The auto component manufacturing sector, which acts as the backbone of the Indian vehicle industry, is grappling with a massive financial blockage. A recent study by Vector Consulting Group highlights that approximately INR 98,000 crore belonging to this sector remains locked up in material inventory. Experts indicate that by improving supply chain and stock management practices, between INR 29,000 crore and INR 39,000 crore of this trapped capital can be successfully recovered and put back into circulation.
Major Relief for Small and Medium Enterprises
The findings also emphasize the profound impact this recovery could have on smaller businesses. Out of the total potential working capital that could be unlocked, roughly INR 4,000 to INR 5,600 crore is projected to benefit the micro, small, and medium enterprises sector. It is notable that MSMEs account for about 80 percent of all auto component manufacturers across the country. According to the Vector Consulting Group report titled The Broken Flywheel Building A Future Ready Automotive Supply Ecosystem, companies that replenish stock strictly based on actual consumption after depletion typically manage to reduce their inventory-locked capital by 30 to 40 percent.
Boosting Productivity and Expanding Business Horizons
This comprehensive research is based on insights gathered from 21 senior executives across the industrial landscape. The study estimates that the total business turnover of MSME companies within India's auto component domain stands between INR 2.4 lakh crore and INR 2.9 lakh crore. Achieving a 30 percent improvement in productivity across this sector could generate an additional annual business turnover ranging from INR 74,000 crore to INR 88,000 crore. This indicates that domestic enterprises have a strong opportunity to expand their operational capacities by leveraging government initiatives like Make in India and production-linked incentive schemes.
Investment Lags and Capacity Utilization Hurdles
Conducted in collaboration with the Automotive Component Manufacturers Association of India, the survey revealed that 95 percent of industry leaders believe MSME players are not investing rapidly enough in capabilities required for future growth. Furthermore, the report points out that manufacturing plants are operating at an average of 75 to 85 percent capacity, with 91 percent of survey participants identifying capacity as a major operational challenge.
Insights on Strategic Capital Utilization
Vector Consulting Group managing partner Ravindra Patki noted that the opportunity extends beyond simply scaling up manufacturing capacity. A substantial portion of the capacity already owned by Indian firms remains underutilized. Unlocking working capital trapped in operations, strengthening the economic foundation of existing businesses, and reinvesting surplus funds into advanced capabilities will ultimately determine how well Indian suppliers position themselves within the future automotive value chain.
