Indian Automotive Industry Needs Skilling Reforms To Be The Key Player in GVC

The Indian automotive industry stands at a pivotal juncture, poised to redefine its role in the global manufacturing landscape. As the world transitions toward electric mobility, autonomous driving, and sustainable production, the automotive sector offers India a unique opportunity to emerge as a key player in the global value chain (GVC). This report, the second in the series of Global Value Chains, titled “Automotive Industry: Powering India’s participation in Global Value Chains”, explores the transformative potential of India’s auto component industry, outlining a strategic roadmap to elevate its global salience and drive economic prosperity.

This report envisions a future where India’s automotive component production reaches $145 billion by 2030, with auto component exports tripling to $60 billion, yielding a trade surplus of $25 billion. Such growth promises to create 2-2.5 million additional direct jobs, bolster ancillary industries, and elevate India’s GVC share to 8%. Achieving this ambition, however, demands a concerted effort to address cost disadvantages, enhance infrastructure, and integrate advanced technologies such as Industry 4.0. The shift toward electric vehicles (EVs) and next-generation features like Advanced Driver Assistance Systems (ADAS) further underscores the urgency of aligning India’s capabilities with global trends. To realize this vision, we propose a comprehensive set of fiscal and non-fiscal interventions. These include targeted operational support for identified components and capital expenditure support for tools and dyes, cluster development to strengthen supply chains, Measures for improving R&D and skill-building initiatives to nurture talent.

This report outlines a comprehensive set of interventions across multiple domains to achieve the envisioned growth in India’s automotive component industry such as expenditures, scaling-up, branding, R&D, skill development initiatives are also highlighted to ensure a steady pipeline of talent, which is essential for driving sectoral growth.

Timely and effective implementation of the recommended reforms and initiatives presents a promising and powerful pathway for India to enhance its global value chain (GVC) salience in the automotive sector which will ultimately create opportunities for skill and knowledge advancement, positioning India as a globally recognized supplier of high-quality, technologically advanced products.

This article summarizes the report’s key insights on skilling, re-skilling, and upskilling, focusing on core components, emerging opportunities, and existing challenges in the sector.

Factors that can position India to become a dominant player in the auto industry GVC:

As India aims to become a leading player in the global automotive value chain, various factors are beneficial for India to make it a leading auto component player in GVCs. These include:

• Rising Domestic Consumption and Middle-Class Aspirations
• Global Geopolitical Shifts and Supply Chain Diversification: Larger global macroeconomic trends signify that amidst geopolitical tensions more and more automobile companies are looking to diversity their supply chain. Trade tensions and chip wars between USA and China along with rising conflicts in the Middle East region and between Russia and Ukraine have made China plus one strategy a lucrative option to pursue for automobile companies in order to de-risk their supply chain from China and to make their supply chain more resilient. This shall be beneficial for India as it becomes a lucrative option to invest in for firms and aims to position itself as a key player in global supply chains. India possesses a favorable business environment, skilled workforce, and supportive Government policies which make India a very attractive option to setup their automobiles production and manufacturing facilities.
• Technological Advancements and India’s Potential in the Global EV Market

Challenges faced to reach the aim:

As India seeks to become a dominant player in the GVC, it is essential to identify the various challenges it faces in order to scale up its production capacities and rise up to the global challenges:

1. Cost competitiveness
2. Quality Constraints
3. Ease of Doing Business (Click here to get latest updates from startups and MSME world)
4. Lack of Innovation
5. Limited access to global markets
6. inadequate R&D infrastructure
7. And importantly, Talent and Skilling Issues: India’s automotive manufacturing sector faces significant talent and skilling challenges, particularly as the industry transitions toward electric vehicles (EVs), automation, and advanced manufacturing processes. Many workers currently possess skills suited for traditional internal combustion engine (ICE) vehicle production, but there is an increasing demand for expertise in areas like electric powertrains, battery management, software integration, and AI-driven manufacturing. Roles such as battery engineers, robotics specialists, and software developers are emerging as critical to the industry, but a significant skills gap remains in these areas. Technical training institutes and vocational schools have not yet fully adapted their curricula to meet the evolving demands of the automotive sector, resulting in a shortage of qualified professionals who can handle these new technologies.

The Emerging Technology and Complex Manufacturing

The emerging technology and complex manufacturing in the sector offers a challenging and complex environment, marked by technological uncertainty, integration risks, and significant investments in research and development. An analysis of the manufacturing process in this quadrant reveals several key factors that contribute to its complexity. Firstly, the production of advanced components requires a high degree of technological expertise, including materials science, electrical engineering, and computer architecture. Secondly, the integration of multiple technologies increases the risk of errors and defects, making quality control a critical aspect of the manufacturing process. Finally, the production of advanced components requires significant investments in research and development, as well as in capital equipment and manufacturing infrastructure.

