AUTOMOTIVE COMPONENTS equipment manufacturer) sales account for almost 40 per

cent of total component exports, and this share is expected

to rise to 70 per cent over the next three years, according to
New Rising Star the Automotive Component Manufacturers’ Association.
Sales to OEMs results in higher margins, repeat orders and
linkages to the global supply chain network. In 20 years,
T he Indian auto components industry appears set to move
into top gear. After software and BPO, auto parts is being
mentioned as the site of the next big outsourcing wave likely
exports are expected to touch $ 25 bn. Even so, India’s share
in the global auto ancillary market, worth $ 750 bn today,
to bring in a clutch of investors looking for a low-cost, high- will still be minuscule, indicating the potential for growth in
quality production base. A number of the world’s largest this area. In order to successfully tap this market, however,
automobile- and equipment-makers have already announced Indian companies will have to spruce up their image.
plans to source parts from Indian companies or expand their Aggressive investment in new technologies and product
own production operations in the country, especially for development will be needed, along with cost control and
export. This trend is likely to gain further momentum as a scalability.
recession-hit global automotive industry struggles to cut Many companies are already planning big increases in
production costs. Export figures provide a strong indication R and D spending, some in collaboration with their overseas
of the shape of things to come: Indian auto component partners. Indian companies are also increasingly focusing on
exports, worth $ 291 mn in 1996-97, had grown to $ 800 mn design and development. The present focus almost exclu-
in 2002-03 and are estimated to cross $ 2 bn by 2005-06. The sively on the US and European markets will have to be
new-found optimism is reflected in the share prices of expanded to explore markets in Asia. Diversification of
several auto parts companies, with stocks scaling new highs customer base can help cope with pricing pressures. Indian
in recent weeks. After two very difficult years, companies companies will, of course, have to keep one step ahead of
in the sector witnessed a turnaround in 2002-03. Yet as it puts competitors in China who enjoy advantages in costs and
the downturn of recent years behind it and looks to a revival, infrastructure. They will also face significant challenges in
the auto parts industry faces several challenges in establishing high-end, cutting-edge technology development where they
a long-term presence in a competitive global market. lack the muscle to make heavy investments to compete with
The current boom in the auto ancillary sector can be traced the international majors. In fact, in recent years, several
back to economic liberalisation which brought in its wake components companies have found themselves squeezed out
a large number of global automobile-makers eager to gain of the market due to technological shortcomings and have
a foothold in the burgeoning Indian market. The inflow of had to sell out to MNCs. To gainfully leverage their technical
foreign direct investment in the sector as well as the influx strengths, therefore, the companies will have to concentrate
of component suppliers made reform imperative for the on products where they can hold their own against the com-
domestic components industry which had hitherto been petition. Exports should also be developed as a long-term
required only to supply parts for ageing models of vehicles, strategy rather than simply as a diversion to tide over a
calling for little technological innovation. Faced with domestic downturn. EPW
competition, several companies focused on developing their
technology base and improving quality. Today, apart from
low production costs, the Indian parts manufacturing sector
has also come to be recognised for its skilled labour force
and ability to meet the quality requirements of the inter-
national market. Some companies have obtained international
quality certification and awards for consistent high quality
of products. An impressive degree of indigenisation of
automobile parts used in vehicles manufactured by foreign
majors for the domestic and export market has been achieved.
Of late, the sluggish automobile market in industrial countries
has put pressure on parts manufacturers to cut costs, forcing
them to look at low-cost countries such as India and China
as supply bases. Several automobile majors, seeking to
manufacture for the international market, have also in
recent months decided to make India their global export
production base.
The growing acceptability of Indian components in overseas
markets is reflected in the changing export trend. The pro-
portion of aftermarket sales (parts used for maintenance of
a vehicle after it has been sold) in the export basket has
declined over the past five years. Today, OEM (original

2784 Economic and Political Weekly July 5, 2003