India’s Auto Component Industry Has Rs 98,000 Crore Locked in Inventory: Report
India’s automotive component industry has around Rs 98,000 crore locked in inventory, highlighting a major working-capital challenge for suppliers as the auto sector prepares for a technology-driven transformation.
A new study by Vector Consulting Group estimates that better inventory management could potentially release Rs 29,000-39,000 crore of this capital. The findings are particularly important for India’s large MSME supplier base, which accounts for nearly 80% of the country’s automotive component manufacturers.
With electric vehicles, hybrids and advanced electronic systems changing vehicle technology, suppliers will need to unlock capital and invest it in engineering, technology and new capabilities.
Rs 39,000 Crore Working Capital Could Be Released
According to the Vector Consulting Group study, better inventory management could free up between Rs 29,000 crore and Rs 39,000 crore across the automotive component industry.
The potential release includes around Rs 4,000-5,600 crore from the MSME ecosystem. The study says companies using consumption-based replenishment strategies can typically reduce inventory by around 30-40%.
MSMEs Face a Major Capability Gap
India’s automotive component MSMEs generate approximately Rs 2.4-2.9 lakh crore in annual turnover. However, the industry faces pressure to upgrade its capabilities as vehicles increasingly depend on batteries, power electronics, embedded software and integrated electronic systems.
The study found that 95% of industry leaders surveyed believe MSMEs are not investing quickly enough in capabilities required for future growth.
Existing Manufacturing Capacity Is Not Fully Utilised
The report also highlighted an unusual capacity challenge. Automotive component plants operate at an average utilisation level of 75-85%, while 91% of surveyed respondents still consider capacity a significant challenge. Frequent production changeovers, quality losses, rework and inefficient material movement reduce effective manufacturing capacity.
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Productivity Could Add Rs 88,000 Crore in Turnover
Vector estimates that a 30% productivity improvement across automotive component MSMEs could generate an additional Rs 74,000-88,000 crore in annual turnover.
The findings suggest that improving existing operations could provide suppliers with capital to invest in technology, product development, engineering and workforce capabilities.
For India’s automotive industry, unlocking trapped working capital could therefore become an important step towards building a more competitive and future-ready supplier ecosystem.
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