India does not need to manufacture every automotive component domestically, but it must build local capacity in critical areas where dependence on a handful of overseas suppliers can threaten production, according to Tarun Kapoor, Advisor to the Prime Minister.
Kapoor said recent disruptions involving semiconductors and rare-earth magnets have demonstrated how a relatively small component can become a major vulnerability for the automotive industry.
“I don't say that India can become self-sufficient in every part or every material which goes into manufacturing,” Kapoor said. “But at least those critical items where we think that there could be a problem, let us all think and then work together.”
Rare Earths Show Risk of Concentrated Supply
Kapoor cited the recent experience with rare-earth magnets as an example of the risks facing manufacturers.
“One small component like we saw the rare earth magnets, [a] small component a country can hold us to ransom,” he said.
He asked vehicle manufacturers and suppliers to identify other components and materials where similar risks could emerge and share those concerns with the government before they become supply constraints.
“You can tell us what you think could be something on which there could be an issue or a problem in the future,” he said.
The aim, Kapoor said, should be to move early to build critical manufacturing capabilities in India.
Semiconductor Manufacturing Needs to Expand
Semiconductors are among the areas where Kapoor believes India needs significantly greater domestic capacity.
He said chip availability has already emerged as a bottleneck for vehicle manufacturers globally, making domestic semiconductor production strategically important for the automotive industry.
“Without semi [conductors], that has become a bottleneck. Sometimes chips are not available,” he said.
Kapoor said the government is investing heavily to develop semiconductor manufacturing in India and referred to the first foundry coming up in the country.
However, he cautioned that the initial capacity would meet only a small share of domestic requirements.
“Probably we need much, much more manufacturing of semiconductors to be able to cater to our own requirement,” he said.
Kapoor also referred to the government's Semiconductor 2.0 programme and said further investments would be aimed at addressing gaps left by the first phase.
His priority, he said, is for India to first build enough capacity to meet a meaningful share of its own requirements, even as exports eventually develop.
Battery Value Addition Also Needs to Rise
Batteries are another area where the government is examining how to increase domestic manufacturing and value addition as electric vehicle adoption rises.
Kapoor said companies have been approaching him on issues around battery cell imports and whether further measures could be introduced as local manufacturing capacity develops.
He indicated that restrictions on imports could be considered, but said any transition would need to be gradual.
“Can we put some restrictions there? So that is another area where probably we need to discuss and debate on how to put in some more, maybe certain measures in place, so that the domestic industry on battery manufacturing also takes off,” he said.
“But we do it gradually. We don't want to push things too much.”
The approach suggests the government wants to encourage local battery manufacturing without creating a sudden supply or cost shock for India's emerging EV market.
Self-Reliance Should Not Mean Making Everything
Kapoor acknowledged that no major manufacturing economy is entirely self-sufficient. “Even China is not self-sufficient in everything. China also imports quite a bit,” he said. India therefore does not need to localise every material or component used in a vehicle.
Instead, he argued for identifying areas where supply is concentrated geographically or where the lack of an alternative source could stop vehicle production.
“At least those critical items where we think that there could be problem,” industry and government should work together to reduce the risk, he said.
This approach would allow India to remain integrated with global supply chains while insulating itself against vulnerabilities in strategically important technologies.
India Should Also Become Global Manufacturing and R&D Base
Kapoor said strengthening domestic supply chains should go alongside a much larger ambition to make India a global automotive manufacturing and technology base.
He said the government wants companies to expand manufacturing in India regardless of where their parent company is headquartered.
“We are quite happy with companies whose manufacturing base in India is growing even though the company parent may be elsewhere,” he said.
The next step should be to increase the amount of R&D, product design, manufacturing and innovation carried out in India.
Kapoor said India could eventually become a location where global automotive companies base an increasing share of their manufacturing, engineering and innovation activity.
That would increase exports, create jobs and move India further up the automotive value chain.