The firm 'China+1' de-risking strategy of automakers and the ease of technology adaptation of automotive component manufacturers is driving IPOs to increase sourcing from India.
07 Aug 2023 | 7943 Views | By Mayank Dhingra and Ketan Thakkar
The Indian Auto Component Inc.'s cumulative growth in the last five years has touched 4.1 percent, with the rate of growth (5.7%) in exports being double that of imports, thereby helping reduce the trade deficit, which, in FY19 was pegged at US$ 2.5 billion.
However, with the aggressive push ...
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The Indian Auto Component Inc.'s cumulative growth in the last five years has touched 4.1 percent, with the rate of growth (5.7%) in exports being double that of imports, thereby helping reduce the trade deficit, which, in FY19 was pegged at US$ 2.5 billion.
However, with the aggressive push of global automakers to de-risk their supplies and look for alternative sourcing destinations beyond China, broadly termed as the industry's 'China+1' strategy, India is gaining strong momentum in witnessing a heightened interest in demand for Made-in-India components, and as result, is poised to become the global hub in automotive component manufacturing for the world.
Addressing the media at the announcement of the automotive component industry's FY23 results, Sunjay Kapur, President, ACMA, said, "The industry has had a great year, and with domestic sales in Europe and the US growing by 3 and 8 percent, respectively, there has been little impact of the looming recession in these regions, therefore driving the exports of components from India.
"The 'China+1' de-risking strategy of OEMs augurs well for the country to become a global manufacturing hub for automotive components. The technology implementation in manufacturing in terms of automation, and Industry 4.0 solutions will strengthen the industry from catering to the demand for the global markets," he said.
The India Auto Components Inc's FY23 exports turnover was pegged at US$ 20.1 billion, up from US$ 19.1 billion a year ago. While the US and European Union, at around 32 percent contribution each, remained the top destinations for components exports from India, robust growth of 27 percent was also witnessed in exports of components to Latin America. In terms of parts, Indian auto components Inc exports drive and transmission, steering, and engine components among others.
"The industry has had a great year, and with domestic sales in Europe and the US growing by 3 and 8 percent, respectively, there has been little impact of the looming recession in these regions, therefore driving the exports of components from India," Kapur said.
"The mood in terms of sourcing from India is very positive and that is why we saw a significant uptick in our exports to global markets. Moreover, a lot of multinational component players are expanding their capacities in India," added Vinnie Mehta, Director General, ACMA.
"We are working with several international purchase offices (IPOs) of Tier-1 suppliers and OEMs, and additionally, the interest in India from a perspective of adapting to technology is huge, and that is the reason why companies from other countries are first looking at India when they are scouting to source components. Case in point is Israel, from where we have seen a lot of interest in companies working on disruptive future technologies eyeing India as a market, as well as a manufacturing hub for their solutions. They are bullish about the market opportunity and scale that India has to offer both from a domestic and exports perspective," Kapur said.
Aiming to reduce imports
The India Auto Components Inc's imports were pegged at US$ 20.3 billion, registering a 10.9 percent increase over FY22's overall component imports of US$ 18.3 billion. While two-thirds of imports came from Asia, with over 50 percent of that coming from China alone, which, in value terms, shipped around US$ 13.3 billion worth of components to India in FY23.
Despite the strong sentiment after Covid to move away from importing goods from China, the country happened to be the single-largest origin of imports to India, comprising 30 percent of the total imports. It is followed by Germany and Japan.
According to Kapur, "Our endeavour is to reduce dependence on imports, and with a reduction in trade deficit to US$ 200 million in FY23, we are on our way towards achieving our target of reducing dependence on imports."
Acknowledging the fact that the Indian automotive industry is continuing high levels of imports, particularly in electronic components, the automotive components industry, with the help of the government is looking at sourcing these components domestically and reducing the trade deficit.
"The semiconductor industry is a big opportunity as it is not related to automotive alone, but it is across the board. The number of chips in vehicles is going to increase, and our role in ACMA is to expose our members to the opportunities of the future," Kapur signed off.