India’s auto industry is growing and global car and component makers are building production hubs here – but are not necessarily buying Indian parts.
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In fact, imported components’ share of the Indian market is set to increase from the current 31% to over 42% by 2013-14 if the current rate of growth in imports continues, according to a Federation of Indian Chambers of Commerce & Industries (FICCI) study ‘India’s Imports of Auto-Components’.
This could affect India’s plans to achieve its targeted US$40-45bn auto component industry by 2016 under the Automotive Mission Plan announced in 2006.
Chetan Bijesure, a director and head of manufacturing at the FICCI, noted that domestic component makers have limited access to world-class technology.
“Moreover, scale and size of the market has an important role to play in sourcing of components. Car makers are sourcing locally or setting up [production and/or assembly] bases mainly for the small car market where domestic penetration is high but, for large carmakers, India is still a limited market and prefers to import.”
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By GlobalData“Companies like Ford, Hyundai and Toyota are now looking for local sourcing for their small car projects,” he added.
The domestic component market was likely to reach $29.6bn in 2010–11 with imports’ share 35% or $10.3bn. Domestic sales are projected eventually to reach $53.6bn with imports taking 42.4% ($22.8bn).
The FICCI study noted that India continues to be a net importer of auto components, despite being a significant maker of, and market for small cars. Its parts trade surged from $371m in 2004-05 to $2.8bn in 2008-09.
“The last few years have seen the import duty on auto parts coming down to 10% making it attractive to import [instead of] sourcing locally and the signing of FTAs has also [allowed imports of] components [at] preferential duty [rates],” Bijesure said.
India’s auto parts imports increased at an annual average rate of 30% during this period but exports grew by 17% (way below imports) for the same period.
The FICCI study noted that imports were almost a quarter of domestic production in 2004-05 and a third by fiscal 2008-09. As regards source, the EU has the largest share at 35% to 37% (worth $2.3bn) while South Korean and Chinese slices have grown in the last few years.
China’s share increased 4.5 times from 2% in 2004-05 to 9% in 2008-09 while South Korean penetration rose from 15.4% to 17% in the same period to $1.04bn.
Meanwhile, US and ($637m) and Japanese ($714m) shares have fallen and imports from ASEAN countries are rising.
China’s rising influence is viewed with alarm as its exports to India have been rising 88% annually with share expected to rise 2.7% to 15.6% by 2012. Imports reached $544m in 2008-09 from just $42m in 2004-05.
