India's Next Phase of Auto Localisation will be Harder than the Last

India's auto component industry has pushed localisation past 70% of demand, according to a new report from Boston Consulting Group and the Automotive Component Manufacturers Association of India. BCG and ACMA presented the findings on Wednesday at the 66th Annual ACMA Session in New Delhi.

Localisation has climbed from just over 60% in FY16 to more than 70% today, even as demand more than doubled over the same period. BCG does not see that level as a ceiling.

"What translates into is the localisation factor itself as it goes from 70% to 80%, 1 to 2 percentage points in annual growth," said Saurabh Chhajer, managing director and partner at BCG India.

Three distinct constraints stand between the industry and that next stretch, Chhajer noted. Some components rely on raw materials India does not have. Others require technology the country has yet to master. A third group simply lacked the scale to justify local production, until now.

"There is a raw material contingent to import... there is a technology contingent to import," Chhajer explained, describing how each category behaves differently as India's market expands.

Rare-earth magnets illustrate the raw material problem starkly. China controls roughly 90% of global processing capacity, and India sources about 85% of its magnets from Chinese suppliers, the report found. When China tightened export licences on the magnets in 2025, its shipments fell 74% year on year by May. That left Indian manufacturers with only a few weeks of stock. One leading Indian carmaker cut its planned new EV model output by about two-thirds as a result.

That dependence complicates what localisation actually means, according to Chhajer. India can build components domestically without controlling the materials inside them, a distinction the report says matters for companies and policymakers alike.

Scale, meanwhile, works in India's favour. India is now the world's third-largest vehicle market, and that scale gives suppliers confidence to localise products that once made no commercial sense at home.

"Is 70% really the saturation point? The answer is probably no," Chhajer said.

A growing domestic market and continued demand for petrol and diesel vehicles could also turn India into a manufacturing hub for combustion engine parts, as global carmakers pull back elsewhere. Component exports have already more than doubled, from $11 billion in FY16 to roughly $24 billion in FY26, and the industry is targeting $45 billion by FY30. India still holds under 5% of global component trade, against China's 12%, leaving considerable room to grow.

The report frames the next phase as more than straightforward import substitution: a test of whether India can make increasingly complex, technology-heavy and scale-dependent products economically viable at home.