To thrive in this quadrant of nascent technology and complex manufacturing, companies must be prepared to overcome three significant challenges.

• they must be willing to invest heavily in Research and Development (R&D) to stay at the forefront of technological innovation, as the development of advanced components requires continuous advancements in materials science, electrical engineering, and computer architecture.
• they must be prepared to make substantial capital expenditures (Capex) to acquire and maintain the specialized manufacturing equipment and infrastructure necessary to produce these complex components.
• they must possess a highly skilled workforce with expertise in multiple disciplines, to design, develop, and manufacture these advanced components.

The Conventional

However, the components that are well-established in the automotive industry, yet require sophisticated manufacturing processes and expertise. These components have matured over time, with their technologies being refined and optimized through years of development and iteration. While they may not be as evolving as their emerging counterparts, they are no less critical to the functioning of modern vehicles. Notably, many of the components in this quadrant have a high share in India’s export market, underscoring their importance to the country’s automotive industry.

The Conventional and Complex quadrant is characterized by established industries with well-defined products and processes, but it faces significant challenges that threaten to erode its competitiveness.

• One of the primary challenges is the technology laggardness compared to other nations.
• Another significant challenge is the lack of a skilled workforce, as the existing workforce ages and retires, and companies struggle to find qualified replacements with the necessary skills and expertise to operate and maintain complex manufacturing systems. For instance, a leading aerospace company in this sector has reported a shortage of skilled welders, resulting in production delays and increased costs. This shortage of skilled labor is exacerbated by the lack of investment in vocational training and education, making it difficult for companies to find the talent they need to remain competitive. To overcome these challenges, companies in the Conventional and Complex sector must be willing to invest in technology upgrades, workforce development, and innovation to revitalize their competitiveness and ensure a sustainable future. This includes embracing Industry 4.0 technologies, such as automation, artificial intelligence, and data analytics, to improve efficiency and productivity, and closing the quality gap with other nations.

Conclusions:

Based on the above-mentioned points, the necessary policy initiatives and reforms to help the industry scale up production, enhance capabilities, and integrate into global supply chains have been broadly categorized into two major heads:

1. Fiscal interventions for Production support for auto components manufacturing, Improving India’s R&D ecosystem, Enhancing Skilling and industrial infrastructure development; and
2. Non-fiscal interventions encompassing technology transfer, enhancing ease of doing business, exploring FTAs and others in the auto component sector.

Skilling Incentives for Component Manufacturing

India is home to one of the world’s largest engineer populations, yet it faces a talent shortage of manpower in high-precision manufacturing. Companies often incur high costs to build training infrastructure and provide specialized training, primarily due to outdated curricula in educational institutes and graduate engineers not having the required skills. Global companies also struggle to find local institutes that offer the necessary skills training, often turning to partnerships with foreign universities.

Addressing this issue requires a strategic focus on developing skilled manpower to meet short-term, medium-term, and long-term talent needs. India has a vast pool of human resources, yet the employability of its youth remains a significant challenge. To address this, the government has recently introduced several initiatives aimed at enhancing skill development and providing employment opportunities:

Employment Linked Incentive Scheme (ELI):

In the Union Budget of 2024-25, the Prime Minister’s package of ₹2 lakh crore has been allocated to promote employment, focusing on both employers and employees, with a particular emphasis on the Employees’ Provident Fund Organisation (EPFO).

The package announced in the recent budget includes a range of schemes:

• Scheme A: First-Time Employment Scheme: This scheme is expected to benefit 2.1 crore youth over 2 years will provide one-month wage to all persons newly entering the workforce in all formal sectors. The eligibility limit will be a salary of Rs. 1 lakh per month. Direct benefit transfer of one-month salary will be up to Rs. 15,000 in 3 installments to first-time employees, as registered in the EPFO.
• Scheme B: Job Creation in Manufacturing: This scheme aims to drive significant hiring of first-time employees in the manufacturing sector, benefiting 30 lakh youth and their employers. It offers incentives to both employees and employers based on EPFO contributions during the first 4 years of employment. However, if the employment ends within 12 months, the employer must refund the subsidy.
• Scheme C: Support to Employers: Financial assistance for employers hiring additional employees. This employer-focused scheme covers all additional employment with a salary of up to ₹1 lakh per month across all sectors. New employees under this scheme do not need to be first-time EPFO entrants. The government will reimburse employers up to ₹3,000 per month for 2 years towards EPFO contributions for each additional employee. The scheme aims to incentivize the creation of 50 lakh jobs.
• Scheme D: Skilling Programme and Upgradation of Industrial Training Institutes: This new Central Sector Scheme (CSS), with a total allocation of ₹60,000 crore, aims to skill 20 lakh youth over the next five years. To achieve this, 1,000 Industrial Training Institutes (ITIs) will be modernized in a hub-and-spoke model with a strong focus on tangible outcomes. The course curriculum will be updated to align with industry requirements, and new programs will be introduced to cater to emerging skill demands.
• Scheme E: Prime Minister’s Internship Scheme: PM Internship Scheme has been launched to enhance youth employability by providing internship opportunities in top companies across the country. Scheme offers 12 months internship opportunities for Indian citizens aged between 21 and 24 years who are not engaged in full-time education or employment. Each intern receives a monthly stipend of ₹5,000, along with one-time financial assistance of ₹6,000.

