Automobile Components

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SUMMARY
  • Size of the Indian Auto Component Industry is around USD 43.5 billion (2016-17) and contributes 2.3% to India’s Gross Domestic Product (GDP).
  • Auto Component Industry registered a Compound Annual Growth Rate (CAGR) of 7% over 2011-12 to 2016-17 ,
  • Indian auto component industry is expected to register a turnover of USD 115 billion by 2020-21 and USD 200 billion by 2026.
  • In the last financial year, the auto component exports contributed 4% to India’s overall exports.
  • Exports increased to USD 10.90 billion in 2016-17.
  • Domestic Aftermarket in 2016-17: USD 8.4 billion.
  • The industry is projected to be the third largest in the world by 2025.
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. India offers a reduced cost by 10-25 percent relative to that offered by Europe and Latin America.
  • Favorable trade policy with minimal restrictions on export-import. In addition, specific incentives are available for export oriented units and export processing zones.
  • India’s increasing integration in Global Value Chains to further provide impetus to the sector.
  • 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
  • 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.
  • 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.
STATISTICS
  • Indian auto-component industry is set to become the third largest in the world by 2025.
  • Indian automotive sector registered a turnover of USD 43.5 billion in 2016-17 , and is expected to reach USD 115 billion by 2020-21. And, USD 200 billion by 2026.
  • Indian Auto component Industry registered a CAGR of 7% over 2011-12 to 2016-17.
  • Auto components exports from India account for 4% of total India’s exports, and in 2016-17, Indian exports stood at USD 10.90 billion. Industry exports are projected to reach USD 30 billion by 2020-21, further rising to USD 80 billion by 2026.
  • Exports of auto components grew at a CAGR of 11% over the period 2011-12 to 2016-17. Major export markets are: USA (22%), Germany (7%) and Turkey (6.2%).
  • The domestic aftermarket for auto components stands at USD 8.4 billion in 2016-17.
  • Contribution of Auto Component Industry in India’s GDP will account to as much as 5% to 7% by 2026. At present, the sector contributes 2.3% to India’s GDP.
  • The industry currently employs 1.5 million people directly and 1.5 million indirectly. Further, Automotive Mission Plan (2016-26) envisages to provide direct incremental employment to 3.2 million by 2026.
  • Realization of goals in Automotive Mission Plan (2016-26) requires an additional investment of USD 25-30 billion.
  • The Indian Automotive industry will be among the top three of the world in the area of engineering, manufacturing and export of vehicles and components.
  • The Indian auto component industry is composed of organized and unorganized sector. The organized sector refers to original equipment manufacturers (OEMs) and is engaged in manufacture of high value precision instruments. Whereas, the unorganized sectors comprise of low-valued products catering to after-market services.
  • Various sub sectors of Auto-component sector: Engine parts, drive transmission & steering parts, body and chassis, suspension and braking parts, equipment, electrical parts and others such as fan belts, die-casting and sheet metal parts.
  • At present, India is considered competitive in manufacturing of forgings, stampings, castings, machining, wiring harness and electronic fuel injectors.
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 to USD 260 billion-300 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% to India's GDP by 2026.

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

  • A total of USD 573 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):

  • It aims to bring the transformational paradigm shift in the automotive and transportation industry by promoting hybrid and electrical mobility in India. It envisages a vehicle population of about 6-7 million electric/hybrid vehicle in India by 2020.
  • There has been a cumulative outlay of USD 2.15 billion for building such roadmap. It is a composite scheme involving demand side incentives to facilitate acquisition of hybrid/electric vehicles along with provision of supply side incentives.

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

  • The scheme aims to roll-out a number of electric buses, electric three-wheelers, and electric shared cabs for multi-modal public transport.
  • 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.
  • An allocation of USD 67 million made under Phase-1 of FAME India Scheme. The subsidy is provided to 11 cities for launching electric busses, taxis and three-wheelers. The cities include Delhi, Ahmedabad, Bangalore, Jaipur, Mumbai, Lucknow, Hyderabad, Indore and Kolkata, plus two cities – Jammu and Guwahati under special category.
FINANCIAL SUPPORT

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:

  • Section 35 (2AB) of the Income Tax Act, 1961 provides weighted tax deduction of 150% of expenditure incurred by a specified company, on scientific research in the in-house R&D centers as approved by the prescribed authority. This does not includes expenditure on the cost of any land or building.
  • The weighted tax deductions of 150% are effective till 31st March’2020. Consequent upon that, the weighted tax deductions will be 100%.

State Incentives:

Apart from the mentioned, 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. Few examples are:

  • Andhra Pradesh :
    • Government of Andhra Pradesh is committed to providing land at concessional rates, along with 24 hours uninterrupted power supply.
    • Capital subsidy of 50% for common infrastructure in auto clusters and ASMC developers, up to a maximum of USD 3.07 million.
    • Financial assistance limited to 75% of the cost, subject to a maximum of USD 38,461 for obtaining patent registration and 50% of all charges, subject to a maximum of USD 7,692 paid for obtaining quality certification. This is applicable to only MSME units.
    • Under Marketing Incentives, 50% of cost of participation with a maximum amount of USD 7,692 to be reimbursed to maximum of 10 MSME units per year for participating in international trade fairs.
  • Gujarat :
    • Auto component manufacturers can either avail general incentives under the Gujarat Industrial Policy 2015, or under the scheme for Mega/ Innovative Projects.
  • Jharkhand :
    • Jharkhand introduced Automobile and Auto Component Policy 2016 with an aim to make Jharkhand, a preferred destination for automobile and auto-component manufacturing units.
    • The policy encourages establishment of Tier-I, Tier-II and Tier-III auto-component manufacturers in the state.
    • Provision of financial assistance of 50% for fixed capital investments in building and common infrastructure up to a maximum of USD 3.07 million.
    • 100 % electricity duty exemption shall be provided for 10 years from the date of production.

Export Incentives:

  • Export subsidy is available to exporters as a % of duty credit scrip under Merchandise Exports from India Scheme (MEIS).
  • Additionally, MEIS Scheme has been extended to additional tariff lines and expanded to 65 countries as per the recommendations by ACMA.

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.

KEY POINTS IN THE UNION BUDGET 2018-19:

  • The increase in duty on selected items such as engine & transmission parts, brakes and parts thereof, gear boxes and parts thereof , airbags etc. from 7.5-10% to 15% will provide boost to domestic manufacturing.
  • Since, most of the component manufacturing units are SME’s. Thus, the reduction in corporate tax rate to 25% for SMEs with turnover less than USD 38.46 million will benefit the sector.
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)
  • David Brown/ Bharat Forge
  • Schaeffler
SOURCES
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