India’s auto industry is growing and global car and component makers are building production hubs here – but are not necessarily buying Indian parts.
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.”
“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.