 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 61
TECHNOLOGICAL TRANSITION
OPPORTUNITIES AND GLOBAL
BENCHMARKING IN AUTOMOTIVE
COMPONENT MANUFACTURING AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 62
The global automotive components market is influenced by a complex interplay
of imports and exports across key segments such as Engine Components, Drive
Transmission Systems (DTS), Suspension and Braking, and Cooling Systems. Particularly,
engine components and DTS together account for approximately 60% of global trade in
automotive parts, with major exporting countries like Germany, the United States, China,
Japan, and Mexico utilizing their strengths to dominate the key segments in automotive
component industry.
India’s presence in the global automotive component market is modest with export
shares ranging between 2-4%; however, it is well-positioned for significant growth.
Projections indicate that India’s domestic auto component consumption could rise
from $70 billion in FY23 to $120 billion by FY30, driven by increasing disposable incomes
and an expanding middle class demand for vehicles. Despite holding only 2-3% of global
engine component exports compared to leading players like Germany and the U.S.,
India is working to strengthen its participation in GVC. A comparative analysis describes
that developed economies dominate exports across various automotive segments,
while developing economies like India is actively seeking strategic areas to enhance its
contributions.
By adopting best practices from around the globe, India can strengthen its position
in the automotive industry. For example, lessons can be drawn from Ford’s assembly
line techniques in the U.S., Toyota’s just-in-time production methods from Japan, and
Hyundai’s smart factory automation in South Korea. Additionally, China’s innovation with
BYD Blade Batteries showcases advancements in battery technology. India can establish
a presence in the GVC of the automotive industry by leveraging the key takeaways from
best practices.
4.1 GVC IMPORTS-EXPORTS BY SEGMENTS AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 63
Figure - 4.1: GVC Imports-Exports by Segment Country-wise
The global auto components market is shaped by interplay of imports and
exports across five key segments as given in Figure 4.1: Engine Components, Drive
Transmission Systems (DTS), Suspension and Braking, Cooling Systems, and Other
Components. Key segments like engine components and Drive Transmission Systems
(DTS) are the dominant players, representing around 60% of the traded components
worldwide. Countries like Germany, United States, China, Japan, and Mexico emerge
as leading exporters across most segments within the industry whereas Germany
and the United States stand out as the leading exporters across most segments
within the industry. The manufacturing capabilities of Germany and its presence
is attributed by producing high-quality, precision-engineered components, and
its commitment to innovation and R&D. Similarly, the United States maintains a
presence in export in the global market by capitalizing on its domestic market and
advanced technological infrastructure, significant investments in R&D as well as an
established network of manufacturers and suppliers.
The developed economies are performing better in exports of key segments under
automotive components but reply on imports to meet specific demands, like there
is a high import of suspension and braking segment by the US as given in Figure 4.1.
China has rapidly scaled to become a major player, showing a significant growth in
both exports and imports, particularly in engine components and DTS, representing
10% of the global market. Japan, known for its engineering and innovation excellence,
maintains a significant, with 9-10% in various segments. Mexico has established as
a cost-effective manufacturing hub with an export share of 7% to North America.
The presence of India in the global automotive component market remains relatively
modest where the export shares are between 2-4% across the key segment. For
example, India accounts for only 2-3% of global engine component exports, in
comparison to the 10-15% share held by dominant players like Germany and the AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 64
U.S. Overall, the share of export and import reveal a competitive market where
developed nations continue to lead, while developing economies like India vision
for greater influence.
To effectively engage in the GVC of auto components, it is essential to conduct an
in-depth analysis of specific components and subcomponents country-wise. This
examination will help identify the strategic areas where India can strengthen its
participation and align with the country’s vision for GVC involvement by 2030.
4.2 COUNTRY- WISE BEST PRACTICES AND COMPARATIVE
ANALYSIS OF KEY SEGMENTS
Given that the Global Value Chain (GVC) in the auto component market is
predominantly controlled by 5-6 key countries, this section presents an in-depth
comparative analysis of exports and imports across major segments on a country-by-
country basis. The objective is to pinpoint potential target shares for India’s exports
and imports within the automotive components GVC. A detailed examination is
conducted for critical segments such as engine components, drive transmission and
steering components, suspension and braking systems, and cooling systems, along
with their sub-components, as illustrated in Figure 4.2.
4.2.1 ENGINE COMPONENT GVC
The global trade of engine and engine components, valued at approximately $150
billion, showcases varying dominance among different countries across five sub-
components: Engine Cylinder & Cylinder heads, Pistons & engine valve, Exhaust
System, Fuel Injection System and Crankshaft & camshaft where 50% of value is
driven by top 6-7 countries i.e. Germany, USA, Japan, China, Mexico, Turkey, and
Canada.
• Germany: Germany is a leading exporter in several automotive segments.
It holds a 17% share of total exports in engine cylinders and cylinder
heads, along with 16% in pistons and engine valves. Additionally, Germany
contributes 18% to exhaust system exports and leads the market in fuel
injection systems with a 19% share. In crankshafts and camshafts, Germany
dominates with a 22% export share. The country also plays a significant role
in imports, particularly in crankshafts and camshafts (7%) and fuel injection
systems (9%).
• United States: The United States is a major player in imports and exports within
the automotive sector. It leads in exporting of engine cylinders and cylinder
heads (14%) as well as Crankshaft & camshaft (14%). On the import side, the
U.S. has a 23% share in pistons and engine valve, fuel injection systems (21%)
and 17% in engine cylinders and cylinder heads.
• China: China emerges as a strong key player in both imports and exports. It
holds 15% of the global export share in Pistons & Engine Valves, contributes
14% to Crankshafts & Camshafts and 11% of Fuel Injection Systems. On the AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 65
import side, China commands 6% in Pistons and engine valve, 8% in Crankshaft
& camshaft and 7% in Fuel injection system
• Japan: Japan’s presence is particularly strong in Pistons & Engine Valves,
where it contributes 13% to global exports. It also maintains a modest export
share in Engine Cylinders & Cylinder Heads (5%) and Fuel Injection Systems
(7%).
• Mexico: Mexico plays a crucial role as both an exporter and importer. It holds
an 11% export share in Pistons & Engine Valves, exports 8% of the Fuel injection
system and 6% each in Engine cylinder heads and exhaust system. Mexico also
imports 10% of Engine cylinder heads, 9% of pistons & engine valve, 7% of
Crankshaft & Camshaft, making it a critical player in this segment.
• India: India’s presence in the global market is relatively modest, contributing
2-4% across most segments. It exports 8% of Crankshaft & Camshafts while
also importing at 7% of the crankshaft and camshaft sub-component segment.
Other importers include Turkey (4%) in engine cylinders and cylinder heads, while
Canada (5%) and Hungary (4%) are significant importers of pistons and engine
valves. Czechia stands out as a key exporter of exhaust systems, holding a 7% share
of global trade, and it also imports 5% of exhaust systems. Additionally, Czechia
exports 8% of fuel injection systems. The UK exports 6% of crankshafts and
camshafts and imports 4% of fuel injection systems, while Canada imports 5% of
crankshafts and camshafts. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 66
Figure - 4.2: Engine Component GVC Country-wise
4.2.2 DRIVE TRANSMISSION AND STEERING GVC
The global trade of Drive Transmission and Steering Components, valued at
around $130 billion, involves several key countries across three sub-components:
Transmission, Steering Components, and Clutches where 45% value is driven by top
countries i.e. Germany, USA, Japan, China and Mexico, described in Figure 4.3.
• Germany: Germany leads the export market, especially in clutches, where it
holds 23% of the market. Germany also accounts for 22% of Steering Component
exports and 19% of transmission. On the import side, Germany plays a major
role as well, particularly in Transmission and Clutches with 10% and Steering
Components 9%.
• United States: The US is a key player as the largest importer in several categories.
It imports 21% of Transmission components, 18% of Steering Components and 16%
of Clutches. In terms of exports, the USA contributes 11% to global Transmission
exports and 10% in Steering Components. For Clutches, the USA is a significant
exporter with 9% of the global export trade market share.
• China: China holds a strong position in Clutches, contributing 10% to global
exports and 6% to imports. In Transmission, it accounts for 7% of exports and
4% of imports. For Steering components, China exports 6% and imports 13%,
reflecting its growing role in the global market.
• Japan: Japan is a key player in Steering Components, leading with 18% of global
exports. It also contributes 9% to Transmission exports and 8% in Clutches.
However, Japan’s role in imports is particularly small compared to other countries. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 67
• Mexico: Mexico has a balanced role, contributing 10% to both Transmission exports
and imports. Additionally, it imports and exports 9% of Steering Components,
playing a strong role in North American supply chains. For Clutches, Mexico
imports 9% of total trade of DTS.
• India: India is emerging in this market, contributing 2% to Transmission exports
and 1% to imports. It has a minor share in Steering Components and Clutches,
with 1% each in their exports and 2% each in their imports, marking significantly
balanced in global trade.
Other notable importers include Canada, which imports transmission components
at a 4% share, and Brazil, a significant importer holding a 3% share in steering
components. Hungary, meanwhile, stands out as both a major exporter and importer
of clutches, accounting for 7% of global exports and 4% of imports.
Figure - 4.3: Drive Transmission and Steering GVC Country-wise AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 68
4.2.3 SUSPENSION AND BRAKING GVC
The global trade of suspension and braking components, valued at approximately
$60 billion, highlights various countries dominance across sub-components –
Suspension parts and Braking parts where 40% of the value is driven by top
countries- Germany, USA, Japan, China and Mexico, given in Figure 4.4.
• Germany: Germany is the second-largest exporter of suspension and braking
components after China and the second-largest importer after the USA. It
exports 16% of suspension parts and 13% of braking parts, while importing 11% of
suspension parts and 12% of braking parts.
• USA: The United States is the largest importer of suspension and braking parts,
accounting for 25% and 21% of global trade, respectively. Additionally, the U.S.
exports 10% of suspension parts and 7% of braking parts.
• Japan: Japan is one of the major exporters of Braking parts with 5% of its global
trade.
• China: China leads the export market for suspension parts, holding a 19% share
of the global market, and dominates the braking parts sector with a 22% share.
Additionally, China accounts for 5% of global imports of suspension parts.
• Mexico: Mexico plays a significant role, exporting 10% of suspension parts
whereas it is importing 9% of suspension parts and 8% of braking parts.
• India: India makes a minor contribution in exports, with just 1% of suspension
parts and 2% of braking parts whereas it is importing 1% of global traded value
of suspension and braking parts.
