Automobile Components

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SUMMARY
  • Size of the Indian Auto Component Industry is around USD 39 billion (2015-16) and contributes 2.3% to India’s Gross Domestic Product (GDP).
  • Auto Component Industry registered a Compound Annual Growth Rate(CAGR) of 14% during 2006-16, during the same period exports increased from USD 3.2 billion to USD 10.81 billion
  • In the last financial year, the auto component exports contributed 4% to India’s overall exports.
  • Surpassed Automotive Mission Plan (AMP) 2016-26 turnover target of USD 31.84 billion in FY 2016 by registering USD 39 billion.
  • Aims to achieve 5 times growth with a turnover of USD 200 billion, exports targets between USD 70-80 billion and an investment of USD 30-40 billion by 2026.
  • Aftermarket sector growing at a CAGR of 12% annually
REASONS TO INVEST
  • An emerging global hub for sourcing auto components.
  • Geographically closer to key automotive markets like the ASEAN, Japan, Korea, Europe and huge domestic market.
  • Cost competitive as compared to other manufacturing countries.
  • 6th Largest vehicles manufacturer in the world that produced 23.9 million vehicles in FY 16.
  • Favorable trade policy with no restrictions on import-export.
  • Favorable government policy with 100% FDI allowed through automatic route.
  • Presence of enabling infrastructure like automotive training institutes and auto design centres, special auto parks and virtual SEZs for auto components
STATISTICS
  • Indian automotive sector registered a turnover of USD 39 billion in 2015-16.
  • Indian Auto component Industry registered a CAGR of 14% during FY 2006-16
  • As per Automotive Mission Plan 2016-26 (AMP) the Indian auto component industry may attain an impressive USD 200 billion in revenue by 2026, with exports of USD 80 billion
  • The Indian Automotive industry will be among the top three of the world in the area of engineering, manufacturing export of vehicles and components. It is estimated that the demand of vehicles will reach 66.3 to 75.8 million units in the same year
  • Contribution of Auto Component Industry in India’s GDP will account to as much as 5% to 7% by 2026
  • Exports of auto components grew at a CAGR of 14% to USD 10.8 billion in FY 2015-16 from USD 3 billion FY 2005-06
GROWTH DRIVERS
  • Fastest growing major economy in the world with GDP growth rate of above 7%.
  • A growing working population and an expanding middle-class are expected to remain key demand drivers.
  • The presence of a large pool of skilled and semi-skilled workforce and a strong educational system.
  • Increased investments in R&D operations and laboratories, which are being set up to conduct activities such as analysis, simulation and engineering animations.
  • Reduction in excise duties in the motor vehicles sector will spur demand for auto components.
  • The growth of global Original Equipment Manufacturers (OEMs) sourcing from India and the increased indigenisation of global OEMs is turning the country into a preferred designing and manufacturing base.
FDI POLICY
  • 100% Foreign Direct Investment (FDI) is allowed under the automatic route in the auto components sector, subject to all the applicable regulations and laws.
SECTOR POLICY

Auto Policy 2002:

  • Automatic approval for 100% foreign equity investment in auto components manufacturing facilities.
  • Manufacturing and imports in this sector are exempt from licensing and approvals.

Automotive Mission Plan 2016-26:

  • Indian automotive industry to grow 3.5 to 4 times of the current value of USD 74 billion to USD 260 billion-302 billion by the end of FY 2026.
  • India to be amongst the top three automotive industries in the world by 2026.
  • Generate 65 million direct & indirect jobs by 2026.
  • Contribute 12% of India's GDP by 2026.

National Automotive Testing And R&D Infrastructure Project (NATRiP):

  • A total of USD 388.5 million to enable the industry to adopt and implement global performance standards.
  • Focus on providing low-cost manufacturing and product development solutions.​

Department of Heavy Industries & Public Enterprises:

  • USD 200 million fund to modernise the auto components industry by providing an interest subsidy on loans and investment in new plants and equipment.
  • Provided export benefits to intermediate suppliers of auto components against the Duty Free Replenishment Certificate (DFRC). ​

National Electric Mobility Mission Plan 2020 (NEMMP):

  • The National Mission for Electric Mobility 2020 was launched on 9 January, 2013 to faster adoption of electrical vehicles (including hybrid vehicles), and their manufacture in India to encourage reliable, affordable and efficient electric vehicles that meet consumer performance and price expectations through government industry collaboration for promotion and development of indigenous manufacturing capabailities, required infrastructure, consumer awareness and technology, helping India emerge as a leader in the electric vehicles two-wheeler and four-wheeler market in the world by 2020, with total anticipated sales of around 6-7 million units.
  • It is estimated that there will be excellent demand in India for low-cost xEVs that are suited for safe short-distance urban commute (average 50-100 km/trip), and are rugged enough to perform reliably through the most hot climatic conditions that also see torrential monsoon rains for 3-4 months of the year.

Pilot Projects of Electric Vehicle:

  • Department of Heavy Industry (DHI) is launching pilot projects on electric vehicles in Delhi and subsequently in other metros and other cities all across the country with a dual purpose of demonstrating and educating the people about the benefits of adopting clean and green mode of transportation.
  • It will provide the viability gap funding through subvention to support the extra cost of acquisition and operation of these vehicles by state governments or designated bodies. In the first phase, a pilot project to provide last mile connectivity to Delhi Metro by electric passenger vehicles has been approved.

