Powering India’s Participation in Global Value Chains Report

Syllabus: GS3/Indian Economy

Context

• NITI Aayog today released a report titled “Automotive Industry: Powering India’s Participation in Global Value Chains”. 

About

• The report offers an extensive analysis of India’s automotive sector. 
• It highlights both opportunities and challenges and outlines a pathway for positioning India as a key player in global automotive markets.

Major Highlights

• Global Context & Trends: Battery manufacturing hubs are emerging in regions like Europe and the U.S., these developments are altering traditional supply chains and creating new opportunities for collaboration.
  • The rise of Industry 4.0 is transforming automotive manufacturing Technologies such as Artificial Intelligence (AI), Machine Learning (ML), Internet of Things (IoT), and robotics. 
  • These digital advancements are fostering new business models centered around smart factories and connected vehicles.
  • Semiconductor chip costs per vehicle are expected to rise from $600 to $1,200 by 2030.
• Global Auto Component Market: It is valued at $2 trillion in 2022; $700 billion is traded globally.
  • Global automobile production: Reached approximately 94 million units.
  • The global market is growing at 4–6% annually due to rising demand.
• India’s Position: India has emerged as the fourth-largest global producer after China, USA and Japan, with an annual production of nearly six million vehicles.
  • The Indian automotive sector has gained a strong domestic and export market particularly in the small car and utility vehicle segments. 
  • India is positioning itself as a hub for automotive manufacturing and exports with ‘Make in India’.

Challenges

• Despite being the fourth-largest automobile producer globally, India has a modest share (around 3%) in the global automotive component trade, which amounts to approximately $20 billion. 
• The bulk of global trade in automotive components is driven by engine components, drive transmission, and steering systems, but India’s share in these high-precision segments remains low at just 2-4%. 
• India’s automotive sector faces challenges on account of operational cost, infrastructural gaps, moderate GVC integration, inadequate R&D expenditure etc. that hinder its competitiveness in the global value chain (GVC).

Recommendations

• Operational Expenditure (Opex) Support: To scale up manufacturing capabilities, with a focus on capital expenditure (Capex) for tooling, dies, and infrastructure.
• Skill Development: Initiatives to build a talent pipeline critical for sustaining growth.
• R&D, Government facilitated IP transfer and Branding: Providing incentives for research, development, international branding to improve product differentiation and empowering MSMEs through IP transfers.
• Cluster Development: Fostering collaboration between firms through common facilities such as R&D and testing centers to strengthen the supply chain.
• Industry 4.0 Adoption: Encouraging the integration of digital technologies and enhanced manufacturing standards to improve efficiency.
• International Collaboration: Promoting joint ventures (JVs), foreign collaborations, and free trade agreements (FTAs) to expand global market access.
• Ease of Doing Business: Simplifying regulatory processes, worker hour flexibility, supplier discovery & development and improving business conditions for automotive firms.

Way Ahead

• The report envisions the country’s automotive component production growing to $145 billion, with exports tripling from $20 billion to $60 billion. 
• This growth would lead to a trade surplus of approximately $25 billion and a significant increase in India’s share of the global automotive value chain, from 3% to 8%.
• Additionally, this growth is expected to generate 2-2.5 million new employment opportunities.

Conclusion

• India has significant potential to become a global leader in the automotive industry. 
• Achieving this goal requires focused efforts from the central and state governments, as well as industry stakeholders.
• By addressing the existing challenges and leveraging the proposed interventions, India can enhance its competitiveness, attract investments, and build a robust automotive sector capable of leading the global value chain.

Source: AIR