Wednesday, January 13, 2010


The Indian auto ancillary industry is one of India's sunrise industries with tremendous growth prospects. The automotive industry is an important segment of the economy in any country as it links many industries and services.

The Indian auto industry has the potential to emerge as one of the largest in the world. Presently, India is:

  • The largest two-wheeler manufacturer in the world.
  • The largest three-wheeler market in the world.
  • The second-largest two-wheeler market in the world.
  • The fourth –largest commercial vehicle market in the world.

The fortunes of the automotive components segment are linked to the performance of the auto industry. The auto ancillary industry gives support to sectors such as metals that includes steel, aluminum, copper and also to many other machine tools, plastics, rubbers, polymers, glass, surface transport.

As per Indian Suppliers’ report, the automotive sector in India contributes to 5% of the nation’s GDP and 17% of the indirect taxes as a result of which the government last year charted a 10-year blueprint for the sector’s growth. This envisages the automotive sector “output reaching a level of $145 billion accounting for more than 10% of the GDP” by 2016.

Indian auto industry has evolved around three major clusters: Mumbai-Pune-Nashik-Aurangabad (west); Chennai- Bangalore-Hosur (south); and Delhi-Gurgaon-Faridabad (north).Export-oriented companies have formed base in the west/ south regions, due to proximity to port.

Foreign Investments:
India enjoys a cost advantage with respect to casting and forging as manufacturing costs in India are 25 to 30 per cent lower than their western counterparts. Seeing the growing popularity of India in the automotive component sector, the Investment Commission has set a target of attracting foreign investment worth US$ 5 billion for the next seven years to increase India's share in the global auto components market from the existing 0.9 per cent to 2.5 per cent by 2015.

French tyre major, Michelin, has gained clearance from the Foreign Investment Promotion Board (FIPB) for its US$ 2.26 billion foreign direct investment (FDI) proposal to set up a manufacturing facility in Tamil Nadu.

Ford motor car is investing about 500$ million (Rs. 2,445 crore) to double capacity at its India plant, which will become a strategic global production hub.

Bosch will continue to maintain its focus in India in spite of global recession as it is planning to set up manufacturing units for electronic control units (ECU) by investing US$ 26.76 million.

Volkswagen has set target to capture 8-10 percent of market share in the passenger car segment in India by 2014 with a series of launches and by doubling the number of dealers.

Domestic Investments:
The market is so large and diverse that a large number of players can be absorbed to accommodate buyer needs. The sector not only has global players looking to invest and expand but leading domestic component companies are also pumping in huge sums into expanding operations. Indian tyre makers are rolling out investment plans worth US$ 1.24 billion, due to the rising popularity of radial tyres in the commercial vehicles segment.

Some other investments include:
  • Hero Motors will invest US$ 19.84 million in association with Austrian firm BRP Power train for manufacturing automotive transmissions in India.
  • Indian arm of Swedish automotive component maker SKF is investing US$ 30 million in a new ball bearings manufacturing plant at Haridwar.
  • Mahindra & Mahindra will invest approx US$ 400 million for setting up an integrated auto facility in Tiruvannamalai(Chennai).
  • An auto park is coming up near Hyderabad with investments worth over US$ 409.30 million from around 34 automotive ancillary units.

Low labor costs gives Indian auto ancillary companies an absolute cost advantage. ACMA numbers suggest that wage cost accounts for 3% to 15% of revenues for Indian manufacturers as compared to 20% to 40% for US players. Historically, India's strength in exports lies in forgings, castings and plastics. But this is changing with more component manufactures investing in up gradation of technology in recent years.

To read the full report: AUTO ANCILLARY