The Automotive Way:

The Indian auto component sector, set for substantial growth, needs a highly skilled workforce to sustain and boost its global competitiveness. Addressing this critical requirement calls for a comprehensive approach centred on skilling initiatives. These initiatives are designed to bridge the gap between the current educational curriculum and industry needs, attract top talent, and elevate the overall skill levels of the workforce.

To enhance the auto component sector in India, several strategic targeted skilling initiatives are essential:

GVC Skilling India Scheme

Recommendation: To offer a incentive capped at a certain amount, to eligible players in the Auto component industry
Target Segments: Components identified such as Radar, AI/ML, Battery, Driveline, Lidar, Sensors, BMS and more (refer chapter 5 in the report enclosed)

NON-FISCAL SKILLING INCENTIVES:

A multi-faceted strategy is required to facilitate short-term, medium-term and longterm skilling requirement. Some of the skilling initiatives required are as under:

• Attract overseas talent and motivate high-level Indian talent to return to India: There is a need to attract highly skilled NRIs by offering various incentives and for retaining highly skilled overseas talent. For this, India should consider a two-pronged approach as under:
  • Firstly, implement attractive incentives like providing right to purchase residence in India to foreigners, streamlined visa processes, and guaranteed long-term employment opportunities, mirroring China’s Thousand Talents Program (TTP).
  • Secondly, develop designated foreign townships within existing auto component hubs, fostering a sense of community and cultural exchange. These measures will make India a more competitive destination for global talent, ultimately driving innovation and economic prosperity.
• Develop specialized engineering, research and design courses: There is a need to develop specialized engineering, research, and design courses at Indian higher education institutions to prepare the future workforce by focusing on advanced technologies and industry needs.
• Support Training of Trainers (TOT) through exchange programs: Support the Training of Trainers (TOT) program through international exchange initiatives and partnerships with global institutes and multinational corporations (MNCs) for curriculum development and research and development (R&D) in the automotive component manufacturing.
• Bridge the gap between university curricula and industry requirements: Bridge the gap between university curricula and industry requirements by identifying key skills, promoting apprenticeship programs, and expanding initiatives such as the National Apprenticeship Promotion Scheme (NAPS).
• Upgrade curricula and run specialized training courses in partnership with OEMs and tech institutes
• Upgrade educational curricula and develop specialized training programs through partnerships with Original Equipment Manufacturers (OEMs) and leading technical institutes.
• Establish advisory boards comprising industry experts, academia, and technical professionals to ensure curriculum alignment with evolving industry needs. These boards will provide guidance on incorporating the latest technological advancements and industry best practices into the training modules.
• Additionally, promote e-Learning initiatives to make skill development more accessible and flexible, allowing trainees to acquire knowledge at their own pace while keeping up with industry standards and innovations. This integrated approach will help create a workforce equipped with relevant, up-to-date skills.
• Expedite Visa approvals for training/ business visits: To facilitate the movement of skilled professionals, especially in Auto and Auto components industry, India could establish Memorandums of Understanding (MoUs) with partner countries. These MoUs should aim to simplify visa regulations and expedite the visa processing for professionals traveling for training and development purposes. This initiative would promote knowledge exchange and strengthen collaboration within the industry, accelerating India’s technological progress and innovation in these sectors.

WORKER HOUR FLEXIBILITY

The traditional Indian labor laws have imposed a cap of 10.5 hours per day, including overtime, on working hours. This contrasts with countries like China, Denmark, Switzerland, Norway, and Indonesia, where there is no limit on working hours. Other countries like Bangladesh and Vietnam have slightly higher limits, with 11 hours and 12 hours, respectively. However, the trend of flexible working hours has been gaining traction, particularly in countries like China and Vietnam, where it has been beneficial for manufacturing sectors.

The advantages of flexible working hours in China and Vietnam are multifaceted:

• Increased output: Flexible working hours allow continuous operations, which is particularly beneficial in the manufacturing sectors where production needs to be ongoing to meet demand.
• Attraction of Foreign Investment: Multinational companies often seek environments with flexible labor regulations to optimize production schedules and reduce operational costs.
• Reduced operational costs: By adjusting working hours, businesses can reduce costs associated with overtime, labor, and other operational expenses.

As a result, multinational companies often seek environments with flexible labor regulations to optimize their production schedules and reduce operational costs. This has led to countries like China and Vietnam becoming attractive destinations for foreign investment, particularly in the manufacturing sector.

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