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Introduction of the Indian Automotive and Auto Ancillary Industry

Article · August 2023

DOI: 10.56025/IJARESM.2023.111023817

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 International Journal of All Research Education and Scientific Methods (IJARESM),
ISSN: 2455-6211, Volume 11, Issue 8, August-2023, Available online at: www.ijaresm.com

Introduction of the Indian Automotive and Auto

Ancillary Industry
Ashutosh Srivastava1, Vidhisha Vyas2
1
IILM University, Knowledge Centre, Golf Course Road, Sector 53, Gurugram, India 122003
2
Associate Professor- Economics and International Business, Business Administration, IILM University, Knowledge
Centre, Golf Course Road, Sector 53, Gurugram, India 122003

---------------------------------------------------------------****************---------------------------------------------------------

ABSTRACT

The automotive industry is frequently considered to as the most international of all businesses because its items
are shipped all over the world. It is generally managed by a limited number of well-known multinational
companies. The automobile sector is more regional than global regardless of the trends that evolved worldwide.
The automotive industry in India has experienced a surge in growth due to a range of government-driven
initiatives since the 1990s, the most recent of which was the Automotive Mission Plan of 2016. The government
of India formed the Automotive Component Manufacturers Association of India (ACMA) in 1959 to promote
the manufacturing of auto components.

INTRODUCTION AND BACKGROUND

The automotive industry is frequently considered to as the most international of all businesses because its items are
shipped all over the world. It is generally managed by a limited number of well-known multinational companies. The
automobile sector is more regional than global regardless of the trends that evolved worldwide in the 1990s (Humphrey
& Memedovic, 2003). The free flow of vehicles and parts between the United States and Canada marked the
commencement of the North American regional integration process in the 1960s, whereas, Ford and General Motors
began integrating their operations in Europe in the 1970s.

The automotive industry in India has experienced a surge in growth due to a range of government-driven initiatives
since the 1990s, the most recent of which was the Automotive Mission Plan of 2016. While Japanese companies still
dominate the domestic passenger car market, Indian automobile companies have gained a significant share of the
commercial vehicle market, with a 60% market share. Moreover, Indian automotive companies export automobiles to a
total of 95 countries (Sasuga, 2011).

The government established its first tariff commission in 1952, intending to indigenise this industry, and this was the
year the vehicle sector was fully established. The country's first passenger car was rolled out by Addison, Madras –
An Amalgamations Group Company in 1950. The spotlight was brought on companies like Hindustan Motors in
collaboration with Morris Motors, Premier Automobiles collaborated with Chrysler and Fiat, Standard Motors
collaborated with Standard - Triumph, Mahindra& Mahindra with Willys, Bajaj with Piaggio, etc. began producing
SUVs as wellin 2011. There were seven producers of heavy and medium commercial vehicles, including Ashok
Motors, Simpsons and Co., Premier Motors, and others. Automobile Products of India in collaboration with Innocenti
of Milan, Italy, Royal Enfield in collaboration with Royal Enfield, U.K., Escorts Group in collaboration
with CEKOP of Poland, Bajaj Auto in collaboration with Piaggio of Italy, Ideal Jawa in collaboration with CZ -
Jawa of Czechoslovakia, Hero in collaboration with Honda of Japan produced two-wheeled vehicles such as scooters,
motorbikes, or mopeds. The development of the auto sector had a significant role in the nation's economic expansion.
The insurance and financial sectors benefited as well. The Motor Vehicles Act, of 1988 was eventually created and is
now in charge of regulating auto insurance. It introduced the requirement of insurance for cars and two-wheelers
operated on Indian roadways.

The Indian automotive industries have expanded 7 to 10 folds in the last 75 years. The state-wise presence of
automotive industries is shown in the table below (Refer to Table 1). The government program also facilitated this
expansion. The Indian auto sector is one of the biggest in the world. Automobile sales have grown as a result of rising
incomes, more infrastructure spending, and higher manufacturing incentives. India is a rapidly developing country that
aspires to be among developed countries by 2047 and the automobile sector which is always in focus helps in poverty
eradication by creating more jobs for people. The two-wheeler segment dominated the automotive industry, with 15.11
million units sold in FY2021 and 13.47 million sold in FY 2022 due to a significant middle-class population.

