The Indian auto component industry has come a long way and the extraordinary growth has been driven by a buoyant economy, continuous increase in purchasing power, especially of the middle class, new product launches and attractive financing schemes.

It has emerged as one of the faster growing Indian manufacturing sectors and the compounded annual growth rate (CAGR) for the last five years was over 25%.

The industry has adopted a growth strategy which mainly includes market expansion, product portfolio enhancement and continuous improvements in quality and efficiency. Over the last 10 years, from 1996-97 to 2007-08, the auto component production has increased from $3.3 billion to $8 billion, exports have increased from $330 million to $3.6 billion and the overall investment has increased from $2.3 billion to $7.2 billion.

The domestic vehicle market has also grown significantly over the same period with the total volume (including two- and three-wheelers) of 10.7 million in 2007-08 compared to 3.9 million in 1996-97.

In case of exports, historically the industry was more focused on after-market sales and supplies to after-market segment were around 70%; now this has changed. The supplies now are approximately 75% to original equipment manufacturers (OEM) and tier-1 suppliers and the balance is to after market segment. This key development indicates increasing reliance of global OEMs and tier-1 suppliers on the capability of Indian auto-component manufacturers with regard to meeting the set technical standards as well as meet stringent quality norms.

The industry is gradually evolving as a world-class industry and many Indian component players are implementing stringent quality norms and modern shop floor practices such as 5-S, 7-W, Kaizen, TQM, TPM, 6-sigma and lean manufacturing. The Indian auto-component industry is highly fragmented, lacks scale to achieve the efficiency. Organised players constitute about 75% of the production and are geographically spread throughout the country, especially in the auto-hubs such as NCR, Tamilnadu, Karnataka and Maharashtra (Pune and Mumbai). It is now recognised that India is the base for compact car manufacturing and with the launch of Tata Nano, the dynamics in the small-car segment will change and this also helps to establish the credential of India as a leader in the small car segment that will in turn help significantly the Indian auto-component industry.

To achieve the set goals and reach this global ambition, there is a need for large-scale manufacturing facility in India which requires investments as well as further consolidation in the Indian auto-component industry. Issues such as high cost structures should be addressed compared to other low-cost manufacturing countries.

?The author is auto analyst, PricewaterhouseCoopers