The automotive component industry has approximately ₹98,000 crore locked in inventory, with potential for significant improvement according to a Vector Consulting Group report. The study, titled The Broken Flywheel: Building a Future-Ready Automotive Supply Ecosystem, indicates that ₹29,000-39,000 crore could potentially be released through improved inventory management practices. The research, based on data collection from July to August 2026 with a sample size of 21 senior industry executives, reveals substantial opportunities for operational efficiency gains. According to Vector Consulting Group's white paper, firms adopting consumption-based replenishment approaches typically reduce inventory by 30-40%, based on the consulting firm's implementation experience.
The study estimates that India's automotive component MSMEs account for approximately ₹2.4-2.9 trillion in turnover, with significant productivity improvement potential. According to the Vector Consulting Group report, a 30% improvement in productivity across this base could enable ₹74,000-88,000 crore of additional annual turnover. After accounting for material costs, this could represent an illustrative incremental value pool of ₹29,000-44,000 crore. The potential working-capital release could include ₹4,000-5,600 crore within the MSME ecosystem, which accounts for around 80% of auto component manufacturers in the country. These gains could help create a self-reinforcing investment cycle, with operational improvements freeing up working capital, higher productivity generating recurring surplus and stronger supplier economics improving access to external capital.
The research highlights significant operational challenges across the supplier base. According to the Vector Consulting Group study, 95% of industry leaders surveyed believe MSMEs are not investing fast enough in capabilities required for future growth. The study points to a capacity paradox, with plants operating at an average utilisation of 75-85% even as 91% of surveyed respondents considered capacity a considerable challenge. Frequent changeovers, quality losses, rework and poor material flow reduce effective productive capacity despite installed capacity being available, as noted in the report. The research, based on inputs from senior executives from automotive MSME suppliers and supplemented by discussions with senior executives from Tier-1 and Tier-2 component companies, highlighted a significant gap between capabilities considered critical for future competitiveness and those currently available across the supplier base.
The report outlines a potential self-reinforcing investment cycle that could benefit the automotive component sector. According to Vector Consulting Group's findings, firms adopting consumption-based replenishment approaches typically reduce inventory by 30-40%, based on the consulting firm's implementation experience. The resulting surplus could then be channelled into technology, engineering, product development and other advanced capabilities needed to participate in higher-value segments of the automotive industry. This approach could help create a self-reinforcing investment cycle, with operational improvements freeing up working capital and higher productivity generating recurring surplus. As noted by Ravindra Patki, Managing Partner at Vector Consulting Group, "Unlocking the cash trapped in operations, improving the economics of the existing business, and then channelling the surplus into enhancing capabilities will determine how Indian suppliers grow in the future automotive value chain."
The Vector study, launched at the 66th Annual Session of the Automotive Component Manufacturers Association of India (ACMA), emphasizes the critical importance of strengthening India's automotive supplier base. According to Ravindra Patki, Managing Partner at Vector Consulting Group, "The opportunity is not simply about adding more capacity. A significant part of the capacity that Indian companies already have is not being converted into productive output." The report notes that strengthening India's automotive supplier base is critical to the industry's competitiveness as vehicle value increasingly shifts towards batteries, power electronics, embedded software and integrated electronic systems. India's ability to capture the next wave of domestic localisation and global sourcing will depend on whether its supplier ecosystem can generate sufficient surplus to continuously invest in and upgrade capabilities.