Other significant importer is Canada importing suspension and braking parts,
accounting for 6% and 4% of global trade, respectively. Meanwhile, Poland
exports 5% of suspension parts. France imports 4% of braking parts, while Italy is
a notable exporter, contributing 6% to the global market for braking components. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 69
Figure - 4.4: Suspension and Braking GVC Country-wise
4.2.4 COOLING SYSTEM GVC
The global trade of cooling system components, valued at approximately $23 billion
in CY22, reflects significant contributions from various countries across different
segments like engine cooling, cabin thermal management (TM), and transmission
TM where 50% value is driven by top 5 countries – Germany, USA, China, Mexico and
Czechia, mentioned in Figure 4.5. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 70
• Germany: Germany is a dominant player in the export market for engine
cooling components, holding a 20% share of the global market for engine
cooling systems and 15% of the cabin thermal management component
market. Additionally, it ranks as the second-largest importer of cooling system
components worldwide, following the United States. This robust position
underscores Germany’s critical role in the automotive supply chain, particularly
in the production and distribution of essential component GVC.
• USA: The United States is the largest importer of cooling system components
globally, accounting for 22% of engine cooling components, 15% of cabin
thermal management components, and 19% of transmission thermal
management sub-components. In addition to its significant import activities,
the U.S. also exports 9% of engine cooling components and 6% of transmission
thermal management sub-components, highlighting its active role in the
global cooling component GVC.
• China: China is a leading exporter of transmission thermal management
components, holding a 27% share of the global market. In contrast, its exports of
engine cooling components are relatively modest at 10%, while it exports 15% of
cabin thermal management components. On the import side, China is a minor
player, with a 6% share of engine cooling component imports and 9% for cabin
thermal management components. This data highlights China’s significant role
in the transmission sector while indicating lower involvement in the engine
cooling and cabin thermal management Component GVC.
• Mexico: Mexico is a minor player in the global cooling system market,
exporting 8% of engine cooling components. Additionally, it imports 6% of
engine cooling components and 5% of transmission thermal management
components. This data highlights Mexico’s limited yet noteworthy participation
in the engine cooling and transmission component GVC.
• India: India has a minimal presence in the global market for engine cooling
components, with a share of only 2% in both exports and imports. Additionally,
India exports 1% of cabin thermal management and 1% of transmission thermal
management components. The country’s share in the global improte trade of
cabin thermal management components is nearly negligible but it contributes
1% in the global import trade of transmission thermal management components.
This data highlights India’s limited role in the cooling systems GVC, indicating
potential areas for growth and development.
• Czechia: Czechia is a significant exporter of cooling system components,
contributing 9% of the global market for both engine cooling and cabin
thermal management components, as well as 7% for transmission thermal
management components. On the import side, Czechia accounts for 4% of the
total global imports of transmission thermal management components. This
data highlights that Czechia has an important role in the cooling systems GVC,
highlighting its extensive manufacturing capabilities and export strength. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 71
The United Kingdom is another notable importer of cooling system components,
holding a 4% share of both engine cooling and transmission thermal management
components in the global market. Meanwhile, Slovakia stands out as a major exporter
of cabin thermal management components, contributing 11% to the global share,
while Poland follows closely with 9%. On the import side, Belgium and France are
also significant players in the cabin thermal management sector, with import shares
of 5% and 6%, respectively.
Figure - 4.5: Cooling System GVC Country-wise AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 72 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 73
4.3 EV AND TECHNOLOGICAL TRANSITION OPPORTUNITIES IN
THE AUTOMOTIVE SECTOR
The automobile industry stands to gain significantly from the shift to electric cars
(EVs), since EV-specific parts are predicted to account for about half of the vehicle’s
overall value. This change emphasizes how important it is for manufacturers to
innovate and adapt with components like electric motors, lithium-ion batteries, and
sophisticated electronics get more and more essential.
1. Increasing Demand for BEVs and PHEVs
• Market Projections: By 2030, battery electric vehicles (BEVs) and plug-in hybrid
electric vehicles (PHEVs) are expected to account for 40% of global light vehicle
sales, with over 50% in key
markets like Europe, the U.S., and China.
• Driving Factors: Growth is driven by fossil concerns, government incentives,
technological advancements, and decreasing total cost of ownership.
• Electric light-duty vehicle (LDV) sales are projected to grow significantly,
reaching 40% of total LDV sales by 2030 and nearly 55% by 2035 due to strong
policy support, improved EV models, and increasing market size. Policies in
Canada and the UK target zero-emission vehicle (ZEV) sales of 60% and 80%
for passenger LDVs, respectively, by 2030.
Figure - 4.6: EV sales share by mode and scenario, 2030 & 2035
Source: Crisil Intelligence, IEA
2. Technological Advancements: ADAS and Autonomous Driving
• ADAS Growth: Advanced Driver-Assistance Systems (ADAS) are projected to
rise from 42% of new vehicle sales in 2020 to 90% by 2030, spurred by consumer
demand for safety features and regulatory requirements. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 74
• Autonomous Driving Adoption: Technology penetration is expected to grow
from less than 1% in 2020 to over 30% by 2030, increasing the importance of
sensors, computing power, and AI in vehicles.
Figure - 4.7
3. Future of Mobility: Software and Electronics Integration
• Rising Electronics Content: The average semiconductor content per vehicle
is anticipated to double by 2030, reaching a total value of around $1,200 per
vehicle. This reflects the increasing complexity of vehicle electronics.
• Software Value Increase: Currently making up about 2% of a vehicle’s total
value, software is projected to rise to 4-5% by 2030. This growth is driven
by connected vehicle technologies and over-the-air updates, with the total
addressable market for automotive software expected to reach $80 billion.
The automotive industry’s future is poised for transformation, driven by the rapid
growth of electric vehicles, advancements in automation technologies, and a
significant increase in the role of software and electronics. Manufacturers that can
innovate and scale production will be well-positioned to capture the opportunities
arising from these shifts. Collaboration with technology partners will be essential to
meet the demands of the next generation of vehicles, ultimately shaping the future
of mobility. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 75
4.4 CASE STUDIES OF BEST PRACTICES
CASE 1: FORD’S ASSEMBLY LINE - THE USA
20
About Ford Motor Company: Founded in 1903 and headquartered in Dearborn,
Michigan, Ford Motor Company stands as one of the pioneers in automotive
manufacturing, mobility, and financing. With a global workforce of approximately
177,000 employees, Ford reported impressive revenue of $177.5 billion in 2023,
alongside a net income of $4.3 billion. Despite facing a net loss of $526 million
in the fourth quarter due to special items, the company remained resilient,
generating $46 billion in revenue during the same period. Ford continues to
focus on electric vehicle innovation and sustainability, projecting an adjusted
EBIT between $10 billion and $12 billion for 2024.The evolution of Ford Motor
Company’s manufacturing techniques from 1906 to the present provides valuable
insights for India’s automotive components sector.
Ford’s Journey of Manufacturing Innovation:
Ford’s evolution in manufacturing techniques, beginning in the early 20th century,
offers valuable lessons for India’s automotive components sector.
Phase 1 (1906-1912) – Early Innovation:
Henry Ford’s vision to employ workers from diverse technical backgrounds sparked
a wave of innovation and mechanization. With the introduction of the Model T
in 1909, demand soared, prompting Ford to open the Highland Park facility in
1910. It was here that his engineers experimented with revolutionary production
techniques, including the first movable assembly line in 1911, dramatically boosting
efficiency.
Phase 2 (1913) – The Birth of the Moving Assembly Line:
In 1913, Ford officially launched the world’s first moving assembly line, cutting
down the assembly time of the Model T from over 12 hours to less than 3 hours.
This breakthrough not only transformed Ford’s manufacturing capabilities but set
new standards for global industrial production.
Phase 3 (1917 – Present) – Global Influence:
The success of Ford’s assembly line became a global phenomenon, establishing
benchmarks for efficiency, productivity, and cost reduction. Ford’s continuous
focus on innovation, workforce development, and process improvement offers a
blueprint for manufacturers worldwide.
Key Takeaways for India: The evolution of Ford’s manufacturing techniques from
the early 1900s holds valuable lessons for India’s automotive components sector.
Ford’s approach of blending skilled labour from diverse technical fields with a
focus on mechanization and efficiency was key to its success. India can draw
inspiration from this by investing in talent development and soft infrastructure to
boost productivity, like Ford’s early strategies. Moreover, Ford’s ongoing focus on
innovation and continuous improvement serves as a guide for India to strengthen
its position in the global value chain (GVC) for automotive components. By
20 https://www.assemblymag.com/articles/91581-the-moving-assembly-line-turns-100 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 76
adopting cutting-edge techniques from other sectors and fostering a skilled
workforce, India can accelerate its growth and compete on a global scale.1906J
1912
1913
1917
Present
1909 ? Introduction of Model ? q
1910 ? Opened Highland mark Facility
1911 ? Tested movable assembly line
? Benchmarked for efficiency and
productivity
? Job Creation
? 1,00,000 in 1923
? 256,00M in 1970
? Founding member of AfAG & IATF
1913 ? Launched First moving
Assembly Line
? oeduced costs
? Enhancing efficiency
and productivity
CASE 2: TOYOTA’S JUST-IN-TIME PRODUCTION- A GLOBAL
LEADER IN EFFICIENCY - JAPAN
21
In 2023, Toyota Motor Corporation reported robust revenue of $173 billion,
reflecting a 4% increase from the previous year’s $166 billion. Over the five-year
period from FY2019 to FY2023, Toyota Industries Corporation demonstrated
significant growth, with net sales climbing from $20.1 billion to $25.6 billion.
Operating profits grew from $1.2 billion to $1.3 billion, while net profits increased
from $1.5 billion to $1.8 billion. Additionally, Toyota’s workforce expanded by
more than 10,000 employees, growing from 64,641 to 74,887, underscoring the
company’s continuous expansion and contribution to global employment.
Toyota’s Evolution of Production Techniques:
Phase 1: Foundational Concepts and Early Developments (1896-1938)
Toyota’s journey began with the groundbreaking invention of the Toyoda Power
Loom by Sakichi Toyoda in 1896. This innovation introduced a weft-breakage
automatic stopping device, which was a key step towards automated production.
By 1924, the first automatic loom with a non-stop shuttle-change motion was
developed; further enhancing production efficiency and quality control. Kiichiro
Toyoda later introduced flow production using chain conveyors for automatic
looms in 1927, laying the foundation for Toyota’s future automotive assembly
lines. By 1938, this method was implemented at Toyota’s Koromo Plant, marking
the beginning of modern production techniques.
Phase 2: Development of the Toyota Production System (TPS) (1945-1950s)
In the post-World War II era, resource shortages led Toyota to innovate its
production techniques. Kiichiro Toyoda’s Just-in-Time (JIT) philosophy, introduced
in 1949, became central to Toyota’s strategy, focusing on producing only what was
needed, precisely when it was needed. The 1950s saw the formalization of the
21 https://global.toyota/en/company/vision-and-philosophy/production-system/ AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 77
Toyota Production System (TPS), which integrated JIT, continuous improvement
(Kaizen), and employee involvement, transforming the way Toyota operated.
