As emerging markets take an increasing share of the global auto industry, India’s auto business is continuing to attract new investment, though the industry there still needs to think carefully about how it can continue to grow, according to a paper produced by management consultants.

An Ernst & Young (E&Y) strategy paper prepared for the Indian government says that passenger vehicle (PV) sales grew at a CAGR of 11.5% during the period FY05–09.

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Car exports grew at a CAGR of 21% during the period FY05–09, higher growth rate than that of achieved by the domestic sales. India has become a small-car hub for some makers, such as Hyundai.

The report says that growth has been driven by India’s low cost base and the growing Indian market which has also led to global players setting up their manufacturing facilities in India. Exports now account for almost a fifth of the total vehicles produced in India, compared with under 10% in 2003.

The paper also observed that auto component sales in India registered robust growth of 20% in the period 2004- 2009 to reach US$15.2 billion by FY09 primarily driven by strong economic growth.

The domestic auto component industry is largely self-sufficient as 67% of the sales are geared towards the local OEMs. The Indian auto component exports witnessed a CAGR of 24% in the period FY05-09 to touch US$3.8bn.
 
However, the E&Y paper also finds that ‘India is still a small player in global auto exports despite emerging as a low cost manufacturing hub.”

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“There is a need to expand target market in the light of the recession in the developed world and narrow focus of India’s auto vehicle exports, it is necessary to target newer markets where India has marginal penetration to accelerate the exports momentum and increase the exports in those countries,” says Dr Rahul Kullar, India’s Commerce Secretary.
 
India is one of the fastest growing auto vehicles and auto component exporters with a CAGR of 32% and 27% respectively well above the global average of 11% for both the categories.
 
The Indian automotive trade analysis also reveals that India has high degree of export concentration with focus on few countries in Asia and Africa for auto exports and towards USA and Europe for auto component exports. The paper called for focus on creating new segments, greener technologies, enhanced cost competitiveness and technology levels. That, in turn, would enable quicker integration of global acquisitions to enable technology transfer and increase sourcing from India.

Satnam Singh