Automotive Industry Landscape in India

Syllabus: Economy

Source:  PIB

Context: India’s premier think tank, NITI Aayog, in collaboration with CRISIL, released the report titled “Automotive Industry: Powering India’s Participation in Global Value Chains”, outlining a strategic roadmap to make India a key global auto component manufacturing hub.

About Automotive Industry Landscape in India:

• Global Ranking & Output: India is the 4th largest automobile producer globally, with 28 million vehicles manufactured in 2023–24 across all segments (two-wheelers to commercial vehicles).
• Export Trends: Auto component exports reached $20 billion, forming 3% of global trade in 2023. India aims to triple exports to $60 billion by 2030.
• Domestic Market Growth: A booming middle class and policy incentives have led to increased demand for EVs and small cars.
• Value Chain Positioning: India’s trade ratio of auto components is 0.99 (balanced import-export), highlighting untapped export potential.
• Policy Support: Key government schemes include PLI, FAME-II, PM E-Drive, and ACC Battery Storage—catalysts for manufacturing scale-up.

Importance of Automotive Sector in Indian Economy:

• GDP Contribution: Accounts for 7.1% of India’s GDP and nearly 49% of manufacturing GDP.

E.g. India’s auto industry supports over 3 million direct jobs.

• Linkages with Other Sectors: Strong backward and forward linkages with steel, rubber, electronics, glass, IT etc.

E.g. 15% of India’s steel goes to automotive sector.

• Employment Generation: Potential to add 2–2.5 million jobs by 2030 with planned scaling.

E.g. Skilled and semi-skilled roles in OEMs, ancillaries, and EV startups.

• Technology Spillovers: Driving AI, battery innovation, and Industry 4.0 adoption across sectors.

E.g. Automotive is the biggest consumer of semiconductors after electronics.

• Export Competitiveness: Aims to increase GVC share from 3% to 8%.

E.g. India’s current share in global component trade: ~$20B out of $700B.

Key challenges faced by automotive industry:

• Cost Disadvantages: India faces ~10% cost disability compared to China, mainly due to higher material and capital costs.

E.g. India has a 100% depreciation rate vs. China’s 50%.

• Low Share in Precision Components: Only 2–4% share in engine and transmission systems, which form 60% of global auto component trade.

E.g. Weak competitiveness in ADAS, steering systems.

• Import Dependence: Heavy reliance on China, South Korea, Germany for high-end parts.

E.g. Imports from China: $2.8B in 2023–24.

• Infrastructure & Logistics Bottlenecks: Delays in multimodal connectivity and insufficient auto clusters.

E.g. Higher domestic freight costs reduce export margins.

• R&D and Skill Gaps: Inadequate industry-academia linkages, limited skilled workforce in EV and software-led automotive technologies.

E.g. EV battery cell manufacturing talent is limited.

Way Ahead:

• Expand Component Production: Scale up to $145 billion output by 2030, focus on emerging & precision segments.

E.g. Focus areas: EV batteries, ADAS, smart sensors.

• Boost R&D and IP Support: Strengthen innovation through fiscal R&D incentives, testing labs, and tech transfer schemes.

E.g. Cluster-based approach with IP cells and CoEs.

• Build Smart Infrastructure: Invest in logistics parks, plug-and-play clusters, and testing facilities.

E.g. Smart automotive hubs in Tamil Nadu and Maharashtra.

• Deepen Global Trade Linkages: Leverage FTAs, joint ventures, and branding support for “Made in India” auto components.

E.g. India-EU and India-UK trade deals in focus.

• Skill India for Auto GVCs: Launch GVC Skilling India Scheme to train for high-tech auto jobs.

E.g. Emphasis on battery tech, mechatronics, and vehicle software.

Conclusion:

India’s automotive sector is at a critical inflection point, offering immense opportunities to integrate into global value chains. With targeted reforms, skilling, and investment support, India can become a world-class hub for EV components, auto electronics, and precision systems, driving both domestic growth and global competitiveness.

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