Phase 3: Global Recognition of TPS (1960s-1980s)
During this period, the Toyota Production System gained international recognition
as the leading model for lean manufacturing. Its focus on efficiency, waste
reduction, and continuous improvement resonated with industries worldwide,
setting new standards in production.
Phase 4: Refinements and Resilience (1990s-2020s)
In the 1990s and 2000s, Toyota continued to refine TPS to maintain its competitive
edge amid global challenges, including the impact of the COVID-19 pandemic. The
effectiveness of TPS was evident when Toyota regained its position as the top-
selling automaker in North America by 2021, demonstrating the system’s ability to
adapt and manage complex supply chain challenges.
Key Takeaways for India’s Automotive Manufacturing Industry:
India’s automotive manufacturing sector can benefit significantly from adopting
Toyota’s Just-in-Time (JIT) philosophy.
Waste Reduction & Cost Efficiency:
By producing only what is needed, when it’s needed, JIT minimizes waste and
reduces holding costs. This approach not only improves operational efficiency
but also enhances profitability by cutting down on excess inventory.
Enhanced Responsiveness:
JIT encourages greater responsiveness to market demands, enabling manufacturers
to quickly adapt to changes in customer preferences and production requirements.
This agility is particularly critical during periods of disruption, such as natural
calamities or pandemics.
Strengthened Supplier Collaboration:
Implementing JIT also fosters closer collaboration with suppliers, ensuring timely
delivery of components and a smoother flow throughout the supply chain. This
can enhance overall productivity and competitiveness for Indian manufacturers
in the global market.
By embracing the principles of Toyota’s production system, India’s automotive
industry can elevate its position in the global value chain, driving efficiency,
innovation, and long-term growth. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 781896-19381945-19501960-19801990 -Present
1. 1896 – Invented Toyoda
Power Loom
2. 1924 – Developed first
Automatic Loom with Non-
Stop Shuttle Change Motion
• 1927 – Introduced flow
production method
• 1936 – Entered in
Automotive Industry
3. 1938 – Implemented Flow
production method at
Koromo Plant
1. TPS formally recognized
globally as a lean
manufacturing model
1. Developed concept of Toyota
Production System (TPS)
2. Developed Just-In-Time
(JIT) Philosophy
1. Expanded to Global market
2. Recognized for Quality and
Safety
3. Emphasised on Kaizen on
Continuous improvement
4. Launched Hybrid
Technology
5. Focusing on Sustainability
CASE 3: HYUNDAI MOTOR GROUP’S TRANSITION TO SMART
FACTORIES IN PREPARATION FOR INDUSTRY 4.0 – SOUTH
KOREA
In 2023, Hyundai Motor Group reported revenue of $123.57 billion, a notable increase
from the $109.60 billion generated in 2022. With global sales of approx. 4.22 million
vehicles, marking a 6.9% year-on-year growth, Hyundai saw remarkable success
across key markets, including Korea, North America, Europe, and India. Despite global
challenges such as rising interest rates and inflation, the company sold an impressive
342,919 units in December 2023 alone, with 280,747 units in international markets
and 62,172 in South Korea. Looking ahead, Hyundai aims to exceed 4.24 million
vehicles in global sales for 2024, continuing its leadership in electric vehicle (EV)
innovation and strengthening its position in the automotive industry.
Hyundai’s Journey toward Smart Factories:
Phase 1: Laying the Foundation (2015-2017)
Hyundai Motor Group established its Manufacturing Engineering R&D Centre in
2015, initiating its journey into smart manufacturing. By 2016, the company began AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 79
integrating advanced technologies into its facilities. In 2017, Hyundai introduced
the Smart Tag System, which integrated position tracking sensors and wireless
communication chips to enhance assembly line efficiency, marking a key milestone
in its smart factory transition.
Phase 2: Automating Processes (2018)
In 2018, Hyundai revolutionized vehicle inspections with automated protocols
for Advanced Driver Assistance Systems (ADAS), employing six collaborative
robots to streamline the process. Additionally, Hyundai introduced the Chairless
Exoskeleton (CEX) and Vest Exoskeleton (VEX) to support factory workers,
improving both efficiency and worker health.
Phase 3: Virtual Reality and Global Implementation (2019)
Hyundai embraced virtual reality for vehicle design, allowing engineers to simulate
models and environments, enhancing design accuracy and safety checks. The
VEX exoskeleton was successfully tested in Hyundai’s Alabama and Kia’s Georgia
plants, demonstrating its effectiveness in enhancing worker productivity and
ergonomics.
Phase 4: AI Integration (2020)
Hyundai began leveraging artificial intelligence (AI) across its manufacturing
processes, focusing on quality improvements and real-time data analysis. One of
the early trials involved using deep learning to enhance paint quality, showcasing
the company’s commitment to innovation.
Phase 5: Hyundai Mobility Global Innovation Centre (2021-2022)
In 2021, Hyundai commenced the construction of its Hyundai Mobility Global
Innovation Centre (HMGIC) in Singapore, which was completed in 2022. This
centre serves as a hub for smart manufacturing technologies and future mobility
solutions, fostering an open innovation ecosystem.
Phase 6: Pioneering Smart Manufacturing (2023 and Beyond)
From 2023 onwards, Hyundai continues to advance its AI-based, IoT-assisted,
human-centred intelligent manufacturing platforms. These cutting-edge
technologies aim to reduce development costs, improve vehicle quality, and
solidify Hyundai’s vision for a sustainable and innovative future.
Key Takeaways for India:
India can draw several insights from Hyundai’s transition to smart factories.
The establishment of dedicated R&D centres, such as Hyundai’s Manufacturing
Engineering R&D Centre, highlights the importance of investing in innovation to
boost manufacturing capabilities. Adopting advanced technologies like AI and IoT
can significantly enhance productivity and quality control in Indian automotive AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 80
manufacturing, making it more competitive and cost-effective in the global market.
CASE 4: BYD BLADE BATTERY - CHINA
BYD was founded in China and named after a phrase “Build Your Dreams,” which
initially focused on batteries and electrical appliances before expanding into the
automotive industry. This transition was driven by the Chinese government’s push
to promote electric vehicles, leading BYD to manufacture cars, buses, trucks, and
forklifts. In 2023, BYD reported remarkable revenue of approximately $46 billion,
with profits soaring to $1.2 billion, showcasing a significant turnaround in its financial
performance. By 2022
22
, BYD had sold over 1.5 million electric vehicles globally,
positioning itself as a leader in the market. The BYD Blade Battery, developed by
BYD Auto Co., Ltd., represents advancement in EV battery technology.
BYD’s Blade Battery Revolution:
Phase 1: Emergence of the Blade Battery (2020-2021)
BYD introduced its ground-breaking Blade Battery in 2020 as a response to key
challenges in the EV industry, particularly regarding battery safety and efficiency.
Using Lithium Iron Phosphate (LFP) technology, the Blade Battery significantly
enhances safety compared to conventional lithium-ion batteries. It underwent
rigorous testing, demonstrating minimal thermal runaway risks, making it one of
the safest battery options in the market.
Phase 2: Gaining Global Attention (2021-2022)
By 2021, the Blade Battery had gained widespread recognition, attracting interest
from major players like Tesla. This phase marked a shift in battery technology,
with several manufacturers adopting BYD’s innovative design due to its superior
safety standards and efficiency.
Phase 3: Industry Impact and Widespread Adoption (2023)
In 2023, the Blade Battery was increasingly integrated into various EV models,
contributing to the global adoption of electric vehicles. With its lower production
costs, higher energy density, and superior safety, the Blade Battery became a
viable alternative to traditional batteries. Countries around the world recognized
the potential of this innovation to mitigate environmental impacts and accelerate
the shift to electric mobility.
Key Takeaways for India:
For India, the BYD Blade Battery presents a significant opportunity to accelerate
the growth of its EV market. By adopting this advanced battery technology,
Indian manufacturers can enhance vehicle safety, extend driving ranges, and
reduce costs. As India pushes toward net-zero emissions and increased EV
adoption, innovations like the Blade Battery could address concerns about battery
22 https://www.deccanherald.com/auto/explained-how-china-built-byd-its-tesla-killer-2890643 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 81
performance and infrastructure, enabling the production of more efficient and
environmentally friendly vehicles.
CASE 5: TATA AUTO COMP - INDIA
Tata AutoComp Systems is a leading Indian automotive components manufacturer,
catering to both domestic and global markets. Established in 1995, the company
specializes in a wide range of products, including interior and exterior components,
EV solutions, and advanced technologies. Through strategic partnerships and
R&D, Tata AutoComp has become a trusted supplier to major global OEMs. Its
focus on sustainability and innovation positions it as a key player in the evolving
automotive landscape.
Phase 1: Entry Phase (1995 – 2005):
Tata AutoComp initially focused on supplying components to the domestic
market, establishing itself as a trusted partner for leading OEMs. The company
also formed joint ventures with global leaders in the auto component industry,
such as TRAD (automotive seating) and Ficosa (automotive mirrors), bringing
advanced technologies to India. In 2002, Tata AutoComp began exporting select
components to European and Asian markets, marking the beginning of its global
aspirations.
Phase 2: Growth Phase (2006-2015):
During this period, Tata AutoComp expanded its global operations and diversified
its product portfolio. The company prioritized exporting labour-intensive
products like plastics and interior components to international markets. Between
2008 and 2010, it established manufacturing facilities in China and Latin America
and collaborated with Korean and Japanese firms to develop lightweight, fuel-
efficient components. By 2015, Tata AutoComp had become a preferred supplier
for major automakers such as Toyota, GM, and BMW.
Phase 3: Diversification and Specialization (2016-2020):
With the global shift toward electric vehicles (EVs), Tata AutoComp began focusing
on innovation in EV components and advanced technologies. The company invested
in R&D for EV-related products, including battery packs, charging systems, and
lightweight composites. In 2019, it set up an advanced engineering centre in Pune,
India, to drive innovation and provide technical support to global markets.
