The Indian auto components industry can be broadly classified into the organized and unorganized sectors. The organized sector caters to the Original Equipment Manufacturers (OEMs) and consists of high-value precision instruments, while the unorganized sector comprises low-valued products and caters mostly to the aftermarket category. The industry as a whole, accounts for almost 2.3 percent of India’s GDP, and employs as many as 3 million people, both directly and indirectly. The auto component industry is ancillary to the automobile industry. Demand swings in any of the auto segments (commercial vehicles, cars, two and three-wheelers) have an impact on the demand for auto ancillary.
The Indian auto component industry, a highly fragmented industry, was valued at around ₹4 trillion (US$56.5 billion) in 2018-19, witnessed a growth of 14.5 percent on y-o-y basis and a CAGR of about 10 percent between FY15-19. In terms of turnover, organized market has a share of about 80- 85 percent, while the remaining comes from the unorganized players.
Indian auto component Industry is transforming itself from a low-volume, highly fragmented one into a competitive industry backed by strengths like technology, efficiency and evolving value chain. During 2018-19, OEMs continued to dominate the auto component market contributing about 49.5 percent of the industry turnover, followed by the export market at about 15.2 percent. Domestic aftermarket (replacement market) accounted for about 10.1 percent of the industry. As per ACMA, the 'driving transmission and steering' product category accounted for the largest share of automobile component aftermarket at 21 percent, followed by ‘engine components’ (19 percent), ‘electricals and electronics’ (18 percent), ‘suspension and braking’ (15 percent), ‘cooling systems’ (14 percent), ‘consumables and miscellaneous’ (10 percent) and ‘rubber components’ (3 percent) in 2018-19.
Exports of auto components from India during 2019-20 stood at US$ 2129.78 million as compared to US$ 2163.52 million in 2018-19, registering a y-o-y decline of (-)1.55 percent. The exports of steering wheels, steering columns and steering boxes (HS Code: 870894) registered highest CAGR of 42.31 percent between FY15-20. The exports of other parts and accessories of bodies (including cabs) (HS Code: 870829) increased by more than two folds from US$ 62.9 million in 2015-16 to US$ 171.85 million in 2019-20. The export of bumper and parts stood at US$ 82.24 million in 2019-20 as compared to US$ 213.37 percent in 2014-15, registering CAGR of (-)17.36 percent. The overall auto components sector registered a CAGR of 11.32 percent during FY15-20.
Trends in Auto Component Exports from India
(In US$ Million)
During 2019-20, the USA was the largest export destination of auto components accounting for a share of 21.96 percent in the total exports of these products from India, followed by Bangladesh (5.34 percent), Brazil (5.13 percent), Turkey (5.04 percent) and Germany (4.87 percent). The top 5 destinations accounted for more than 42 percent of the total auto component exports from India during the same period.
FDI up to 100 percent is allowed under the automatic route in the auto components sector by the Government of India, subject to all the applicable regulations and laws. The cumulative FDI inflow in automotive sector from April 2000 to March 2020 stood at US$ 24.21 billion, accounting for 5.15 percent of the total FDI inflow into the country.
As per forecasts by the Automobile Component Manufacturers Association (ACMA), auto component exports from India are expected to reach US$ 80 billion by 2026. The Indian auto component industry aims to achieve US$ 200 billion in revenues by 2026. The domestic market is expected to account for 71 percent of total sales by 2021 with a total market size of US$ 115 billion. Engine and exhaust components, along with body & structural parts, are expected to make up 50 percent potential domestic sales as well as exports in 2020, according to IBEF.
On the demand side, exportsare likely to fall with the top 10 countries affected by the COVID-19 accounting for 50 percent of exports from the sector. Poor domestic demand and a sharp drop in demand from export destinations will hit autocomponent manufacturers for a second consecutive year. Similarly, on the supply side, plant shutdowns have disrupted the supply chains and labor availability issues have impacted production. As per Crisil Research, market size of auto component industry is expected to grow at 6-8 percent between FY20 and 2025. Demand from OEMs and exports is expected to grow post FY21 after falling significantly in FY21. Replacement demand is expected to remain resilient going forward, after facing setback in FY21.
Outlook for the industry is positive in the medium term.