GOVERNMENT INITIATIVES DRIVING THE GROWTH OF AUTO ANCILLARY MARKET IN INDIA
India is fast becoming a global hub for sourcing auto parts. Geographically, the country is close to key global automotive markets like Japan, Korea and other ASEAN countries as well as a few European nation, which gives it a distinct advantage over its competitors in this industry. Other factors contributing to the rapid growth of the auto ancillary market in India are burgeoning end-user market, improved consumer adoption and the growing disposable income of the young Indian population.
Understanding the present market scenario
Government reports indicate that the auto ancillary industry in India accounts for almost 25.6% to the manufacturing GDP and 3.8% to the national GDP. The industry also provides indirect employment to 1.5 million people, and is primarily divided broadly into two categories, organized and unorganized. The organised sector caters to the Original Equipment Manufacturers (OEMs) and consists of high-value products, while the unorganised sector caters mostly to the aftermarket segment and consists of low-valued products.
Industry reports reveal that the Indian auto ancillary industry registered total revenue of USD 39 Bn in 2016, registering a growth of 8.8%, driven primarily by a cost-effective manufacturing process that reduced costs lower by 10% to 25% compared to operational costs incurred in Europe and Latin America. The hourly labour cost in India for manufacturing averages at USD 0.92 compared to USD 3.52 in China.
The country’s auto components export climbed 3.5% to USD 10.8 BN in 2016, and is estimated to account for as much as 26% of the market by the year 2021. Indian auto components are exported to more than 160 countries, with Europe accounting for the largest share at 38.1%, followed by North America at 21% and finally Asia at 25%.6. Components that are frequently exported include parts of diesel engines, crank shift for engines, spark ignitions, gear boxes, hydraulic power steering systems, etc.
Moreover, a study conducted by the Department of Industrial Policy and Promotion (DIPP) revealed that the cumulative foreign direct investment (FDI) in the industry stood at USD 15.065 Bn, and this played a crucial role in the growth trajectory of the market.
Government initiatives driving growth
Initiatives that are taken by the government to encourage the growth of this industry includes:
- The Automotive Mission Plan 2016-26 (AMP 2026) forms an integral part of the collective vision of the Indian government regarding where the automotive industry should be after 10 years. AMP 2026 is intended to outline the growth trajectory of the Indian automotive ecosystem, including the regulations and policies that administer research, design, technology, testing, manufacturing, etc. of automotive vehicles, components and services. The main objective of AMP 2026 is to drive 3.5 to 4 times growth in Indian automotive industry from its current output and reach around USD 248.6 Bn by 2026.
- Voluntary Vehicle Fleet Modernization programme (V-VMP) is another initiative undertaken by the Ministry of Road Transport and Highways that provides incentives worth 8-12% of the cost of a new vehicle in exchange for surrendering the old one. The initiative is expected to generate steel scrap worth USD 1,728 Mn every year, and galvanize the establishment of organised shredding centres across the country coupled with providing environmental and energy efficiency benefits.
Given these policies and promotion as well as the ever-increasing global demand, there is no doubt that the auto ancillary sector of India is poised to grow at a rapid pace in the coming years.