Phase 4: Consolidation and Global Leadership (2021-Present):
In recent years, Tata AutoComp has emphasized sustainability, digital
transformation, and the circular economy. In 2021, it announced a carbon-neutral
roadmap for its manufacturing operations by 2035 and initiated work on “Green
Factory” projects. The company also expanded its presence in North America
and Europe through partnerships with local suppliers. In 2023, it launched an AI-
driven supply chain solution to enhance efficiency and reduce costs. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 82
Key Takeaways for India:
Tata AutoComp has a total of 61 manufacturing facilities spread across the
worldwide including 8 facilities spread across North America, Latin America,
Europe and China. They have also 18 businesses (7 fully owned, 9 Joint Ventures,
2 service units) in their portfolio. Tata AutoComp’s integration into Global Value
Chains (GVCs) highlights India’s potential as a competitive player in the global
automotive industry. Its success in exporting labour-intensive products, forming
strategic global partnerships, and establishing manufacturing hubs abroad
demonstrates the value of aligning domestic capabilities with international
demand. Investments in EV components and sustainability initiatives position
India as a key contributor to evolving GVCs. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 83 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 84 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 85 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 86 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 87
POLICY RECOMMENDATIONS
FOR INDIA’S AUTO COMPONENT
SECTOR AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 88
5.1 INTRODUCTION
5.1.1 OVERVIEW OF INDIA’S AMBITION: $120 BILLION AUTO
COMPONENT PRODUCTION BY FY30
As per the Vision, India’s auto component sector is poised for substantial growth
by 2030, with plans to increase production from $70 billion in FY23 to $120
billion by FY30. It has also been envisioned to triple auto component’s exports,
growing from $20 billion to $60 billion during this period, positioning itself as
a formidable player in global markets. Domestic production is projected to rise
from $70 billion to $145 billion, driven by increasing demand and a focus on high-
quality, value-added products. This ambitious growth strategy highlights the
sector’s commitment to enhancing its contribution to both the national economy
and global supply chains. However, realizing these targets will require overcoming
significant challenges, including improving scale and cost competitiveness,
bolstering R&D capabilities, and upgrading infrastructure. Keeping above aspects
in mind, strategic policy interventions will be crucial to supporting industry growth
and elevating its global competitiveness.AutocomponentGVCambition
Capitalizeonindustrytailwinds
Vision
(FY30)
PresentScenario
(FY23)
IndiaAutocomp
consumption
IndiaExports
IndiaGVCsalience
(%shareofglobal)
Direct
Employment
$120B
$20B $60B
$0B $25B
$70B
1.5M3-4M
IndiaNetExports
3% 8%
IndiaProduction$70B $145B
GlobalAutocomp
consumption
GlobalAutocomp
GVC
$2400B $2000B
$750B $700B
Figure - 5.1
Vision for Automotive Industry FY 2030
5.1.2 STRATEGIC NEED FOR POLICY INTERVENTIONS
As seen in section 3.3, India’s automotive manufacturing sector faces a disability
of around 10% compared to China as the country on account of higher raw
material costs, steeper import duties, and increased freight costs. Moreover,
India’s depreciation rates are twice that of China, at 100% versus 50%, and the
prime lending rate is substantially higher, with China’s rate at 3.45% compared to
India’s MCLR of 9.37%. These cumulative disadvantages underscore the need for
targeted support to enhance the competitiveness of India’s automotive industry. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 89CommentsIndia disabilityCostcomponent
Increasedcost of raw materials in India compared to China
Higher import duties & freight costsin India
-9.5%
Material
Landed labour cost (including management costs) lower in
India
3.1%Employee
Higher depreciation in India compared to China (100% vs
50%)
-3.4%Depreciation
India?s avg. utility cost post-subsidies is 10-15% lower than
China
0.3%Power & fuel
Slightly higher effective tax rate in India -0.02%Tax
Prime lending rate in China at 3.45% vs MCLR in India at
9.37%
-0.1%Finance
-9.6%Overall Cost Disability
Figure - 5.2
The auto component sector plays a crucial role in India’s economic growth,
offering significant potential for job creation and export revenue. To compete
effectively on the global stage, robust policy support is of utmost importance
to overcome structural challenges, attract investments, and foster innovation.
Achieving these objectives will require a strategic blend of investments, enhanced
global competitiveness, and measures to improve the ease of doing business.
There are a whole host of components Chassis & Body, Drive transmission &
Steering, Engine, Suspension & Braking, Telematics, battery, etc. To further
understand the state of each of the components, they have been divided into
four quadrants based on their maturity and complexity as shown below in Figure
5.3. Complexity refers to the degree of difficulty in designing, developing, and
manufacturing a component or system whereas maturity refers to the degree
of development, testing, and validation of a component or system, as well as its
acceptance and adoption in the market. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 90
Classification of Automotive Component Based on Manufacturing Complexity of Technology
Figure - 5.3
Source: Crisil Intelligence
The plot reveals a clear trend, with components such as Body and Chassis,
Exhaust, and Steering, which have been staples of traditional automotive design,
clustering in the lower left quadrant, characterized by conventional technology
and relatively simple and established manufacturing processes. Components like
Driveline, Transmission Systems, and Engines, which are also conventional but
have complex manufacturing processes, are positioned in the lower right quadrant.
Components like Software defined Gauges, Motor, and Navigation systems,
which are continuously evolving and emerging technologies, are positioned in
the upper left quadrant, albeit with still manageable manufacturing complexities
while components such as Batteries, Lidars in the top right which are emerging
as well as complex. This plot provides a framework for understanding the
transformative changes underway in the automotive industry and the implications
for manufacturers, suppliers, and policymakers. Additionally, we assessed each
quadrant’s characteristics, challenges, and barriers to entry to identify areas
where innovation and investment can have the greatest impact.
5.1.3 EMERGING AND COMPLEX QUADRANT
5.1.3.1 Characteristics
This quadrant includes components that lay the foundation for the future of
global mobility. The components included are advanced in terms of technology
and complex in terms of manufacturing and functioning. They require high
R&D as well as capex investments. The items are mostly smart and require high AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 91
computational ability. The components within this quadrant not only involves
hardware that functions inside the vehicle but also the systems that are present
outside the automobile system performing executing functions of the vehicles.
Most of the technology is at a nascent stage, which provides a fair competitive
field to become a leader in the respective technological space.
This quadrant is marked by complex manufacturing processes and intricate
vehicle subsystems. It features advanced raw materials, such as high-performance
battery systems, which require sophisticated manufacturing to ensure energy
density, safety, and reliability. Additionally, the quadrant includes cutting-edge
technologies like advanced sensors, 5G connectivity, and High-Performance
Computing (HPC) and Artificial Intelligence/Machine Learning (AI/ML)
components. These components demand specialized manufacturing expertise
and precision engineering, making manufacturing challenging. Despite the
difficulties, companies that can master these complexities will be well-positioned
to capitalize on the opportunities in this space.
With a well-developed domestic automotive market, focus on this technology
adoption and its manufacturing can help India achieve meaningful market share
in the future of global mobility, at the same time ensuring our dependence on
imports for meeting domestic requirement is minimized.
5.1.3.2 Challenges
The quadrant of emerging technology and complex manufacturing offers a
challenging and complex environment, marked by technological uncertainty,
integration risks, and significant investments in research and development.
An analysis of the manufacturing process in this quadrant reveals several key
factors that contribute to its complexity. Firstly, the production of advanced
components requires a high degree of technological expertise, including
materials science, electrical engineering, and computer architecture. For instance,
the development of advanced Lidar sensors requires expertise in photonics,
optics, and semiconductor design, as seen in companies like Velodyne Lidar and
Quanergy Systems. Secondly, the integration of multiple technologies increases
the risk of errors and defects, making quality control a critical aspect of the
manufacturing process. For example, the production of 5G connectivity modules
involves the integration of multiple components, including antennas, amplifiers,
and processors, which can lead to errors and defects if not properly calibrated, as
seen in companies like Qualcomm and Intel. Finally, the production of advanced
components requires significant investments in research and development, as
well as in capital equipment and manufacturing infrastructure. For instance, the
development of advanced battery systems requires significant investments in
research and development, as well as in specialized manufacturing equipment, as
seen in companies like Tesla and LG Chem.
To thrive in this quadrant of nascent technology and complex manufacturing,
companies must be prepared to overcome three significant challenges. Firstly,
they must be willing to invest heavily in Research and Development (R&D) to AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 92
stay at the forefront of technological innovation, as the development of advanced
components requires continuous advancements in materials science, electrical
engineering, and computer architecture. Secondly, they must be prepared
to make substantial capital expenditures (Capex) to acquire and maintain the
specialized manufacturing equipment and infrastructure necessary to produce
these complex components. Finally, they must possess a highly skilled workforce
with expertise in multiple disciplines, , to design, develop, and manufacture these
advanced components.
5.1.3.3 Barriers
Figure - 5.4
The emerging and complex quadrant poses significant challenges for companies.
The complexity of manufacturing is a significant hurdle, requiring substantial
expertise and specialized machinery. Additionally, the complexity of raw
materials used adds another layer of difficulty. Technological barriers are also
very high, involving cutting-edge technologies like AI and advanced sensors,
which demand significant R&D investment and expertise. The absence of a robust
supplier ecosystem limits access to reliable and high-quality components, leading
to higher costs and delays. While capital requirements are significant, funding
is available through government incentives, venture capital, banking ecosystem
and industry partnerships. Finally, competition is relatively low, providing an
opportunity for early movers to capture market share, but it will increase as the
technology matures. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 93
5.1.4 CONVENTIONAL AND COMPLEX
5.1.4.1 Characteristics
This quadrant comprises components that are well-established in the automotive
industry, yet require sophisticated manufacturing processes and expertise. These
components have matured over time, with their technologies being refined and
optimized through years of development and iteration. While they may not be as
evolving as their emerging counterparts, they are no less critical to the functioning
of modern vehicles. Notably, many of the components in this quadrant have a high
share in India’s export market, underscoring their importance to the country’s
automotive industry.
The Conventional and Complex quadrant is characterized by powertrain and
drivetrain components that are intricate in design and demanding in terms of
manufacturing tolerances. The Engine, Transmission, Gearbox, and Torque
Converter are all examples of components that require high-precision engineering
and advanced manufacturing techniques to ensure optimal performance,
efficiency, and reliability. The raw materials used in these components, such as
steel, aluminum, and copper, are also undergoing significant advances, with the
development of new alloys and materials that offer improved strength, durability,
and sustainability. As these advances continue, we can expect to see even more
innovative and efficient components emerge from this quadrant, further solidifying
India’s position as a major player in the global automotive industry.
5.1.4.2 Challenges
The Conventional and Complex quadrant is characterized by established industries
with well-defined products and processes, but it faces significant challenges
that threaten to erode its competitiveness. One of the primary challenges
is the technology laggardness compared to other nations. For instance, while
German manufacturers have adopted advanced robotics and automation in their
production lines, many companies in this sector still rely on manual labour and
outdated machinery. This has resulted in a significant gap between the sector’s
domestic manufacturing capabilities and those of other countries, making it
difficult for companies to compete on a global scale. Furthermore, the quality
of products manufactured in this sector often lags those of other nations. For
example, while Japanese automakers are known for their high-quality vehicles
with advanced safety features, some companies in this sector still produce
vehicles with outdated safety features and lower quality materials.
