For the first time, the industry saw a significant $700 million trade surplus in FY22. Was it the China+1 strategy or the localisation push? Mint explains:

India’s auto components sector has always imported more than it exported, leading to a trade deficit. For the first time ever, the industry saw a significant $700 million trade surplus in FY22. What led to this, and will the trend sustain? Mint explains.

How was the trade surplus achieved?

The auto ancillaries industry in India mainly supplies to original equipment manufacturers (OEMs) in the automotive industry and their tier-I suppliers in large external markets. For the Indian auto component industry, Europe and North America account for nearly two-thirds of exports. These markets witnessed a swift recovery in industrial production on the back of sustained government support in the aftermath of covid-19. This led to a spike in demand for auto components across segments as customer demand rebounded and companies ramped up production. Exports in FY22 grew 42.9% to $19 billion.

Did the China+1 move play a role?

Manufacturers globally are moving to diversify their sourcing and suppliers outside of China, to ensure continuity in business operations and reduce dependence on a single country. India has witnessed the benefits of this diversification strategy, as a favourable low-cost alternative for large manufacturers’ sourcing needs. “The China +1 policy may not have resulted in an outpour of investments into India, but we have seen benefits in terms of our order books growing," Vinnie Mehta, director general, Automotive Components Manufacturers’ Association of India (ACMA), told Mint.

Which export segments did well during the year?

All sub-segments, including engine parts, drive transmissions and steering systems did well. “The pie of exports is increasing and so is each slice of the pie", Mehta said, indicating that growth is distributed across segments. Drive transmission and steering (33%) and engine systems (21%) made up the bulk of exports. The largest markets were North America, Europe, and Asia.

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What role did India’s localization push play?

China is a large sourcing market for OEMs globally, and accounts for 30% of imports of auto components to India. While India’s auto components imports too grew in FY22 (33% YoY), exports grew much faster. Indian manufacturers are now making a strong bet on localizing the supply chain and higher vertical integration and production of value-added products at home. Production-linked incentive (PLI) schemes and the emergence of new automotive segments in EVs are furthering the trend.

Is the surplus situation sustainable?

According to ACMA, the trade surplus has continued into the June quarter. Fears that exports could be hit due to geopolitical disruptions have not materialized, as shipments to European markets continued at a healthy clip. With a continued emphasis on localization, a government push to add more domestic capacity and healthy demand for automobiles, the industry expects the trade surplus to remain in FY23 as well. Exports are now expected to grow 23.9% annually to reach $ 80 billion by 2026, as per IBEF.

In Opinion, Amit Kapoor & Bibek Debroy write on how to make India better at competitiveness. Was Gorbachev a traitor, misfit or Soviet visionary? Sreeram Chaulia answers. Anurag Beher argues the state can run schools well. Long Story tells how the frustrating IBC process is driving away investors and funds.

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