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 International Journal of All Research Education and Scientific Methods (IJARESM),
ISSN: 2455-6211, Volume 11, Issue 8, August-2023, Available online at: www.ijaresm.com

Table 1: List of Automotive plants in India

State wise No. of State wise % of

S.No State Automotive Automotive
Industries Industry

1 Andhra Pradesh 6 4

2 Gujarat 10 7

3 Haryana 11 7

4 Himanchal Pradesh 3 2

5 Jharkhand 1 1

6 Karnataka 9 6

7 Kerala 2 1

8 Madhya Pradesh 10 7

9 Maharashtra 35 23

10 Odisha 2 1

11 Punjab 7 5

12 Rajasthan 9 6

13 Tamilnadu 31 21

14 Telangana 2 1

15 Uttar Pradesh 3 2

16 Uttrakhand 5 3

17 West Bengal 3 2

Total 149 100

(Source: List of Vehicle Plants in India – 2018)

More original equipment and vehicle component manufacturers have emerged due to the high demand for automobiles.
India gained knowledge in manufacturing cars and auto parts, which helped increase demand for Indian cars and auto
parts abroad. The Indian auto sector significantly influences the auto component business. The auto component sector
in India is a significant engine of macroeconomic expansion and job creation. The sector includes firms of various
sizes, which are, dispersed among industrial clusters.

The auto components sector employed 1.5 million (15 Crore) people directly and contributed 2.3% to India's GDP in
2022 which may increase to 5-7% by 2026. The industry experienced a CAGR of 6.35% between FY2016 and
FY2022, reaching a value of US$56.50 billion in FY2022. The auto component sector in India is anticipated to increase
by double digits in FY2030 due to the high development potential in all segments of the automotive industry. By
FY2026, the sector is anticipated to be worth $200 billion (Automobile Components, Auto Components Industry in
India, Auto Parts, Market Size, 2022).

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 International Journal of All Research Education and Scientific Methods (IJARESM),
ISSN: 2455-6211, Volume 11, Issue 8, August-2023, Available online at: www.ijaresm.com

The current state of the Indian Automotive Industry

The health of a country's economy is intrinsically tied to the health of its automobile sector. The automobile industry is
India’s largest manufacturing industry, accounting for over one-third of the manufacturing GDP. The Indian
automobile sector is a major employer and accounts for around 6% of India's GDP (FY2022) and 35% of the
manufacturing GDP between April 2000 and March 2022 of all FDI equity. This industry employs around 3.7 million
people directly and indirectly.

The vehicle industry accounts for 15% of the country's total GST collection. According to studies conducted by the
Society of Indian Automobile Manufacturers (SIAM), India's automotive market, the fourth-largest in the world, was in
a slowdown before the COVID-19 outbreak.

Automotive Industry’s slowdown in India has been more severe than in many other nations. The industry is expected to
generate 65 million jobs by 2026 and has experienced numerous setbacks since the COVID-19 pandemic.

Indian Auto Industry Sales – CAGR change segment-wise

The CAGR for the passengers vehicles decreased from 10.3% to 3.60% from 1999-2000 to 2009-10 and from 2009-10
to 2019-20, respectively (Refer to Figure 1).

Passenger Vehicles : CAGR of 10

years
15%
10.30%
10%
5% 3.60%

0%
FY 99--00 to FY 09- FY 09--10 to FY 19--
10 20
(Source: Annual report of SIAM, 2021)

Figure 1: CAGR of Passenger Vehicles

The CAGR for the two-wheeler segment decreased from 9.8% to 6.4% from 1999-2000 to 2009-10 and from 2009-10
to 2019-20, respectively (Refer to Figure 2).