Another significant challenge is the lack of a skilled workforce, as the existing
workforce ages and retires, and companies struggle to find qualified replacements
with the necessary skills and expertise to operate and maintain complex
manufacturing systems. For instance, a leading aerospace company in this sector
has reported a shortage of skilled welders, resulting in production delays and
increased costs. This shortage of skilled labor is exacerbated by the lack of AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 94
investment in vocational training and education, making it difficult for companies
to find the talent they need to remain competitive. To overcome these challenges,
companies in the Conventional and Complex sector must be willing to invest in
technology upgrades, workforce development, and innovation to revitalize their
competitiveness and ensure a sustainable future. This includes embracing Industry
4.0 technologies, such as automation, artificial intelligence, and data analytics,
to improve efficiency and productivity, and closing the quality gap with other
nations.
5.1.4.3 Barriers
Figure - 5.5
The Conventional and Complex quadrant is characterized by a multitude
of barriers that hinder its growth and competitiveness. The complexity of
manufacturing processes and technological hurdles contribute to the sector’s
challenges. Furthermore, the high capital requirements and intricate raw material
sourcing and processing needs, which are becoming increasingly advanced, add
to the sector’s difficulties. Further, the supplier ecosystem, while not absent, is
dominated by a few prominent large players, limiting options and increasing
dependence on these key suppliers. These barriers can lead to increased costs,
reduced efficiency, and decreased innovation, ultimately affecting the sector’s
ability to adapt to changing market conditions.
5.1.5 EMERGING AND SIMPLE
5.1.5.1 Characteristics
This quadrant includes components that are becoming important for global
mobility. They use advanced technology but are manageable to manufacture and
operate, given their applications in numerous other industries, making production
feasible. These components also need relatively low investment. Nascency of the
technology provides a great opportunity for India to invest, both to meet local
demand and to stay competitive in the export market. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 95
This quadrant of emerging technology and simple manufacturing is characterized
by vehicle subsystems that are still evolving rapidly on the technology front
and but can still be manufactured using relatively lesser complex process. It
houses components such as Infotainment system, which is an in-car system that
provides information and entertainment, usually in the form of a screen mounted
in the car dashboard. Additionally, automotive navigation system is a computer
mapping tool used to assist drivers in locating their destination. The quadrant
also includes software define gauges which typically use software to render and
display information rather than traditional electromechanical gauges. It is also
home to certain components of electric vehicles such as electric motors which
use power from the traction battery pack and drives the vehicle’s wheels. Overall,
these components are characterized by their high degree of innovation as well as
scalability as they can grow and expand as demand increases or as they become
more refined.
5.1.5.2 Challenges
The quadrant of emerging technology and simple manufacturing is marked by
technological uncertainty, funding gap, risk aversion and talent shortage.
The regulatory landscape in India is evolving, and businesses especially dealing
with nascent technologies often struggle to keep up with changing laws, especially
related to data privacy and intellectual property. The government is introducing
new frameworks keeping in mind evolving needs, and hence companies need to
keep their product portfolio and their growth strategy in compliance with the
evolving dynamics. Also, such technologies usually require a shift in mindset, both
for businesses and consumers. Indian businesses and consumers may be slower
to adopt to new technologies due to cost concerns, trust issues and preference
for traditional methods, slowing down the market’s readiness for innovation. For
instance, in case of electric motors, the transition to electric vehicles is essential.
However, despite the availability of incentives, EV adoption in India remains below
10% across most of the vehicle categories, this is not just owing to consumer
inertia, but also due to enabling ecosystem as well as manufacturing waiting for
economies of scale to kick in.
Secondly, the introduction of emerging technologies although comparatively
simpler in nature require special knowledge and workers who can operate new
machines, maintain quality control and ensure production efficiency. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 96
5.1.5.3 Barriers
Figure - 5.6
The emerging and simple quadrant poses significant challenges for companies.
Competition is very high, due to limited R&D investment and a feasible
manufacturing process. The absence of a robust supplier ecosystem limits access
to reliable and high-quality components, leading to higher costs and delays.
Capital requirements are limited; however, funding is difficult due to emerging
technology as organizations usually like to invest in proven technologies. Finally,
capital requirement is moderate, with innovation and expertise required, but can
be managed with due efforts.
5.1.6 CONVENTIONAL AND SIMPLE
Majority of components that we currently export and required by domestic market
are in this segment
5.1.6.1 Characteristics
The conventional and simple quadrant comprises components that have reached a
high level of maturity in terms of technology and manufacturing processes. These
components are well-established in the market, with widely accepted standards
and specifications, and are produced using relatively simple and well-understood
manufacturing processes.
This quadrant is home to components such as traditional mechanical components,
electrical systems, and interior and exterior trim components. These components
are characterized by their high-volume production, low complexity, and relatively
low R&D requirements. The manufacturing processes for these components
are well-established and widely available, with many suppliers offering similar
products. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 97
The conventional and simple quadrant is marked by high competition, low
margins, and a focus on cost reduction and efficiency improvements. Companies
operating in this quadrant must be able to produce high-quality components at
low costs, with a focus on lean manufacturing, process optimization, and supply
chain management.
Overall, the quadrant is characterized by its focus on efficiency, cost reduction,
and high-volume production, with relatively simple manufacturing processes and
well-established technologies.
5.1.6.2 Challenges
Components in the conventional and simple quadrant, such as wiring harnesses
and basic interior components, involve straightforward manufacturing processes
with minimal technological advancement. These components have standardized
designs and established supply chains, making them accessible to a broader
range of manufacturers. However, maintaining quality standards is still critical,
especially for safety and durability. The main challenges here include cost
competitiveness and achieving economies of scale. Companies need to focus
on optimizing production efficiency, better access to raw materials and lean
manufacturing techniques to reduce costs and improve margins. Government
and industry associations can support small and medium enterprises (SMEs) by
offering fiscal incentives, facilitating access to low-cost capital, and providing
quality certification support to enhance market competitiveness.
5.1.6.3 Entry barriers
Figure - 5.7 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 98
The mature and simple quadrant presents moderate entry barriers for companies.
The complexity of manufacturing is low due to standardized processes and well-
established techniques, which makes production accessible to many players.
Technological barriers are minimal, as mature technologies require limited
innovation, focusing more on efficiency improvements. The supplier ecosystem
is robust, given the widespread availability of materials and components needed
for relatively simple manufacturing processes, reducing risks associated with
procurement. Capital requirements are relatively low, primarily needed for scaling
operations and incremental process improvements. Competition remains high,
driven by low entry barriers and a focus on price competitiveness. Finally, raw
material complexity is minimal, with most inputs readily available, but companies
must manage raw material as well as supply chain costs effectively. Success in
this quadrant hinges on operational efficiency and cost management rather than
technological innovation.
5.1.7 FRAMEWORK
To achieve the Vision 2030 goals, India must focus on its core competencies and
prioritize specific segments with the greatest potential. These segments should
be chosen based on market opportunity and India’s strengths. Incentives and
policy interventions, therefore, needs to be concentrated on these prioritized
segments to maximize growth and competitiveness rather than spreading them
thin across several components. Growth
Tr end
Share of ICE BOM
(excl. Assembly costs)Key sub-componentsKey systems
~23%
Cylinder, pistons,
turbochargers, exhaust, etc.
Engine
~20%
Chassis components, frame, and
body structure, exterior panels, etc.
Chassis & Body
~17%
Clutch, transmission gears, axles,
etc.Drive transmission &
Steering
~13%
Display units, infotainment,
connectivity, Inverter, DC-DC
converter, onboard charger, HV
cables etc.
Electronics &
Electrical~ 11 %Seats, airbags, seatbelts, etc.Interiors
~7%
Actuators, sensors, shock
absorbers, stabilizers, etc.
Suspension &
Braking
~5%
Radiator, thermostat, fan, water
pump, etc.
Cooling system
~2%Audio and telematicsTelematics
~2%Wheels, Tires, engine oil, etc.
Consumables &
Misc.
Key systems in ICE auto component value chain
Growth
Trend
Share of EV BOM
(excl. Assembly costs)Key sub-componentsKey systems
~28%Battery cells, BMS, Battery
~23%
Display units, infotainment,
connectivity, ADAS, Inverter, DC-DC
converter, onboardcharger, HV
cablesetc.
Electronics &
Electrical
~15%
Chassis components, frame, body
structure, exterior panels
Chassis & Body
~8%Seats, airbagsInteriors
~5%
Regenerative braking, electric brake,
shock absorber, etc.
Suspension &
Braking
~ 11 %E-drive module, drive computer, etc.
Drive transmission &
Steering
~6%HVAC systemsCooling system
~2%Audio and telematicsTelematics
~2%
Wheels, Tires, fasteners, adhesives,
and other assembly components
Consummables&
Misc (Tires)
Key systems in EV auto component value chain
PositiveNo major effectNegative
Auto Components included in PLI
Auto Components partially covered by PLI
Figure - 5.8
The Production-Linked Incentive (PLI) scheme for ACC batteries and auto
components has partially incentivized the production of these critical components,
as illustrated in the Figure 5.8. While the scheme has provided a boost to the
industry, more investments should be directed towards engine and transmission
components to further propel the Indian auto component market.
Engine and drive transmission components contribute nearly $0.8 trillion to
global consumption. Even with the advent of EVs, these components continue
to demonstrate market potential, driven by the ongoing presence of internal
combustion engine (ICE) vehicles and replacement demand. In fact, they account AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 99
for over 50% of global auto component exports, underscoring their significance in
the industry. Moreover, In India, the export mix has undergone a significant shift,
with high-value components, particularly engine and transmission system parts,
increasingly dominating the country’s export landscape as highlighted below.
Source: Crisil Intelligence
Figure - 5.9
Source: Crisil Intelligence
Figure - 5.10
Given their significant contribution to India’s export basket and substantial growth
prospects, components in the ‘Emerging & Complex’ and ‘Conventional and
Complex’ quadrants are poised to drive the country’s automotive export growth.
Incentives should be strategically focused on these two quadrants, with a specific
emphasis on engines and transmissions as other components are already covered
under the PLI scheme to capitalize on its existing strengths in these areas and
establish a larger presence in the global auto component market, as illustrated in
the figure below. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 100
Source: Crisil Intelligence
Figure - 5.11
5.2 A SUMMARY OF FISCAL AND NON-FISCAL INTERVENTIONS
IS AS UNDER:
Based on the above-mentioned quadrants, the necessary policy initiatives and
reforms to help the industry scale up production, enhance capabilities, and integrate
into global supply chains have been broadly categorized into two major heads:
i. Fiscal interventions for Production support for auto components manufacturing,
Improving India’s R&D ecosystem, Enhancing Skilling and industrial infrastructure
development; and
ii. Non-fiscal interventions encompassing technology transfer, enhancing ease of
doing business, exploring FTAs and others in the auto component sector.
