India’s automotive industry is accelerating fast. Triggered by market liberalizations that have kicked off a cycle of investment and growth, car demand this decade has been advancing at 20 percent a year. Provided there is no backsliding by policy makers, the domestic market could support sales of up to one million vehicles a year by the end of the century. Many hold high hopes of India also becoming a significant exporter to other LDC markets.

Not surprisingly, the world’s car manufacturers are scurrying to sign up Indian partners. General Motors, Peugeot, and Daewoo, to name but three, have all announced joint ventures.

What has received considerably less international attention, however, is the state of India’s automotive components industry. The reality is that although Indian demand for car components is likely to quadruple by the turn of the century, India’s components industry faces substantial challenges in supporting that growth.

The state of play

Protectionism. Protectionism has dealt the Indian automotive components industry a weak hand with which to withstand the competitive onslaught that is about to be unleashed.

Government restrictions aimed at limiting consumption and protecting domestic industry have stifled vehicle demand: total annual revenue from all car component production...