Two Wheeler : CAGR of 10 years

12% 9.80%
10%
8% 6.40%
6%
4%
2%
0%
FY 99--00 to FY 09- FY 09--10 to FY 19--
10 20
(Source: Annual report of SIAM, 2021)

Figure 2: CAGR of Two Wheelers Vehicles

The CAGR for the three-wheeler segment decreased from 9.8% to 3.8% from 1999-2000 to 2009-10 and from 2009-10
to 2019-20, respectively (Refer to Figure 3).

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 International Journal of All Research Education and Scientific Methods (IJARESM),
ISSN: 2455-6211, Volume 11, Issue 8, August-2023, Available online at: www.ijaresm.com

(Source: Annual report of SIAM, 2021)

Figure 3: CAGR of Three Wheeler Vehicles

Meanwhile, the yearly growth rate for the commercial vehicle market fell even more dramatically. Between 1999-2000
and 2009-2010, the CAGR was 12.7%; for the subsequent ten years, it decreased to 3.90% (Refer Figure 4).

(Source: Annual report of SIAM, 2021)

Figure 4: CAGR of Three Wheeler Vehicles

The positive CAGR is an indication that sales are increasing despite the automotive industry passing through a difficult
time due to various reasons. The drop in sales of automobiles is due variety of things such as tighter safety and
environmental regulations, taxes, a cash crunch following the Non-Banking Financial Companies (NBFC) crisis, fuel
price increases, a shortage of chips, rural hardship, the sharp increase in commodity prices, a lack of containers, rising
logistical costs, and unstable economic conditions.

Production of Automobiles in India

The industry produced a total of 22,652,108 vehicles including Passenger Vehicles (13.5 %), Commercial Vehicles
(2.75%), Three Wheelers (2.69%), Two Wheelers (81%), and Quadricycles( 0.01%) in April - March 2021 as against
26,353,293 in April-March 2020, registering a de-growth of (-) 14.04 percent over the same period last year. The
automobile production trend is shown in the pie which shows the trend of production in % of different vehicles
produced in India (Refer to figure 5).

(Source: SIAM Annual Report 2020-2021)

Figure 5: Category-wise Production of Automobiles

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 International Journal of All Research Education and Scientific Methods (IJARESM),
ISSN: 2455-6211, Volume 11, Issue 8, August-2023, Available online at: www.ijaresm.com

Export of Automobiles

The exports of automobiles have increased in recent years due to the country's significant geographic links and bilateral
ties with important nations around the world. India's top export markets for cars are the US, South Africa, Mexico,
Bangladesh, the UAE, Saudi Arabia, Turkey, Colombia, Brazil, Nigeria, Nepal, Indonesia, and the Philippines. The US
is a significant export partner, with shipments of close to US$ 3 billion as of FY22, followed by Mexico (US$ 1.53
billion) and South Africa (US$ 1.21 billion), according to web reference statistics from the Ministry of Commerce and
Industry. The automobile export data shown in Table 2 indicates that there is consistent growth in export and it has
grown by around 18.6% from year 2016 to 2021.

Table 2: Indian Automobile Export Data (No. of vehicles)

Category 2016-17 2017-18 2018-19 2019-20 2020-21

Passenger Cars 6,02,134 5,80,153 5,13,912 4,75,801 2,64,927
Utility Vehicles 1,54,257 1,66,317 1,58,251 1,83,468 1,37,825
Vans 2,336 1,896 4,029 2,849 1,648
Total Passenger
7,58,727 7,48,366 6,76,192 6,62,118 4,04,400
Vehicles
M&HCVs 43,719 44,093 48,676 22,333 17,548
LCV 64,552 52,772 51,257 38,046 32,786
Total Commercial
1,08,271 96,865 99,933 60,379 50,334
Vehicles
Three Wheelers 2,71,894 3,81,002 5,67,683 5,01,651 3,92,941
Scooters 2,92,828 3,14,284 3,98,316 3,69,998 2,31,972
Motorcycles 20,27,297 24,83,307 28,65,851 31,35,548 30,37,439
Mopeds 20,152 17,412 16,674 13,859 8,313
Total Two Wheelers 23,40,277 28,15,003 32,80,841 35,19,405 32,77,724
Quadricycle 1,556 1605 4400 5185 3529
Grand Total 34,80,725 40,42,841 46,29,049 47,48,738 41,28,928
(Source: SIAM Annual Report 2020-2021)