Figure – 5.12 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 101 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 102 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 103 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 104 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 105
INTERVENTIONS AND
RECOMMENDATIONS AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 106
6.1 FISCAL INCENTIVES FOR COMPONENT MANUFACTURING:
Numerous government programs are designed to boost domestic production of
cutting-edge automotive technologies, draw in investments, and enhance the supply
chain. These schemes are intended to offer targeted financial incentives, foster
economies of scale, and tackle key industry hurdles. However, their effectiveness is
often undermined by a misalignment with the specific needs of the auto components
sector. Unlike assembly, which benefits from a capital-to-output ratio of 1:8 to 1:16, the
auto components industry operates with a much lower ratio of 1:1 to 1:2. This means
that investments in auto component manufacturing yield less output compared to
assembly operations.
As highlighted in Para 5.1, Indian companies and components face a cost handicap
of 10% and to bridge this gap, there is a need to provide fiscal incentives for
auto component manufacturing. While providing the incentive, it is pertinent to
incentivise only selected components as done in figure 5.11. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 107
6.1.1 SCHEME 1: PRODUCTION SUPPORT SCHEME:
The Production Support Scheme – The scheme is proposed to comprise of 2
major aspects for incentivising automotive components and tools and dies for
manufacturing of these components
i. Opex support for scaling manufacturing of components in quadrant 2 identified
in Figure 5.11
ii. Capex support for manufacturing of tools and dies for manufacturing auto
components in India
Details of the scheme is as below:
Scheme 1A: Opex support to achieve scale of components
Recommendations: New scheme with incentive rate and qualification thresholds
curated for component specific unit economics, making it attractive for manufacturing
these components in India
Target Segments: Components identified under Quadrant 2, Refer Fig 5.11.
List of eligible products:
• Engine & engine components: Engine cylinder & cylinder heads, Pistons & engine
valve, Crankshaft & camshaft
• Transmission Systems: Transmission gears, Axles
(Components that have been covered under auto-components PLI have been
excluded)
Scheme 1B: Capex support for tools and dies
Recommendations: New scheme with incentive rate and qualification thresholds
curated for specialized equipment required to manufacture focused tools and dies
for auto component manufacturing
Target Segments and List of eligible products: Tools and Dies for manufacturing of
automotive components AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 108
6.2 SKILLING INCENTIVES FOR COMPONENT MANUFACTURING:
India is home to one of the world’s largest engineer populations, yet it faces a talent
shortage of manpower in high-precision manufacturing. Companies often incur high
costs to build training infrastructure and provide specialized training, primarily due
to outdated curricula in educational institutes and graduate engineers not having
the required skills. Global companies also struggle to find local institutes that offer
the necessary skills training, often turning to partnerships with foreign universities.
Addressing this issue requires a strategic focus on developing skilled manpower to
meet short-term, medium-term, and long-term talent needs.
India has a vast pool of human resources, yet the employability of its youth remains a
significant challenge. To address this issue, the government has recently introduced
several initiatives aimed at enhancing skill development and providing employment
opportunities:
a. Employment Linked Incentive Scheme (ELI):
In the Union Budget of 2024-25, the Prime Minister’s package of ₹2 lakh crore has
been allocated to promote employment, focusing on both employers and employees,
with a particular emphasis on the Employees’ Provident Fund Organisation (EPFO).
This package includes a range of schemes:
• Scheme A: First-Time Employment Scheme: This scheme is expected to benefit
2.1 crore youth over 2 years will provide one-month wage to all persons newly
entering the workforce in all formal sectors. The eligibility limit will be a salary of
Rs. 1 lakh per month. Direct benefit transfer of one-month salary will be up to Rs.
15,000 in 3 installments to first-time employees, as registered in the EPFO.
• Scheme B: Job Creation in Manufacturing: This scheme aims to drive significant
hiring of first-time employees in the manufacturing sector, benefiting 30 lakh
youth and their employers. It offers incentives to both employees and employers
based on EPFO contributions during the first 4 years of employment. However, if
the employment ends within 12 months, the employer must refund the subsidy.
• Scheme C: Support to Employers: Financial assistance for employers hiring
additional employees. This employer-focused scheme covers all additional
employment with a salary of up to ₹1 lakh per month across all sectors. New
employees under this scheme do not need to be first-time EPFO entrants. The
government will reimburse employers up to ₹3,000 per month for 2 years towards
EPFO contributions for each additional employee. The scheme aims to incentivize
the creation of 50 lakh jobs.
Incentive rates in first 4 years: 24%: 24%: 16%: 8%
Eligibility:
• Applicable to first-time employees in the manufacturing sector. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 109
• All employers, both corporate and non-corporate, with a three-year track record
of EPFO contribution will be eligible.
• Employees must work directly for the entity that pays them salary or wage, i.e.,
an in-sourced employee.
• Employees with a wage or salary of up to Rs.1 lakh per month will be eligible,
subject to the EPFO contribution.
b. Employment and Skilling:
• Scheme D: Skilling Programme and Upgradation of Industrial Training Institutes:
This new Central Sector Scheme (CSS), with a total allocation of ₹60,000 crore,
aims to skill 20 lakh youth over the next five years. To achieve this, 1,000 Industrial
Training Institutes (ITIs) will be modernized in a hub-and-spoke model with a
strong focus on tangible outcomes. The course curriculum will be updated to
align with industry requirements, and new programs will be introduced to cater
to emerging skill demands.
• Scheme E: Prime Minister’s Internship Scheme: PM Internship Scheme has been
launched to enhance youth employability by providing internship opportunities
in top companies across the country. Scheme offers 12 months internship
opportunities for Indian citizens aged between 21 and 24 years who are not
engaged in full-time education or employment. Each intern receives a monthly
stipend of ₹5,000, along with one-time financial assistance of ₹6,000.
Eligibility:
• Indian citizen between the age of 21 and 24 years
• 10th pass, 12th pass, or a UG degree or diploma holder
• Candidates must also not have either a part-time or a full-time job already
The Indian auto component sector, set for substantial growth, needs a highly skilled
workforce to sustain and boost its global competitiveness. Addressing this critical
requirement calls for a comprehensive approach centred on skilling initiatives.
These initiatives are designed to bridge the gap between the current educational
curriculum and industry needs, attract top talent, and elevate the overall skill levels
of the workforce. To enhance the auto component sector in India, several strategic
targeted skilling initiatives are essential: AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 110
6.2.1 SCHEME 2: GVC SKILLING INDIA SCHEME:
Recommendation: To offer a incentive capped at a certain amount, to eligible
players in the Auto component industry
Target Segments: Components identified under Quadrant 1 & Quadrant 2, Refer
figure 5.11.
6.2.2 NON-FISCAL SKILLING INCENTIVES:
A multi-faceted strategy is required to facilitate short-term, medium-term and long-
term skilling requirement. Some of the skilling initiatives required are as under:
1. Attract overseas talent and motivate high-level Indian talent to return
to India: There is a need to attract highly skilled NRIs by offering various
incentives and for retaining highly skilled overseas talent. For this, India should
consider a two-pronged approach as under:
• Firstly, implement attractive incentives like providing right to purchase
residence in India to foreigners, streamlined visa processes, and guaranteed
long-term employment opportunities, mirroring China’s Thousand Talents
Program (TTP).
• Secondly, develop designated foreign townships within existing auto
component hubs, fostering a sense of community and cultural exchange.
These measures will make India a more competitive destination for global
talent, ultimately driving innovation and economic prosperity.
2. Develop specialized engineering, research and design courses: There is
a need to develop specialized engineering, research, and design courses
at Indian higher education institutions to prepare the future workforce by
focusing on advanced technologies and industry needs.
3. Support Training of Trainers (TOT) through exchange programs: Support the
Training of Trainers (TOT) program through international exchange initiatives
and partnerships with global institutes and multinational corporations (MNCs)
for curriculum development and research and development (R&D) in the
automotive component manufacturing.
4. Bridge the gap between university curricula and industry requirements:
Bridge the gap between university curricula and industry requirements by
identifying key skills, promoting apprenticeship programs, and expanding
initiatives such as the National Apprenticeship Promotion Scheme (NAPS).
5. Upgrade curricula and run specialized training courses in partnership with
OEMs and tech institutes:
• Upgrade educational curricula and develop specialized training programs
through partnerships with Original Equipment Manufacturers (OEMs) and
leading technical institutes. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 111
• Establish advisory boards comprising industry experts, academia, and
technical professionals to ensure curriculum alignment with evolving
industry needs. These boards will provide guidance on incorporating the
latest technological advancements and industry best practices into the
training modules.
• Additionally, promote e-Learning initiatives to make skill development
more accessible and flexible, allowing trainees to acquire knowledge at
their own pace while keeping up with industry standards and innovations.
This integrated approach will help create a workforce equipped with
relevant, up-to-date skills.
6. Expedite Visa approvals for training/ business visits: To facilitate the
movement of skilled professionals, especially in Auto and Auto components
industry, India could establish Memorandums of Understanding (MoUs) with
partner countries. These MoUs should aim to simplify visa regulations and
expedite the visa processing for professionals traveling for training and
development purposes. This initiative would promote knowledge exchange and
strengthen collaboration within the industry, accelerating India’s technological
progress and innovation in these sectors. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 112
6.3 INCENTIVES FOR R&D ECOSYSTEM DEVELOPMENT
The auto component sector in India is on the brink of significant growth but
faces intense global competition and rapid technological advancements. To stay
competitive and meet future demands, there is a critical need to strengthen R&D
efforts within the industry. Investing in R&D will enable the Indian auto component
sector to position them as a global leader, driving sustainable growth and expanding
export potential over the next 4-5 years.
To support R&D in this sector, the government should establish a dedicated, outcome-
based R&D fund that partially incentivises R&D expenses. This initiative would
encourage innovation by reducing the financial burden on companies. Additionally,
offering incentives for product innovation can further stimulate technological
advancements and enhance the quality and efficiency of auto components made
in India. Such efforts will not only enable Indian manufacturers to compete globally
but also promote the development of advanced technologies like electric vehicle
components, cutting-edge safety systems, and fuel-efficient parts.
A multi-faceted strategy encompassing incentives, setting up of Research institutes
and transitioning to build to design models is required to facilitate short-term,
medium-term and long-term R&D initiatives in India.