Faster Adoption & Manufacturing of Electric Hybrid Vehicles (FAME) Scheme

  • The overall scheme is proposed to be implemented over a period next six years i.e. till 2020.
  • It also seeks to provide demand incentives to electric and hybrid vehicles from two-wheeler to buses.
  • It will cover all vehicle segments i.e. two-, three- and four-wheelers, cars, LCVs, buses etc. and all forms of hybrid (Mild/Strong/Plug-in) and pure electric vehicles.
FINANCIAL SUPPORT

Key Provisions of the 2016-2017 Union Budget:

  • Time limit of March 31, 2016 for excise duty of 6% on specified parts of Electric Vehicles and Hybrid Vehicles removed
  • Excise duty on engine for xEV (hybrid electric vehicle) reduced from 12.5% to 6%
  • Time limit of March 31, 2016 on duty exemption for specified parts of electric and hybrid vehicles has been removed
  • Basic customs duty on aluminium oxide for use in the manufacture of Wash Coat, which is used in the manufacture of catalytic converters reduced from 7.5% to 5%
  • Countervailing Duty of 6% introduced on engine for xEV (hybrid electric vehicle) to maintain parity with excise duty rates
  • Higher allocation to improve road infrastructure which will push the demand for automobiles and components:

    1. Allocation of USD 8.46 billion with additional USD 2.3 billion to be raised by NHAI through bonds
    2. Allocation under Pradhan Mantri Gram Sadak Yojana increased to USD 2.92 billion; plan to connect remaining 65,000 eligible habitations by 2019
    3. Total investment in the road sector, including PMGSY allocation, would be USD 14.92 billion
  • Amendments to be made in Motor Vehicles Act to open up the road transport sector in the passenger segment

R&D Incentives for Industry and Private Sponsored Research:

  • A weighted tax deduction is given under section 35 (2AA) of the Income Tax Act.
  • Weighted deduction of 200% is granted to assess for any sums paid to a national laboratory, university or institute of technology, or specified people with a specific direction and that the said sum is used for scientific research within a program approved by the prescribed authority.

Manufacturers with an in-house R&D Centre:

  • Weighted tax deduction of 200% under Section 35 (2AB) of the Income Tax Act for both capital and revenue expenditure, incurred on scientific research and development. Expenditure on land and buildings is not eligible for deduction.
  • 175% Weighted Deduction is also allowed on outsourced R&D from approved Institutions i.e National Laboratories, Universities, Scientific Research Institutes and IITs (Indian Institute of Technology).
  • Concessional excise duty of 6% extended for an indefinite period for manufacturers supplying batteries to producers of electrically operated vehicles.
  • Exemption from basic customs duty on lithium-ion automotive batteries that are used in the manufacture of hybrid and electric vehicles.

State Incentives:

  • Apart from the above, each state in India offers additional incentives for industrial projects.
  • Incentives are in areas like subsidised land cost, relaxation in stamp duty exemption on sale and lease of land, power tariff incentives, concessional rate of interest on loans, investment subsidies, tax incentives, backward areas subsidies and special incentive packages for mega projects.

Export Incentives:

  • Export promotion capital goods (EPGG) scheme.
  • Duty remission scheme.
  • Merchandise Exports from India Scheme (MEIS)

Areas based Incentives:

  • Incentives for units in Special Economic Zones (SEZs) / National Investment & Manufacturing Zones (NIMZs) as specified in respective Acts or setting up projects in special areas like the North-east region, Jammu & Kashmir, Himachal Pradesh & Uttarakhand.
INVESTMENT OPPORTUNITIES

Engine & Engine Parts:

  • New technological changes like turbochargers and common rail systems.
  • Outsourcing to gain traction in the short to medium term.

Transmission & Steering Parts:

  • Replacement market share in sub-segments such as clutches is likely to grow due to rising traffic density.
  • The entry of global players is expected to intensify competition in sub-segments such as gears and clutches.

Suspension & Breaking Parts:

  • The segment is estimated to witness high replacement demand, with players maintaining a diversified customer base in the replacement and OEM segments besides the exports.
  • The entry of global players is likely to intensify competition in sub-segments such as shock absorbers.

Equipment:

  • Companies operating in the replacement market are likely to focus on establishing a distribution network, brand image, product portfolio and pricing policy.

Metal Parts:

  • Manufacturers are expected to benefit from the growing demand for sheet metal parts, body & chassis, fan belts, pressure die castings, hydraulic pneumatic instruments in the two-wheeler segment.
  • Leading players in the sheet metal parts sub-segment are in the process of expanding their customer base.

Hybrid & Electric Vehicles Components:

  • It is estimated that there will be a huge demand in India for low cost hybrid and electric vehicles (xEVs) that are suitable short-distance urban commutes (averaging 50-100 kms per trip) and rugged enough to perform reliably in the summer and in the monsoon season in India.
FOREIGN INVESTORS
  • ZF (Germany)
  • Aisin Seiki Company (Japan)
  • Bosch (Germany)
  • Continental Engines (USA)
  • Delphi (UK)
  • Denso (Japan)
  • FAG (Germany)
  • Magneti Marelli (Italy)
  • TRW (USA)
  • Valeo (France)
  • WABCO (Germany)
AGENCIES
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