India Auto Component Industry Pushes Localization Past 70%

India’s auto component industry has pushed localization beyond 70% of domestic demand, according to a report presented by Boston Consulting Group and the Automotive Component Manufacturers Association of India at the 66th Annual ACMA Session in New Delhi. The finding marks a substantial increase from slightly above 60% in FY16, despite demand more than doubling during the same period. The report argues that localization still has significant room to expand, with the next stage depending on the industry’s ability to address raw material dependence, technology gaps and production scale limitations.

Localization Growth Creates Further Expansion Potential

Localization has risen from just over 60% in FY16 to more than 70% today, but the report does not consider the current level a saturation point. Saurabh Chhajer, managing director and partner at BCG India, said moving the localization factor from 70% to 80% could translate into 1 to 2 percentage points of annual growth. The opportunity therefore extends beyond replacing imported components with locally manufactured alternatives. It depends on developing a broader domestic supplier base capable of producing increasingly complex products while maintaining commercial viability as demand expands across the automotive market.

Three Constraints Limit Deeper Localization

Three distinct constraints currently stand between the industry and the next stage of localization, according to Chhajer. Some components depend on raw materials that are not available domestically, while others require technologies that local manufacturers have not yet mastered. A third category involves components for which domestic production previously lacked sufficient scale to justify investment. Chhajer described these dependencies as separate raw material and technology contingents to import, highlighting that localization cannot be measured solely by where a component is assembled or manufactured. Each constraint requires a different industrial response as the market develops.

Rare-Earth Magnets Highlight Material Dependence

Rare-earth magnets provide a clear example of the raw material challenge facing India. China controls roughly 90% of global rare-earth magnet processing capacity, while Indian manufacturers source about 85% of their magnets from Chinese suppliers, according to the report. After China tightened export licensing for these magnets in 2025, shipments to India fell 74% year over year by May, leaving manufacturers with only a few weeks of inventory. One leading Indian carmaker subsequently reduced planned production of a new electric vehicle model by about two-thirds, illustrating how concentrated material dependencies can directly affect vehicle production.

Localization Does Not Always Mean Material Independence

The report also distinguishes between manufacturing a component domestically and controlling the materials required to produce that component. Chhajer noted that domestic suppliers can increase component localization while remaining dependent on imported raw materials or technologies. This distinction becomes increasingly important for manufacturers and policymakers because a higher local manufacturing percentage does not automatically eliminate external supply-chain exposure. The industry therefore faces a broader challenge: developing domestic capabilities across components, technologies and critical inputs rather than focusing only on the final manufacturing location of individual automotive parts.

Market Scale Strengthens the Case for Local Production

Production scale is a more favorable factor for the domestic industry. India is now the world’s third-largest vehicle market, giving suppliers a larger demand base and improving the commercial case for producing components locally. Products that previously lacked sufficient domestic volume can become economically viable as vehicle demand grows and manufacturers increase purchasing requirements. This scale advantage could support deeper localization across increasingly sophisticated component categories. Chhajer therefore questioned whether 70% should be considered the saturation point, arguing that continued market expansion can create opportunities for suppliers to localize products that were previously dependent on imports.

Exports Add Another Growth Opportunity

Continued demand for petrol and diesel vehicles could also strengthen India’s position as a manufacturing hub for combustion-engine components, particularly as global automakers reduce capacity or investment in some other markets. Component exports have already more than doubled, rising from $11 billion in FY16 to roughly $24 billion in FY26. The industry is targeting $45 billion by FY30, indicating expectations for another substantial increase in international sales. Despite this progress, India still accounts for less than 5% of global component trade compared with China’s 12%, leaving considerable headroom for domestic suppliers to expand their presence in global automotive supply chains.

Next Phase Moves Beyond Import Substitution

The report frames the next phase of localization as a broader industrial capability challenge rather than a straightforward import-substitution exercise. Higher localization will require manufacturers to make increasingly complex, technology-intensive and scale-dependent products economically viable within the domestic market. Raw material availability, technological capabilities and production economics will therefore determine how far localization can progress beyond the current 70% level. The combination of a growing domestic vehicle market, expanding exports and continued demand for combustion-engine components provides a foundation for further development, but the industry must reduce critical dependencies while building competitive capabilities across the supply chain.

Frequently Asked Questions

What is driving India’s auto component localization beyond 70%?
India’s auto component localization is being driven by expanding vehicle demand, improving supplier capabilities and increasing production scale, while remaining constrained by imported raw materials, technology gaps and limited commercial viability for some complex components. Localization has increased from slightly above 60% in FY16 to more than 70% today, even as demand more than doubled. The next stage will depend on whether manufacturers can economically produce more sophisticated components domestically while reducing exposure to critical international supply dependencies.