ProposalFraunhofer-Gesellschaft ModelTransition to Build-to-Design
?Setting up of Research
institutes and transitioning to
build to design models is
required to facilitate short-
term, medium-term and long-
term R&D initiatives in India
?India can establish a network of applied research
institutes, similar to the Fraunhofer-Gesellschaft
model, to foster industry-academia collaboration
?SMEs can use the cost-sharing model to invest in R&D
activities at subsidized rate.
?~30% funding from government sources
?Similar scheme for Funding Industry Relevant R&D by
DST where funding shared between SERB (Science and
Engineering Research Board) and Industry.
?SERB share shall not exceed Rs. 50 lakh for a project.
?The support from SERB shall be extended only to the
academic partner and not to the industry.
?Funding for a maximum period of three years.
?The industry share should not be less than 50 % of the total
budget
?Automotivecomponent manufcaturers
heavily rely on the Built to Print model
?Shiftto Built-to-Design model will help
component players move up the value
chain with improved margins
Figure 6.1
Fiscal policies should focus on incentivizing R&D investments and fostering
collaborations between industry and research institutions. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 113
6.3.1 SCHEME 3: FISCAL INCENTIVE FOR ELIGIBLE COMPONENTS
FOR R&D SUPPORT:
Recommendation: Implement a strategic R&D support scheme with financial
incentives across product categories to foster innovation and build globally
competitive Indian auto component manufacturers
Target Segments: Components identified under Quadrant 1 & Quadrant 2, Refer
Figure 5.11.
The R&D incentives could also be used for acquiring IP by Indian companies only on
a case-to-case basis.
6.3.2 NON-FISCAL INCENTIVE FOR ELIGIBLE COMPONENTS FOR
R&D SUPPORT:
Fraunhofer-Gesellschaft Model:
India can establish a network of applied research institutes, like the Fraunhofer-
Gesellschaft model, to foster industry-academia collaboration.
• SMEs can use the cost-sharing model to invest in R&D activities at subsidized
rate.
• ~30% funding from government sources
• A similar scheme for Funding Industry Relevant R&D by DST where funding
shared between SERB (Science and Engineering Research Board) and Industry.
»SERB share shall not exceed Rs. 50 lakhs for a project.
»The support from SERB shall be extended only to the academic partner
and not to the industry.
»Funding for a maximum period of three years.
»The industry share should not be less than 50 % of the total budget AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 114
Figure – 6.2
Figure – 6.3 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 115
Transition to Build-to-Design:
India’s manufacturing sector is currently dominated by the “Build to Print”
model, where components are produced based on customer designs, particularly
in sectors like automotive components, textiles, and light engineering, which
leverage the country’s low-cost, high-volume production capabilities. However,
to ascend the value chain and compete globally in high-tech sectors, India must
transition to the “Build to Design” model, where manufacturers design, engineer,
and produce products, thereby owning intellectual property (IP) and commanding
higher margins, enabling the country to move beyond its traditional low-cost
manufacturing image and emerge as a hub for innovative, high-value products. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 116
6.4 FISCAL INCENTIVES FOR HARD INFRASTRUCTURE
A. Developing world-class industrial infrastructure with plug and play facilities
is crucial for enhancing efficiency and reducing operational costs in the auto
component sector. Creation of Plug and Play Facilities will ensure minimal set-
up time for industries and provide common and shared infrastructure in clusters.
India’s auto clusters have successfully attracted both domestic and global
players in the automotive and auto component industries, offering access to
advanced manufacturing facilities and extensive logistics networks. However,
these clusters face significant challenges, including limited access to modern
technological tools and inadequate warehousing facilities. These limitations
impede operational efficiency and competitiveness, highlighting the need for
focused infrastructure improvements.
B. Recommendation: A scheme is proposed to develop brownfield large-scale
auto clusters with world-class facilities in collaboration with anchor players
focused on specific segments, products, or components. There is also a need
to undertake a thorough audit of existing auto clusters to evaluate utilization,
implementation problems, and the state of facilities provided. The essential
suggestions are listed below: -
i. Scale and performance: There is a need to upscale auto clusters and make
it attractive to achieve supplier agglomeration and efficiency. It is proposed
to revamp 8 existing auto clusters by undertaking a thorough audit of
these clusters. Additionally, to ensure success, monitoring metrics such
as export turnover, investment levels, and other performance indicators is
recommended for tracking progress.
ii. Provisions within a cluster: The cluster should have some common facilities
that make them attractive, which inter-alia includes:
• Common design and R&D Facilities: Enhance Auto cluster’s R&D
facilities to suit changing industry requirements (e.g., EVs, hybrid tech,
batteries, etc.) by offering design labs (with CAD, CAE, CAM software),
material research labs, Prototyping and manufacturing machinery (CNC,
3D printers) and Testing equipment (environment chambers, vibration
test chambers).
• Factories and tool rooms: Develop factories with state-of-the-art facilities
and equipment, Invest in advanced manufacturing technologies and tool
rooms (heat treatment, quality control etc.) in proximity to existing major
auto clusters.
• Testing facilities: Develop testing and validation centres such as
environment chambers, electrical and electronic testing, chemical and
material analysis, NVH testing, simulation and modelling, compliance
testing in multiple hubs for vehicle performance evaluations, durability
mileage accumulation, etc. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 117
• Training Centres: Establish comprehensive training programs in collaboration
with nearby technical universities; focus on specific skills required for the
industry in the form of technical training, equipment workshops, classrooms,
industry partnerships, and apprenticeship programs.
• Logistics & warehousing: Improved connectivity and logistics by
providing ready-built warehouses, truck terminals, customer freight
stations, connectivity to ports, raw material transportation.
• Common & social infrastructure: Ensure a sustainable, efficient, and
well-rounded ecosystem for both workers and operations by providing
housing, primary healthcare, dormitories, schools, drainage and effluent
treatment systems, solid waste management, and utilities including
power, gas, and water.Total Budget Outlay a` 2,000 Cr
Clusters Selected 8
(600-1000 Acres)
Type
Details
8 brownfield
Cluster
Common design
and testing
facilities
Design labs (with CAD,
CAE, CAM software),
material research lab,
prototyping and
manufacturing
machinery (CNC, 3D
printers), testing
equipment
(environment
chambers, vibration
test chambers)
Common Tools
and machines
Metal shop,
electronics
assembly, rapid
prototyping, 3D
printing etc.
Waste water treatment
and Effluent treatment
plant
Waste management
center, waste collection
plant, solid waste
management system etc.
Industry-grade
utilities
Uninterrupted
power supply,
deionized water,
drainage, etc.
Housing &
SocialInfra
Housing, Medical,
educational &
recreational
Common
warehousing &
logistics
Truck terminal,
parking, custom
freight station etc.
Scheme 4(Hard infrastructure)
Total of 8 clusters to support upcoming auto hubs and transition to EVs
Strategic investment for upgrading 8
existing ones, ensures an effective
solution to manage expected
10-12% growth in auto comp.
Pithampur, Sambhaji Nagar, Chennai, Ludhiana, NCR, Sri City, Pune, Rajkot
1 2 43
Figure 6.4 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 118
Figure – 6.5 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 119
6.5 GOVERNMENT-FACILITATED IP TRANSFER
To improve the strength of auto-component SME’s, improve local manufacturing and
localisation for improving competitiveness as well as reducing R&D cost, a scheme
could be formulated where the Intellectual Property rights (IP) of components
identified by the auto-component SME’s are acquired by the Government and then
democratised across MSME players for manufacturing. This helps reducing the time
and cost involved in development and helps foster competition among MSME’s.
The broad contours of the scheme are drawn out below:
• Identification of IP to be acquired: Government and industry jointly identifies
strategically valuable IP from global patent repositories
• Government Acquisition of IP: The government acquires high-potential
intellectual property (patents, technologies) from R&D institutions or startups
• IP leasing
• Targeted Support for MSMEs
Target Segments:
• Government Acquisition of IP: Government procures high-potential IPs from
global patent repositories and domestic R&D institutions (CSIR, IITs, DRDO,
startups). Aimed at building a National IP Pool. IP from National IP pool is
licensed to MSMEs on low-cost lease basis.
• Targeted MSME Support for IP Commercialization: Infrastructure, tools, and
expert mentoring support for:
»Prototyping, testing, adaptation
»Integration of IP into production
»Budget includes cost of legal support and tech transfer facilitation.
6.6 BRANDING SUPPORT
To expand their global footprint, Indian automobile component manufacturers must
prioritize investing in brand development in international markets. A robust brand
image is essential for creating top-of-mind awareness, driving customer preference
among global OEMs, and ultimately, securing a competitive edge.
Indian auto-component manufacturers must develop targeted international business-
to-business (B2B) marketing strategies that foster consistent market engagement
and meaningful relationships with global customers. One effective approach to
promoting the “Made in India” brand is by harnessing the power of digital marketing
channels, which can help reach a broader audience, enhance brand visibility, and
showcase the country’s manufacturing capabilities AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 120
Recommendation: Launch a Branding support scheme to help improve branding of
Indian auto component manufacturing companies.
6.7 EXPECTED BENEFITS:
The aforesaid interventions are anticipated to generate a multitude of benefits.
i. Stimulating production, R&D, and innovation: The interventions are expected to
create a more dynamic environment for automotive sector, fostering growth in
all these areas.
ii. Job creation: Estimates suggest the creation of 2 to 2.5 million new direct jobs,
providing significant employment opportunities along with taking the total
count of indirect jobs to 15 to 20 million.
iii. Positive net foreign exchange inflow: The growth in manufacturing is expected
to lead to a net inflow of foreign exchange, benefiting the country’s balance of
payments.
iv. Increased tax revenue from employees: The newly employed workforce as
envisaged after the potential for boosting production, R&D, and innovation,
coupled with the economic benefits of job creation, positive foreign exchange
flows, and increased tax revenue, would unleash the Potential of India’s Auto
component manufacturing ecosystem. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 121 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 122 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 123 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 124 AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 125
OVERARCHING LIST OF NON-
FISCAL INTERVENTIONS AND
RECOMMENDATIONS AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 126
Overarching List of Non-Fiscal Recommendations
7.1 ENCOURAGING TECH TRANSFER AND FOREIGN
COLLABORATION VIA JOINT VENTURES:
Foreign joint ventures can be a game-changer for the Indian auto component
industry, enabling the development of high-value, mature products that cater to
the growing global demand. Complex manufacturing processes have hindered the
production of these products in India, including high-performance fuel injectors,
advanced transmission systems, and lightweight composite materials. By partnering
with foreign companies from countries like Germany, Japan, and the United States,
Indian manufacturers can gain access to cutting-edge technology, expertise, and
resources, bridging the gap in specialized manufacturing capabilities.
These partnerships can empower Indian auto component manufacturers to produce
complex products, tap into the lucrative global market, and increase their revenue.
