EU and US are accelerating EV adoption
Despite India’s strong manufacturing base, its share in the globally traded auto component market remains at just 3% (~US$20 billion), highlighting a vast scope for expansion in a global market valued at US$2 trillion in 2022 with US$700 billion traded across borders, according to an industry report.
India’s trade ratio in auto components is near-neutral (~0.99), with exports and imports nearly balancing each other, said the report titled ‘Automotive Industry: Powering India’s Participation in Global Value Chains’, which was launched by NITI Aayog on 11 April https://www.commerce.gov.in/.
“This also underlines the domestic sector’s limited penetration in high-value, high-precision segments such as engine and engine components, along with drive transmission and steering systems, where India holds just 2–4% of the global trade share,” added NITI Aayog.
Bridging this gap requires structural reforms, strategic investments, and a coordinated industrial policy approach. With the right enabling conditions, India can triple exports to US$60 billion, generate a US$25 billion trade surplus, propelling the sector toward becoming a globally competitive, innovation-driven manufacturing hub https://fieo.org/.
The Automotive Sector contributes 7.1% to India’s GDP and 49% to manufacturing GDP.
Rise of Electric Vehicles (EVs):
EVs are reshaping manufacturing priorities, with China producing over 8 million EVs in 2023.
The EU and the US are accelerating EV adoption through regulatory mandates and subsidies.
EVs are increasing the demand for batteries, semiconductors, and advanced materials.
Digital and Advanced Manufacturing:
Integration of AI, robotics, digital twins, Internet of Things (IoT), and 3D printing is driving efficiency.
Many global automakers are investing heavily in creating smart factories, where AI, IoT, and robotics are integrated into every aspect of the production process. Countries like Germany and South Korea are leading in smart factory adoption https://digitalinasia.com/.
Sustainability and Circular Economy:
Automakers are moving toward carbon neutrality, material recycling, and energy efficiency.
Examples: BMW’s EV battery recycling and Volkswagen’s renewable energy sourcing.
Sectoral Interdependence:
Auto industry is a major consumer of steel, electronics, rubber, glass, textiles, and IT services.
Increasing reliance on semiconductors and AI-driven software for innovative mobility solutions.
Major Government Interventions include:
PM E-Drive Scheme (2024–26): Launched to accelerate EV adoption and reduce urban pollution, this scheme has a budget of Rs.10,900 crore and targets large-scale procurement of electric vehicles:
24.79 lakh electric two-wheelers;
3.2 lakh electric three-wheelers;
Procurement of 14,028 electric buses by State Transport Undertakings (STUs)/public transport agencies;
Rs.2,000 crore earmarked for national-level charging infrastructure expansion.
Production Linked Incentive (PLI) Scheme for Auto and ACC Batteries: With a total allocation of Rs.44,038 crore (PLI scheme- Rs.25,938 crore, PLI scheme for ACC Battery Storage- Rs.18,100 crores), this flagship initiative aims to boost the domestic manufacturing of advanced automotive technologies, including EVs, hydrogen fuel cell vehicles, and advanced battery storage solutions. It provides financial incentives to OEMs and component manufacturers for investing in cutting-edge technologies, achieving economies of scale, and integrating into global supply chains. The scheme also prioritises domestic value addition, export readiness, and job creation through technology-driven innovation.
Key Challenges Hindering the Global Value Chain’s Integration
10% cost disadvantage for India versus China due to:
Higher raw material and machinery costs
100% depreciation rate vs 50% in China (~3.4% cost burden)
High logistics, financing, and energy costs
Underperformance in high-precision segments:
India’s global share: Only 2–4% in engine and engine components, along with drive transmission and steering systems
Inadequate R&D ecosystem and limited IP ownership
Proposed Interventions for GVC Integration
Fiscal Measures:
Operational Expenditure (Opex) Support: To scale up manufacturing capabilities, with a focus on capital expenditure (Capex) for tooling, dies, and infrastructure.
Skill Development: Initiatives to build a talent pipeline critical for sustaining growth.
R&D, Government facilitated IP transfer and Branding: Providing incentives for research, development, international branding to improve product differentiation and empowering MSMEs through IP transfers.
Cluster Development: Fostering collaboration between firms through common facilities such as R&D and testing centers to strengthen the supply chain.
Non-Fiscal Reforms:
Industry 4.0 Adoption: Encouraging the integration of digital technologies and enhanced manufacturing standards to improve efficiency.
International Collaboration: Promoting joint ventures (JVs), foreign collaborations, and free trade agreements (FTAs) to expand global market access.
Ease of Doing Business: Simplifying regulatory processes, worker hour flexibility, supplier discovery & development and improving business conditions for automotive firms.
India’s automotive sector stands at a decisive inflection point, where focused reforms, policy clarity, and industry alignment can elevate it into the league of global leaders in automotive manufacturing, said the NITI Aayog.
With the world shifting rapidly towards clean, smart, and connected mobility, India must accelerate its integration into global value chains by building competitiveness in high-precision components, fostering innovation, and deepening its export footprint.
Over the next five years, the effective execution of planned interventions, ranging from skilling and infrastructure to R&D and global partnerships, will determine whether India becomes a hub for high-value auto components or remains a low-cost player in traditional segments. With the right mix of ambition and action, India can become a globally recognised supplier of next-generation mobility solutions, said NITI Aayog. Fiinews.com
