The Indian auto electronic component industry faces several challenges, including low expenditure on research and development, reliance on importing components that are available locally, and a lack of manufacturing clusters. These issues have resulted in Indian manufacturers struggling with cost disadvantages compared to their Chinese counterparts. As global OEMs adopt the 'China Plus One' strategy and seek to source critical parts from outside China, India could potentially serve as a viable alternative. However, this will require addressing the significant cost disadvantages relative to China. Currently, even Vietnam offers automotive electronics parts at prices 7% lower than those in India.

India's heavy reliance on imports for local auto electronics needs is evident, with two-thirds of such parts coming from overseas markets. Consulting firm Grant Thornton has highlighted that India faces a cost disability of 7.5%?15% compared to Vietnam and China, respectively. The consultancy emphasized the benefits of manufacturing hubs, which include labor subsidies, corporate income tax reductions, interest subvention on working capital, and subsidies for machinery and equipment. Despite this, Indian component OEMs avoid the cluster approach and invest less than 3% of their revenue in R&D, compared to the 6-10% spent by global majors. Additionally, the limited linkage with homegrown IT companies for software solutions is another hindrance to the growth of India?s domestic electronic component industry.

India remains heavily dependent on China for all types of auto components, with nearly a third of total auto component imports last fiscal year coming from China. This trend has persisted for at least the last three years. In FY24, while imports amounted to Rs 1.73 lakh crore, exports reached Rs 1.75 lakh crore, marking the first time in three years that export turnover exceeded imports. Body/chassis, steering, and engine components constitute 41% of total auto component imports into India. Imports increased by 6.4% in FY24 compared to the previous fiscal year. Analysts at brokerage Motilal Oswal predict that India?s component makers will invest up to $7 billion in new capacities and technology upgrades in the future.