To ensure the success of foreign joint ventures, it is essential to create a conducive
business environment that attracts foreign investment. This can be achieved
by offering incentives such as tax breaks, subsidies, and investment promotion
schemes. Additionally, the government can play the role of a facilitator by providing
support for joint venture partnerships, facilitating technology transfer, and ensuring
a smooth regulatory process to safeguard the interests of both entities, thereby
building an environment of trust (major obstacle for foreign technology players).
Furthermore, Indian companies must be willing to adopt new technologies and
processes and invest in upskilling their workforce to ensure a successful partnership.
The Chinese auto component industry has significantly benefited from tech transfer
and foreign collaborations, upgrading their technology, quality, and manufacturing
capabilities. For example, Wanxiang’s joint venture with BorgWarner has enabled
the company to produce high-performance turbochargers, such as those used in the
Ford Mustang, increasing its exports and establishing itself as a significant player in
the global turbocharger market. Similarly, Indian companies can learn from China’s
experience and leverage foreign joint ventures to enhance their competitiveness
and tap into the global market. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 127
7.2 ENHANCING EASE OF DOING BUSINESS
a. To enhance the ease of doing business in the auto component sector and improve
India’s risk perception, the government should focus on targeted interventions
such as streamlining the permit approval process and ensuring time-bound
disbursement of incentives. These measures will help reduce bureaucratic delays
and enhance overall business efficiency.
i. Streamlining permits and approvals for utilities and operations is a critical
step. This can be achieved by implementing the following:
• Pre-embedded approvals for the commencement of operations,
construction, power, property, and taxation in auto clusters.
• Rationalizing and reducing the number of permits and approvals required
across regulatory departments at the central, state, and local levels will
further expedite processes.
• Easing land acquisition, regulatory, and compliance requirements by
addressing delays and reducing turnaround time in granting licenses and
clearances can significantly improve operational efficiency.
ii. Enabling time-bound disbursement of incentives and transfers is vital
for supporting businesses financially. This includes providing clarity in
documentation required to claim disbursements under various schemes
and resolving document audit requirements in a timely manner to maintain
consistency and expedite financial support.
iii. Improving transport connectivity and promoting sustainable practices are
essential components of this strategy. This can be achieved by following
ways:
• Investing in the enhancement of road, rail, and port infrastructure which
will ensure the efficient movement of goods and reduce logistics costs.
• Providing incentives for the adoption of green technology and
implementing strict emission norms with support measures and awareness
programs will promote sustainability. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 128
7.3 EXPLORING FREE TRADE AGREEMENTS
Figure 7.1
Upon examining export patterns, it becomes evident that countries predominantly
engage in trade with nations that have existing free trade agreements (FTAs) in place.
Mexico, a substantial exporter that contributes significantly to global exports, relies
heavily on the United States, which accounts for approximately 89% of its total exports.
The active FTA, the United States-Mexico-Canada Agreement (USMCA), facilitates
trade in automobiles and auto parts, thereby favoring North American production. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 129
Japan, a major Asian exporter, has established FTAs with all its major importing
partners. The bilateral trade agreement between Japan and its primary importer,
the United States, has led to a significant increase in trade in vehicles and auto
components since 2019. The United States accounts for 54% of Japan’s exports,
followed by China, which accounts for 17%. The Regional Comprehensive Economic
Partnership (RCEP) between Japan and China has substantially bolstered trade
relations between the two nations.
In the case of Germany, approximately 65% of its exports are directed to countries
within the European Union (EU) free trade areas. Germany’s key export destinations,
including France, Italy, and Spain, constitute around 25% of its exports and benefit
from the EU single market’s free movement of goods, services, and capital.
Additionally, Germany has established trade agreements with countries like Canada,
Mexico, and South Korea, such as the EU-Canada Comprehensive Economic and
Trade Agreement (CETA), EU-Mexico Global Agreement, and EU-South Korea Free
Trade Agreement, which further enhance its trade networks.
India’s current FTAs are primarily limited to nations like South Korea, Bhutan,
Afghanistan, Thailand, and Sri Lanka. As of 2022, India’s presence in major import
markets remains limited, with an estimated market share of around 3%. To enhance
its export prospects, India should adopt a more strategic approach to FTAs. By
expanding and diversifying its FTA network, India can potentially tap into larger
markets, access a wider consumer base, and foster greater economic integration.
Such agreements can provide Indian industries with increased market access,
reduced trade barriers, and a competitive edge, thereby catalyzing export growth
and economic development. Furthermore, strategically negotiated FTAs can
encourage foreign investment, technology transfer, and innovation, positioning
India as a more formidable player in global trade.
To improve its export competitiveness, India should focus on negotiating FTAs
with key trading partners, such as the European Union, the United States, and the
Association of Southeast Asian Nations (ASEAN). By doing so, India can increase
its market access, reduce trade barriers, and enhance its economic integration with
major trading blocs. This, in turn, can lead to increased export growth, economic
development, and a more prominent role for India in global trade.
7.4 SUPPLIER DISCOVERY AND DEVELOPMENT
Several nations, including Japan, China, etc. have implemented measures to support
MSMEs in enhancing their marketing capabilities and boosting their market presence.
Some notable initiatives undertaken by these countries include:
Japan:
• The Japanese government has established the SME Support Japan organization,
which provides a range of services to MSMEs, including financing, marketing,
and management assistance. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 130
• SME Support Japan provides support for branding and advertising to help
SMEs promote their products and services.
• With the help of branding and marketing support, Micro, Small, and Medium
Enterprises (MSMEs) in Japan are empowered to establish a strong presence
in the market and effectively compete with larger corporations.
Canada:
• The Canada Small Business Financing Program (CSBFP) is a loan guarantee
program that provides financing to small and medium-sized enterprises
(SMEs) in Canada.
• The program provides financing for marketing and advertising expenses,
such as website development, social media advertising, and trade show
participation.
• It also provides financing for export development activities, such as market
research, trade missions, and export marketing.
• The program is administered by the Government of Canada and is designed
to help SMEs access financing for marketing and other needs that they might
not otherwise qualify for.
South Korea
• The SME Support Centre is a government-funded organization that provides
a wide range of support services to MSMEs in South Korea. The centre was
established to promote the growth and development of MSMEs, which are
considered the backbone of the Korean economy.
• The centre provides marketing and branding support to help MSMEs enhance
their visibility in the domestic and international markets. This includes support
for market research, advertising, and trade show participation.
• The centre provides export promotion support, including market research,
trade mission organization, and export marketing.
With India home to several MSME’s in machine tools, auto components and
light engineering spread across clusters, discovery and development of these
MSMEs play a key role in boosting their strength as well as improving domestic
value additions.
• The government can establish a dedicated organization or an SME support
centre to provide a range of services to MSMEs in the auto-component sector,
including financing, marketing, and management assistance.
• A loan guarantee program can be introduced, to provide financing to MSMEs in
the auto-component sector for marketing and advertising expenses, such as: AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 131
* Website development and e-commerce platform integration
* Social media advertising and digital marketing
* Trade show participation and exhibition expenses
• This support centre can provide support for export development activities,
such as:
* Market research
* Export marketing and branding initiatives
* Compliance with international regulatory requirements
Figure 7.2
Eligibility:
• The enterprise must be classified as a Micro, Small, or Medium Enterprise (MSME)
as per the definition provided by the Government of India and the enterprise
must be operating in the auto-component/machine tools/light engineering
sector.
• The enterprise must be registered with the relevant authorities, such as
the Ministry of Micro, Small, and Medium Enterprises (MSME), or the State
Government’s Department of Industries.
• The enterprise must have a minimum turnover of ₹25 lakhs and a miximum turn
over of ₹100 crores.
• The enterprise must have a minimum of 10 employees.
• The enterprise must have a potential for exporting auto-components, with a
minimum export turnover of ₹10 lakhs in the previous financial year. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 132
7.5 WORKER HOUR FLEXIBILITY
The traditional Indian labor laws have imposed a cap of 10.5 hours per day, including
overtime, on working hours. This contrasts with countries like China, Denmark,
Switzerland, Norway, and Indonesia, where there is no limit on working hours. Other
countries like Bangladesh and Vietnam have slightly higher limits, with 11 hours
and 12 hours, respectively. However, the trend of flexible working hours has been
gaining traction, particularly in countries like China and Vietnam, where it has been
beneficial for manufacturing sectors.
The advantages of flexible working hours in China and Vietnam are multifaceted:
• Increased output: Flexible working hours allow continuous operations, which is
particularly beneficial in the manufacturing sectors where production needs to
be ongoing to meet demand.
• Attraction of Foreign Investment: Multinational companies often seek
environments with flexible labor regulations to optimize production schedules
and reduce operational costs.
• Reduced operational costs: By adjusting working hours, businesses can reduce
costs associated with overtime, labor, and other operational expenses.
• As a result, multinational companies often seek environments with flexible labor
regulations to optimize their production schedules and reduce operational costs.
This has led to countries like China and Vietnam becoming attractive destinations
for foreign investment, particularly in the manufacturing sector.
In India, states like Karnataka, Tamil Nadu, and Telangana have been at the forefront
of attracting foreign investment due to their business-friendly policies, strong
infrastructure, and skilled workforce. Recently, Karnataka amended its labor laws
to allow 12-hour shifts, aligning itself more closely with global manufacturing hubs
like China and Vietnam and the 4 labour codes passed by the Indian government.
This move is expected to make Karnataka a more attractive destination for foreign
investment, particularly in the manufacturing sector.
Tamil Nadu, which is home to major electronics and automobile manufacturers,
has also taken steps to enhance labor flexibility. The state has become a preferred
destination for companies like Apple, Foxconn, and Hyundai, which are looking to
expand or diversify their manufacturing base outside China.
While adopting more flexible labor laws can offer economic benefits, it’s essential to
balance these with worker welfare. Extended working hours should be accompanied
by adequate compensation and rest periods. AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 133
7.6 MISSION MODE EXECUTION STRATEGY:
To drive the growth of the auto and auto parts manufacturing sector in the country and
enhance our participation in Global Value Chains, the above recommendations may
be considered for implementation. These recommendations address critical areas
such as infrastructure development, fiscal support, and technological innovation,
and require coordinated action among various Ministries/ Departments and State
Government for a holistic approach. Given the complexity and cross-ministerial/
departmental nature of these initiatives, it is suggested that they be executed
in a mission mode. To facilitate this, a dedicated unit may be established within
the Ministry of Heavy Industries (MHI) / National Manufacturing Mission (NMM)
to spearhead these reforms and oversee their implementation, ensuring efficient
coordination among stakeholders, monitoring progress, and driving significant
advancements in the automotive sector. Designed by: AUTOMOTIVE INDUSTRY: POWERING INDIA’S PARTICIPATION IN GLOBAL VALUE CHAINS 136