Domestic Sales of Automobiles

The sales of passenger vehicles dropped by 2.24% during April – March 2021 whereas the sales of commercial
vehicles, three wheelers and two wheelers dropped by 20.77%, 66.06%, and 13.19% respectively during the same
period. The contribution of different vehicle segments to domestic sales is shown in below pie chart. From the figure, it
is evident that two-wheeler industries have a major contribution to the Indian domestic market (Refer to Figure 5).

Automobile Domestics Sales Trend %

(2021-2022)
Quadrcycles, 0 Passenger
Vehicles, 14.5
Commercial
Vehicles, 3
Three
Wheelers, 1.2

Two
Wheelers, 81.2
(Source: SIAM Annual Report 2020-2021)

Figure 6: Domestics sales of Automobiles

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 International Journal of All Research Education and Scientific Methods (IJARESM),
ISSN: 2455-6211, Volume 11, Issue 8, August-2023, Available online at: www.ijaresm.com

The Development of the Auto Component Industry in India

The government of India formed the Automotive Component Manufacturers Association of India (ACMA) in 1959 to
promote the manufacturing of auto components. The ACMA is the organization overseeing the Indian auto component
market. More than 85% of the income generated by the organized sector in the auto component industry is attributable
to its more than 826 members. The trend of the Indian component industry over the last five years is shown in Figure 7.

The component industry of India has grown by 21.48% in the last five years despite COVID-19.

Size of Auto Component Industry -- INR CR. (USD BN)

(Source: Auto Components Industry Review 2022)

Figure 7: Size of the Indian Auto Component Industry

(Conversion rate from INR to USD is 68, 69,71,74,74 FY 18, 19,20,21,22 respectively)

Structure of the Auto Component Industry in India

Uchikawa & Roy (2013)divided auto components manufacturers into three groups and the auto components industry
working model is shown below in Figure 6.

1. Tier one supplier, which are major businesses that supply to Original Equipment Manufacturer (OEM).
2. Tier two suppliers, which are small and medium-sized businesses that provide local replacement markets
3. Tiny enterprises catering to domestic replacement markets.

Before 1980, small businesses that started producing had a chance to develop into medium-sized and major businesses.
Many tiers one and two auto component businesses (Figure 8) are owned by families. Companies in tiers one and two
are currently managed by the second or third generation of the owner's family. The younger generation has a solid
educational foundation, engineering expertise, and sufficient experience.

(Source: Uchikawa and Roy, 2013)

Figure 8: Indian Auto Component Industry Structure

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 International Journal of All Research Education and Scientific Methods (IJARESM),
ISSN: 2455-6211, Volume 11, Issue 8, August-2023, Available online at: www.ijaresm.com

Category-wise sales distribution auto component Industry

It is very interesting to note that India is emerging as a hub for the auto component manufacturing industry and all
types of components are produced. Figure 9 shows the percentage of various categories of components sold in India.

(Source: Auto Components Industry Review 2022)

Figure 9: Category-wise sales distribution

Export of Components produced by the Indian Auto Component Industry

Indian auto component industry has a significant role in exporting the parts produced in different categories which
indicates that the Indian Auto Components Industry has grown substantially and it possesses the qualities to cater to the
requirement of spares globally. It grew 41% in the last five years despite COVID-19.

Challenges for the Industry

The automotive industry in India is facing several short- and medium-term issues. The priority is to ensure our people's
health and safety in the face of the pandemic's uncertainties. Other supply chain difficulties include worldwide
semiconductor shortages, rising commodity costs with large increases in steel and precious metals, shipping container
shortages, and import limitations in the form of quality control orders, among others. New regulations are expected to
be implemented over the next two years, with considerable cost implications.(Borgave & Chaudhari,2010) advocate
that lack of resources, such as skilled labour and technology, high manufacturing costs brought on by inflation, and
government policies involving indirect taxes like customs and goods and service tax (GST).BS-VI emission norms
(announced in April 2020) also led to a slowing down of demand in India.

