NITI Aayog's Report on India’s Automotive Sector: A Strategic Path to Global Leadership

With a workforce that is highly cost-competitive, India has positioned itself as a critical hub for automotive manufacturing and export.

NITI Aayog, the premier policy think tank of India, has released an in-depth report titled "Automotive Industry: Powering India’s Participation in Global Value Chains". The report, launched by Shri Suman Bery, Vice Chairman of NITI Aayog, and in the presence of distinguished members such as Dr. V.K. Saraswat, Dr. Arvind Virmani, and Shri BVR Subrahmanyam, presents an extensive analysis of India’s automotive industry. The report highlights opportunities for growth, key challenges hindering the sector, and strategic interventions that can propel India to the forefront of the global automotive market.

Global Automotive Landscape: India’s Growing Role

In 2023, global automobile production reached approximately 94 million units, and the global automotive components market was valued at USD 2 trillion, with exports accounting for nearly USD 700 billion. India, now the world’s fourth-largest automobile producer after China, the USA, and Japan, is producing nearly 6 million vehicles annually. This significant output is underpinned by a strong domestic and export market presence, particularly in the small car and utility vehicle segments.

With a workforce that is highly cost-competitive, India has positioned itself as a critical hub for automotive manufacturing and export. Through initiatives like Make in India, the country has made substantial progress in establishing its presence in the global automotive value chain (GVC). However, challenges remain that must be addressed to solidify India’s position as a global automotive leader.

Transformative Shifts: The Rise of Electric Vehicles (EVs)

The automotive industry is currently undergoing a transformative shift towards electric vehicles (EVs), driven by several factors, including rising consumer demand for eco-friendly mobility solutions, regulatory pressures to reduce carbon emissions, and advances in battery technologies. Globally, the surge in EV sales is reshaping the automotive manufacturing landscape, presenting India with both challenges and opportunities.

Battery manufacturing hubs are emerging in regions like Europe and the U.S., creating a competitive environment for India to participate in this fast-evolving sector. The growing demand for lithium and cobalt – essential materials for EV production – is altering traditional supply chains, opening up new opportunities for collaboration and international competition.

In addition to the rise of EVs, technologies associated with Industry 4.0, such as Artificial Intelligence (AI), Machine Learning (ML), the Internet of Things (IoT), and robotics, are significantly enhancing automotive production processes. These innovations are improving productivity, reducing costs, and increasing flexibility. The integration of digital technologies into manufacturing processes is also fostering the development of new business models, such as smart factories and connected vehicles, which are expected to drive the next wave of industry growth.

India’s Challenges in the Global Automotive Value Chain (GVC)

Despite being the fourth-largest automobile producer globally, India’s presence in the global automotive components trade remains modest, with its share hovering around 3%. This is especially concerning given the automotive component trade globally, which amounts to approximately USD 20 billion, with engine components, drive transmission systems, and steering components being the key drivers of global trade. India’s share in these high-precision segments, however, remains relatively low at just 2-4%.

Other challenges faced by the Indian automotive sector include high operational costs, gaps in infrastructure, limited integration into the global value chain, and insufficient R&D expenditure. These factors hinder India’s competitiveness in the global automotive market and restrict the growth potential of its automotive sector.

Strategic Interventions: A Blueprint for Growth

To address these challenges and unlock the full potential of India’s automotive industry, NITI Aayog’s report outlines several strategic fiscal and non-fiscal interventions. These interventions are categorized across four types of automotive components based on their complexity and manufacturing maturity: Emerging & Complex, Conventional & Complex, Conventional & Simple, and Emerging & Simple.

Fiscal Interventions

• Operational Expenditure (Opex) Support: The report recommends providing support to scale up manufacturing capabilities, particularly in capital-intensive areas like tooling, dies, and infrastructure development.

• Skill Development: Building a strong talent pipeline is vital for sustaining growth. The report advocates for focused skill development initiatives that cater to the evolving needs of the automotive sector.

• R&D, IP Transfer, and International Branding: Incentives for research and development, government-facilitated intellectual property (IP) transfers, and branding efforts will help improve product differentiation and bolster the global presence of Indian automotive firms.

• Cluster Development: Creating collaborative hubs for automotive firms with common facilities such as R&D centers, testing facilities, and shared infrastructure will enhance collaboration and strengthen the supply chain.

Non-Fiscal Interventions

• Industry 4.0 Adoption: Encouraging the integration of advanced digital technologies, such as AI, robotics, and IoT, will optimize manufacturing processes and improve efficiency in production lines.

• International Collaboration: The report stresses the importance of joint ventures (JVs), foreign collaborations, and free trade agreements (FTAs) to help Indian firms access global markets and enhance their competitiveness.

• Ease of Doing Business: Simplifying regulatory processes, improving labor flexibility, developing supplier discovery systems, and enhancing overall business conditions will support the growth of the automotive sector.

NITI Aayog’s Vision for India’s Automotive Sector by 2030

NITI Aayog’s vision for India’s automotive sector by 2030 is both ambitious and attainable. The report projects that the country’s automotive component production will grow to USD 145 billion, with exports tripling from USD 20 billion to USD 60 billion. This growth will not only result in a trade surplus of USD 25 billion but also increase India’s share in the global automotive value chain from 3% to 8%.

In terms of employment, the sector is expected to generate between 2 million and 2.5 million new jobs, bringing the total direct employment in the automotive sector to 3-4 million people by 2030. This growth in employment, along with the expanded output, will have a ripple effect on the Indian economy, contributing to job creation, technological advancements, and broader economic development.

Conclusion: India’s Path to Becoming a Global Automotive Leader

India’s automotive industry is at a pivotal crossroads. While the country has made significant strides in becoming a global automotive manufacturing hub, it faces several challenges that need to be addressed in order to reach its full potential. The report by NITI Aayog lays out a comprehensive roadmap for India to become a key player in the global automotive value chain.

By focusing on strategic interventions, strengthening infrastructure, promoting technological innovation, and fostering international collaborations, India can enhance its global competitiveness and establish itself as a global leader in the automotive sector. With the right support and investments, India’s automotive industry is poised for remarkable growth and could become a cornerstone of the global automotive economy in the coming decade.

For more details, you can access the full report here.