Niti Aayog proposes incentives for boosting auto parts production, exports

New Delhi: India’s policy think tank Niti Aayog on Friday proposed a set of incentives for more than doubling the domestic automotive component industry’s output to $145 billion and triple its exports to $60 billion by 2030.

Such growth would position India as a formidable player in global markets, achieving a trade surplus of $25 billion, and increasing the country’s share in the global value chain of auto components from 3% now to 8%, Niti Aayog said in a report titled ‘Automotive Industry: powering India’s participation in global value chains’.

In 2023, India’s domestic production of components was $70 billion, it pointed out.

Such progress, Niti Aayog said, could create up to 2.5 million extra large-scale employment opportunities, bringing the total direct employment in the sector to 3 million to 4 million people.

“However, realizing this ambitious vision will require strategic and focused policy initiatives to enhance competitiveness, improve infrastructure, and attract investment in high-value automotive manufacturing,” it said.

The policy think tank proposed fiscal support measures for scaling up manufacturing, and capital expenditure support for the development of tools, intellectual property transfers, and branding support, which are crucial for the automotive component manufacturing sector. 

Niti Aayog also proposed cluster development to strengthen supply chains and reduce logistics costs, and setting up common research and development and testing facilities, besides skill development measures for a steady pipeline of talent. 

Unlocking potential

On the non-fiscal front, Niti Aayog proposed measures to enhance the auto component industry’s global competitiveness, including joint ventures and free trade agreements to foster international collaboration and market access.

To unlock the sector’s potential, India must adopt a range of strategic measures, said Niti Aayog vice chairperson Suman Bery, who released the report on Friday. 

“This includes investing in infrastructure, promoting technological innovation, enhancing workforce skills and introducing policy reforms to foster a competitive and resilient automotive ecosystem,” Bery said in the report.

“These policy measures, if effectively implemented, will be crucial in enabling India to scale up its automotive component production, increase exports, and strengthen its standing in global markets,” Bery added. 

Niti Aayog member Arvind Virmani pointed out that although India was the fourth-largest auto parts producer, the country accounted for a modest share of around 3% in global automotive components trade, urging the domestic industry to improve the quality of its products. 

“So the critical reason for that is skills, quality. Quality is related to skills. Closing that quality gap is absolutely critical, or the rest will not happen,” Virmani said. “You will see that in all these reports that Niti Aayog is preparing, skilling is a very important component.”