India's Road to Global Auto Leadership: Strategies to Scale Value Chain Integration

The automotive industry in India is not just a vital pillar of the national economy—it is the backbone of manufacturing, a catalyst for innovation, and a key driver of employment.

On April 11, 2024, NITI Aayog launched a landmark report titled “Automotive Industry: Powering India’s Participation in Global Value Chains”, under the leadership of Vice Chairman Shri Suman Bery, senior NITI Aayog members, and CEO B.V.R. Subrahmanyam. This comprehensive document outlines India’s strategic roadmap to enhance its participation in the global automotive value chain and highlights crucial pathways to propel the country into the league of global automotive leaders.

The automotive industry in India is not just a vital pillar of the national economy—it is the backbone of manufacturing, a catalyst for innovation, and a key driver of employment. Contributing 7.1% to India’s GDP and a remarkable 49% to the manufacturing GDP, the sector spans a complex and expansive ecosystem—from vehicle assembly and component manufacturing to its strong backward linkages with steel, electronics, IT, rubber, and logistics.

India’s Current Standing in the Global Auto Landscape

With over 28 million vehicles produced in 2023–24, India has cemented its place as the fourth-largest automobile producer globally. Despite its large manufacturing base, India’s participation in global automotive value chains (GVCs) remains underutilized, with only 3% share in the $700 billion global auto component trade—amounting to exports of around $20 billion.

The near-balanced trade ratio of 0.99 in automotive components reveals a missed opportunity. India has yet to dominate high-value, precision-driven segments such as engines, transmission systems, and steering components, where it currently holds only 2–4% of the global market share. Unlocking this potential could triple India’s auto component exports to $60 billion, create a $25 billion trade surplus, and generate up to 2.5 million direct jobs by 2030.

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Strategic Importance of the Automotive Sector

• Economic Contribution: 7.1% of national GDP and 49% of manufacturing GDP.

• Employment Generator: Millions of jobs in manufacturing, logistics, R&D, and services.

• Industrial Backbone: Interdependent with steel, electronics, rubber, glass, IT, and energy.

• Export Driver: Massive potential to expand beyond the current 3% global share.

• Catalyst for Green Mobility: Central to India’s EV adoption, energy transition, and clean air goals.

Aligning with National Missions: Make in India & Atmanirbhar Bharat

India’s vision to emerge as a global manufacturing powerhouse is tightly integrated with its flagship Make in India and Atmanirbhar Bharat missions. These initiatives promote indigenous capabilities, reduce import dependencies, and encourage deep integration into global supply chains.

• Make in India (2014): Catalyzed investments in domestic manufacturing, especially in the automotive sector.

• Atmanirbhar Bharat: Prioritizes self-reliance in components and critical systems like EV batteries, engines, and semiconductors. Strong focus on MSME development and innovation.

Global Mega-Trends Reshaping the Automotive Industry

1. Electric Vehicle (EV) Revolution

• China produced over 8 million EVs in 2023.

• EU and US have introduced aggressive policy mandates and subsidies to boost EV penetration.

• This trend demands stronger ecosystems for batteries, semiconductors, and lightweight materials.

2. Digital & Smart Manufacturing

• Rise of Industry 4.0 with AI, IoT, robotics, 3D printing, and digital twins.

• Germany and South Korea are leaders in building smart automotive factories.

• India must leapfrog into this digital paradigm to remain globally competitive.

3. Sustainability & Circular Economy

• Global players like BMW and Volkswagen are pushing for net-zero emissions, battery recycling, and energy-efficient operations.

• India must align its automotive ecosystem with green manufacturing and circular economy norms.

4. Sectoral Interdependence

• Automotive demand drives consumption of steel, rubber, textiles, electronics, and IT services.

• Rising dependence on semiconductors and AI-driven control systems for connected and autonomous vehicles.

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Major Government Interventions Empowering the Sector

✅ FAME India Scheme (Phases I & II)

• ₹11,500 crore outlay to promote EV adoption and build charging infrastructure.

• Incentives for electric 2-wheelers, 3-wheelers, and buses.

✅ PM e-Bus Sewa & E-Drive Scheme (2024–2026)

• ₹10,900 crore budget for procuring:

  • 24.79 lakh electric 2-wheelers

  • 3.2 lakh electric 3-wheelers

  • 14,028 electric buses

  • ₹2,000 crore for national EV charging infrastructure

✅ PLI Schemes (Auto & ACC Battery Storage)

• Total ₹44,038 crore allocation:

  • ₹25,938 crore for advanced auto tech & OEMs

  • ₹18,100 crore for Advanced Chemistry Cell (ACC) battery production

• Aims to promote R&D, exports, and domestic value addition in EVs and advanced technologies.

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Key Structural Challenges Hindering GVC Integration

1. Cost Disadvantage vs China (~10%)

   • Higher costs for raw materials and machinery

   • Higher depreciation rate (India: 100% vs China: 50%)

   • Elevated energy, logistics, and credit costs

2. Underperformance in High-Precision Manufacturing

   • Limited global footprint in engine and drive systems

   • Insufficient R&D, innovation ecosystems, and IP ownership

3. Logistical and Regulatory Bottlenecks

   • Complicated compliance norms

   • Slow adoption of digital manufacturing practices

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Proposed Strategic Interventions

Fiscal Measures

• Operational Expenditure (Opex) Support: Incentivize domestic manufacturers to scale up.

• Skill Development: Build a future-ready workforce for EVs, smart manufacturing, and AI-based automation.

• R&D & IP Facilitation: Provide funding for innovation, branding support, and empower MSMEs with technology transfers.

• Cluster-Based Development: Shared R&D labs, testing facilities, and component parks to boost MSME participation in value chains.

Non-Fiscal Measures

• Industry 4.0 Promotion: Subsidize and promote digital transformation of manufacturing units.

• Global Collaboration & FTAs: Expand access to international markets through bilateral and multilateral trade agreements.

• Ease of Doing Business: Streamline regulatory frameworks, enhance supplier discovery platforms, and improve access to finance and infrastructure.

A Vision for 2030: India as a Global Auto Hub

India’s automotive sector sits at a defining crossroad. The next five years are critical. With strong implementation of proposed interventions and global collaborations, India can transition from being a cost-efficient manufacturing base to becoming a value-added innovation hub for next-generation mobility solutions.

2030 Targets:

• $60 billion in auto component exports

• $25 billion trade surplus

• 2–2.5 million new direct jobs

• Increased share in high-value segments like EV batteries, semiconductors, and AI-powered systems

 

India’s ambitions to dominate the global automotive value chain are strategically sound and economically essential. The world is rapidly transitioning towards cleaner, smarter, and connected vehicles. If India can bridge its technology and cost gaps, leverage its demographic and industrial strengths, and foster innovation, it can firmly establish itself as a global leader in the automotive domain.

The NITI Aayog report provides not just a blueprint, but a call to action—for the government, private sector, academia, and global partners to come together and drive India’s automotive growth story at the frontlines of the global value chain.