India has the scope to expand its share in the global auto components trade to 4%-5% by 2026, riding on exports growth and the import substitution initiatives being taken by the industry in the wake of Covid-19-triggered supply chain disruptions as well as the Centre’s ‘Atmanirbar’ programme. As the supply chains shift, India will be in a position to increase its share in the global auto components trade. The country contributes only a small percentage of the total imports to its biggest buyers – 2.2% in the US, 1% in Europe and 0.6% in China. To grow trade, India could benefit from a targeted exports expansion and imports substitution programme, stated a news report by McKinsey on Indian auto component industry. For exports expansion, India has to learn from countries that are major exporters of auto components. Germany, for example, has a 15% share in the global exports market for auto components. China’s share is at 11% with Japan and Korea following at 7% and 6%, respectively, the report said.
While these countries also have a trade surplus in auto components, they achieved this market position due to advantages such as the presence of large original equipment manufacturers (OEMs) in the domestic market, greater ease of doing business, a significant spend on research and development – between 2% and 5% of GDP- and their top-25 rank in infrastructure. McKinsey said India could pursue higher exports in product categories where the country has a competitive edge, such as shafts, bearing and fasteners. At the same time, component manufacturers can continue to broaden their global export presence by building capabilities for high-value products such as gear-box parts, heating, ventilation and air-conditioning (HVAC) products.
The report said an analysis of the value that automotive parts add to India’s import bill while also featuring as major exports indicates scope to localise and substitute imports of up to $12 billion. One option is to be more focussed on manufacturing high-value parts such as engine and engine components, engine electricals, fuel systems and exhaust parts and gear box parts. India could also ramp up capabilities through recent innovations such as those made to match BS-VI standards that could help replace those imports with components made in the country. Possible collaborations with global suppliers, who are relocating manufacturing operations to India, could further reinforce these efforts and help build new capabilities, it said.
The after-market could be a growth engine during lockdown, with micro-market clusters driving the bulk of demand. India has 19,500 micro-markets, serving close to 30 million passenger cars and, of these, around 1,275 micro-markets (7%) contribute to half of all demand, the report said. Collaboration with non-automotive sectors is likely to unlock product opportunities for parts such as bearings, motors, engines and turbines, among others. In some cases the product or process capability overlap between auto and non-auto parts is more than 50%. A granular approach across 20 categories could help save 15% to 25% of hidden costs, it added.
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