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Companies are moving away from China, following negative overseas sentiment, to pitch their tents in India.
A significant movement is taking place in the auto-parts industry, which has its global hub in China, if two recent trends are to be taken as fact – first, global automotive entities have been voicing opinion on the China Plus One model and second, at least 30 international purchasing bodies that procure parts have become active in India taking the rise in their presence from 8-10 bodies earlier.
Should all the elements hold together then it could propel India’s automotive parts industry – which is currently valued at around $50 billion, as against China’s $550 billion – as a suitable option.
The defection of original equipment manufacturers (OEMs) in the auto space from China has commenced given a global anti-China sentiment coupled with the United States and other nations levelling charges against China of currency maneuvering and creating an atmosphere of unfair competition.
There are added geopolitical issues as well as China’s attempt to raise costs of conducting operations in the country for overseas players.
Enter India which has already announced its aspirations of becoming a major global manufacturing hub as companies seek to de-risk their supply chains and their over-reliance on China.
The Indian government has left no stone unturned in its bid to boost manufacturing and invite overseas players. Corporate tax rates have been slashed and customs duties re-shaped to ensure that India can potentially stake a claim as the world’s biggest factory. The annual 2021-2022 budget was a statement of intent for Narendra Modi and his finance minister Nirmala Sitharaman to showcase their aspirations of transforming the country’s economy and seek higher growth rates. As Sitharaman said, “Our customs duty policy should have the twin objectives of promoting domestic manufacturing and helping India get onto the global value chain and export better… The thrust now has to be on easy access to raw materials and exports of value added products.”
There are many countries who are in the running to woo overseas players but India has a better chance than any of them thanks to an already firm auto sector. Additionally, an increase in international inquiries seems to be the demonstrated fact according to the sources. Reports in the Economic Times confirmed that at least two major US-based tier-1 suppliers said they have moved 35-40% of their sourcing to India in the past six months. These companies requested anonymity as they feared a backlash in China if their strategy became public.
Despite these new trends the Indian government continues to push the principles of Atma Nirbhar Bharat (self-reliance). To this end the authorities have increased the share of manufacturing in India’s GDP from 17-18 percent currently to 25 percent. The cut in corporate tax to 22 percent for existing companies and 17 percent for new entrants and the production linked incentive (PLI) plan across a wide range of sectors have been designed to boost manufacturing.
The auto sector has been on the receiving end of the government’s largesse. The sector directly contributes $97 billion to the Indian economy with automobiles contributing $58 billion and the automotive component sector contributing $39 billion. Five industries in the automotive sector were identified as having the potential to drive double-digit growth - Passenger Vehicles, Two and Three Wheelers, Heavy Commercial Vehicles, Auto Electricals and Electronics and Automotive batteries. The entrants of overseas players is an reflection of the potential of this sector. The numbers speak for themselves when one considers a potential to generate annual revenue of around $300 billion by 2026, while creating 65 million additional jobs while contributing 12 percent to India’s Gross Domestic Product.
India has already announced its aspirations of becoming a major global manufacturing hub as companies seek to de-risk their supply chains and their over-reliance on China. The Indian government has left no stone unturned in its bid to boost manufacturing and invite overseas players to ensure that India can potentially stake a claim as the world’s biggest factory.
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There is enough reason for overall buoyancy as IPO’s are increasing their orders from India and even MSMEs are acknowledging noticeable shifts in business.
In keeping with its international energy obligations the Indian government has also earmarked strategies and investments in the green mobility sector. The setting upon the National Electric Mobility Mission Plan 2020 (NEMMP) in 2013 which espouses the embracing of electric vehicles is a case in point. Additionally, Faster Adoption and Manufacturing of Electric and Hybrid Vehicles (FAME) project was launched in 2015 to inspire introduction of dependable, inexpensive and effective electric and hybrid vehicles (EVs) in the country. The government’s ambitions to go green has received favourable response from multiple companies. It makes sense given the importance of this sector which offers in excess of 45 per cent to manufacturing GDP.