NITI Aayog has called for fiscal incentives to boost manufacturing of auto components and development of brownfield large-scale auto clusters for enabling India to become part of the global value chain.
The move is aimed at tripling India’s auto component exports to $60 billion by 2030 from $20 billion now while increasing the country’s automotive component production to $145 billion in next five years. This is expected to generate 2-2.5 million new employment opportunities, bringing the total direct employment in the sector to 3-4 million.
“The government should provide operational expenditure (opex) support to scale up manufacturing capabilities, with a focus on capital expenditure (capex) for tooling, dyes, and infrastructure,” it said in the report titled ‘Automotive Industry: Powering India’s Participation in Global Value Chains, released on Friday.
As per the report, 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%.
Outlining several strategic fiscal and non-fiscal interventions aimed at enhancing India’s global competitiveness in the automotive sector, the Aayog also called for skill development initiatives to build a talent pipeline critical for sustaining growth.
“The government should also support cluster development for fostering collaboration between firms through common facilities such as research and development (R&D) and testing centres to strengthen the supply chain,” it said.
The report further said there is a need for providing incentives for research, development, and international branding to improve product differentiation and empowering micro, small and medium enterprises (MSMEs) through intellectual property (IP) transfers.
According to the Aayog, non-fiscal interventions including simplifying regulatory processes, worker hour flexibility, supplier discovery and development and improving business conditions for automotive firms will also be needed to help companies in the sector scale up and match the global standards.
It also called for promoting joint ventures (JVs), foreign collaborations, and free trade agreements (FTAs) to expand global market access.
The report suggested that there is a need to encourage the integration of digital technologies and enhanced manufacturing standards to improve efficiency.
In 2023, the global automobile production reached approximately 94 million units with the global automotive components market valued at $2 trillion and exports accounting for $700 billion.
According to the Aayog, though India is the fourth-largest global producer of automobiles after China, the US and Japan with an annual production of nearly six million vehicles, its automotive sector faces challenges on account of operational cost, infrastructural gaps, moderate integration in the global value chain, inadequate R&D expenditure etc that hinder its competitiveness in the global trade.
“India has significant potential to become a global leader in the automotive industry. 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,” the Aayog added.