The automotive industry is responsible, it is dedicated to long-term growth, making vehicles more cost-effective for
customers by increasing local content in our products, anticipating long-term requirements, and developing new power
train technologies to achieve as close to Carbon Net Zero as possible.

Enablers for Sustainable Growth for the auto component industry

The Indian automobile sector has identified several important long-term, sustainable growth enablers. They are as
follows:

Concentrate on Atmanirbhar Bharat

The Indian automobile industry has been a shining example of Make in India for both India and the rest of the world.
Over the previous four decades, the Indian automobile industry has established an entire ecosystem of indigenous
manufacturing.

Thousands of component suppliers, including hundreds of joint ventures and technological collaborations with foreign
businesses, comprise the backbone of Indian auto manufacturing. Not only that but also the automobile industry

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 International Journal of All Research Education and Scientific Methods (IJARESM),
ISSN: 2455-6211, Volume 11, Issue 8, August-2023, Available online at: www.ijaresm.com

accounts for nearly 8% of overall merchandise exported from India. The industry exports vehicles and components
worth more than USD 27 billion each year.

The Indian automotive sector is devoted to promoting vehicle and component manufacturing in the country by
improving part localization, lowering vehicle costs, increasing productivity, and meeting global quality standards..

SIAM and ACMA collaborated to develop a thorough Localization Roadmap for the Industry. An extensive analysis
was conducted to identify the potential for localization and provide a clear path that included all important components
in terms of volume and value. The industry has set a lofty goal of 15-20% localization in the next 2 to 5 years.

A Long-term Regulatory Roadmap

The Indian automobile industry, in collaboration with SIAM and ACMA, has proactively established a long-term
regulatory strategy. The same has been created with the assistance of all essential industry stakeholders and
policymakers. The road map also includes inputs based on global norms and timetables.

New Power Train Technologies

The government of India is assisting and promoting the sector with a variety of technology solutions such as electric,
hybrid, CNG, LNG, Biofuels, ethanol, and hydrogen. India requires a combination of all of these technologies to enable
us to get closer to carbon neutrality. This will not only result in a cleaner environment but also a stronger industry and
economy.

Scrap page Policy

The Government of India has rolled out a fitness-based Scrappage policy. This fitness-based strategy aims to eliminate
automobiles based on roadworthiness while assuring road safety and environmental benefit (“Vehicle Scrap page
Policy – Policies – IEA”).

Production Linked Incentive Scheme

The Indian Government has established a Production Linked Incentive Scheme for the Auto Industry to stimulate local
manufacturing and exports while also positioning India as a global powerhouse for the automotive sector. This strategy
will help India transition from global to local while also improving economic and social sustainability.

DISCUSSION AND CONCLUSION

The evolutionary trend of the automotive industry has sought the attention of major global players. India being number
one in population has a demand for vehicles for mobility as distances are increasing. The high demand for vehicles has
made India a major hub for automobiles as well as the auto component industry. India developed expertise in the
production of vehicles and auto parts, which boosted demand for Indian vehicles and auto components abroad. The
automotive industry in India has a big impact on the auto parts industry. An important driver of macroeconomic growth
and employment creation in India is the two and four-wheeler component industry. The industry consists of businesses
of various sizes that are scattered throughout industrial clusters.

Our study has certain limitations. The study is focussing on the auto component industry in the NCR region of India; it
can be applied to other parts of the country and other industries as well.

REFERENCES

[1]. Borgave, S., & Chaudhari, J. S. (2010). Indian auto component industry: challenges ahead. International
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upgrading by developing countries? UNIDO Sectorial Studies Series Working Paper.
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[3]. Uchikawa, S., & Roy, S. (2013). The development of the auto component industry in India.
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[7]. https://auto.economictimes.indiatimes.com/news/passenger-vehicle/cars/auto-industry-slump-is-systemic-
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