The Hindu Business Line : Auto parts sector moves in top gear on higher vehicle sales

THE combination of a spurt in vehicle sales and increased sourcing of components from India last fiscal has had the domestic auto components industry cruising along at top speed.

While domestic production jumped by 20 per cent to Rs 30,640 crore ($ 6.73 billion) last year, the exports grew 32 per cent to touch the $1-billion mark (Rs 4,500 crore) in fiscal 2003-04, the latest data from the Automotive Component Manufacturers Association (ACMA) showed.

Exports of auto components from India were pegged at $760 million in 2002-2003.

Meanwhile, with global sourcing of components on the rise, exports as a percentage of total output are increasing. The figure has grown from about 12.9 per cent in 2001-02 to 13.69 per cent in 2002-2003 and to 14.68 per cent in 2003-2004.

The positive trend in exports is only likely to strengthen further with ACMA setting an export target of $2.5 billion by 2010. Companies such as Ford, General Motors, Fiat and DaimlerChrysler have already announced their intention to develop India as a sourcing hub for auto components.

Meanwhile, domestic industry analysts have brushed aside concerns that with 10 new countries set to join the European Union on May 1, there would be any adverse impact on exports of auto components from India to Western Europe. Among the 10 countries, Hungary, the Czech Republic and Poland have a sizeable components industry exporting primarily to Western European nations.

"The cost advantage which India enjoys would still be very large, particularly with regards to castings and forgings, despite the benefits these countries would accrue by joining the EU," the official pointed out.

The manufacturing costs for firms in India are believed to be about 25-30 per cent cheaper when compared to their western counterparts.

However, the margins of the domestic auto components players are likely to drop with prices of inputs, particularly ferrous products, on the rise. Faced with little option, several auto component companies are currently in talks with automobile manufacturers to allow them to increase prices on components.