China+1 strategy boosts India's role in global auto component supply chains: Reports
The EY–Parthenon report notes that cheap production costs and government-backed incentives are causing India to become a leader in the global auto component market.
The "China + 1" idea originated because companies who continue to do business in China wanted add a second location to reduce risk in the supply chain. Companies are being prompted to do so because of the need to protect against potentially disruptive events that are related to geopolitical issues, rising manufacturing costs and trade uncertainties.
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Competitive advantages for India
The EY–Parthenon report notes that cheap production costs and government-backed incentives are causing India to become a leader in the global auto component market. The Production-Linked Incentive (PLI) Scheme for the automotive industry has been a determining factor with 8–18 per cent sales-linked incentives for advanced and electric vehicle components.
Also Read : Union Budget 2024: ACMA seeks rationalised GST rates on EVs & components
With a total fiscal expenditure of USD 3 billion, the scheme has already fueled auto component exports to the tune of USD 61.8 billion. The EY–Parthenon report also explains that this policy push is making India increasingly competitive, thereby increasing the attention of international original equipment manufacturers (OEMs).
Opportunities and challenges ahead
Though policy incentives and cost benefits are strong attractors, officials warn that Indian businesses must step up investments in research and development to maximize the potential fully. Former NITI Aayog CEO Amitabh Kant, speaking at an industry event in May, emphasised the need for 'technology leapfrogging" rather than replicating existing Chinese models.
"You can't copy the Chinese. You have to beat the Chinese with one up. This game of China plus one by importing from China all the time will never work," Kant said, warning that relying solely on imports from China would not sustain growth under the China+1 strategy.
Also Read : India's auto component exports face heat as Trump's 25% tariffs kick in
India's wider appeal for manufacturing
Chief Economic Adviser Anantha Nageswaran observed that political stability of India, expanding domestic market, skilled labor force, and consistently increasing income levels provide it with the appeal of being a production base. All these, coupled with the trend towards diversified supply chains globally, are building up a strong base for India's long-term position in the auto components industry.
As the world OEMs realign sourcing, India's path as a leading export destination for auto parts, observers say, will hinge upon whether it is able to ramp up technology, keep costs down, and ensure consistent quality.
Get insights into Upcoming Cars In India, Electric Vehicles, Upcoming Bikes in India and cutting-edge technology transforming the automotive landscape.
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