What Role Do MSMEs Play in the Growth of the Indian Automotive Industry?

May 23, 2024
Updated on

India is the third largest automobile producer in the world, with a large and growing auto component industry. By selling more than 4.25 million vehicles during 2022, the country has now overtaken Japan to take third spot among largest vehicle market after China (first) and US (second). This sector manufactures various types of vehicles, such as passenger cars, commercial vehicles, two-wheelers, three-wheelers, and four-wheelers. The auto industry has also been instrumental in providing a steady supply of raw materials, components and parts, and services to the automotive industry.

According to a report from the Indian Brand Equity Foundation (IBEF), India enjoys a strong position in the heavy vehicles market globally as it is the largest tractor manufacturer, second-largest bus producer, and third-largest heavy truck manufacturer globally. India’s annual automobile production in FY22 was 22.93 million vehicles. Currently, the automobile industry accounts for 7.1% of India’s GDP and 49% of its manufacturing GDP. 

The automobile industry contributes significantly to the country’s export, contributing 8% of the country’s total export and accounting for 2.3% of India’s GDP. The total number of automobile exports increased from 41,34,047 in 2020-21 to 56,17,246 in 2021-22, showing a positive growth of 35.9%, as stated by Smt. Anupriya Patel, the Minister of State in the Ministry of Commerce and Industry in Parliament. In recent years, some of the states leading the automotive industry in India are Maharashtra, Gujarat, Tamil Nadu, Karnataka and Andhra Pradesh.

Growth of the Automotive Industry in India

Micro, Small & Medium Enterprises (MSMEs) are an essential part of the Indian auto components industry, which produces a wide range of auto parts, including engine and transmission parts, steering and suspension components, exhaust systems, and more. Over time, they have introduced new technologies and processes to improve the quality and efficiency of production. As a result, MSMEs have been able to diversify their product range and become more competitive in the market. 

MSMEs have also helped to create a more transparent and efficient supply chain for better coordination between manufacturers and suppliers. This has allowed for better production planning and control over costs. MSMEs have also been instrumental in helping the auto components industry reach newer, more niche markets. As a result, they have leveraged their cost advantages to become more competitive in global markets, allowing them to expand their customer base and increase their revenues. 

Technological Advancement of the Automotive Sector

MSMEs are the backbone of the automotive industry and play a key role in vehicle development, production, and the operation of the supply chain. With their small size and agility to implement new ideas and technology, MSMEs can make the most of the latest technological advancements and develop new and improved products for the automotive industry. In addition, MSMEs play a pivotal role in the supply chain of the automotive sector. They can help to ensure that the right parts are delivered on time to the right place, helping to reduce costs and improve the efficiency of the production process. This helps reduce the overall cost of production for the automotive sector and ensures that the vehicles produced are of the highest quality. Some of the latest technologies in the automotive sector are:

Advanced Driver Assistance Systems (ADAS): 

ADAS is a technology that provides drivers with enhanced safety features. It uses sensors and cameras to detect potential hazards on the road and alert drivers to potential dangers. ADAS also helps drivers stay focused on the road by providing features such as lane-keeping assistance, blind spot monitoring, adaptive cruise control, and automatic emergency braking. ADAS technology is becoming more popular as automakers continue to develop and implement it in their vehicles. It is an important part of the modern driving experience and will continue to be used to improve driver safety and convenience in the future. 

Vehicle Electrification Technologies:

Vehicle Electrification Technologies have been rapidly evolving, providing new possibilities to increase the efficiency of vehicles while reducing emissions. Electric vehicles are becoming increasingly popular due to their ability to reduce emissions and noise pollution. Hybrid vehicles, which combine electric and combustion engine technologies, are also becoming more popular due to their increased fuel economy. Battery electric and plug-in hybrid vehicles are also being developed to meet the needs of consumers and are becoming increasingly popular. 

Developments in vehicle electrification technologies include advanced batteries, fast charging and energy storage systems, and new powertrain components. These technologies help to reduce emissions while providing a reliable and efficient form of transportation. Vehicle electrification technologies are revolutionising the way people drive and are helping to bring us closer to a greener future. It is becoming increasingly popular in the automobile industry due to its environmental and economic benefits. 

Connected Vehicle Technology: 

Connected Vehicle Technology is revolutionising the automobile industry. This technology allows vehicles to communicate wirelessly with each other, as well as with the surrounding environment. It opens up a whole new world of possibilities, such as improving safety, providing enhanced mobility, and reducing traffic congestion. With connected vehicle technology, vehicles are able to send and receive data, allowing them to detect better and avoid obstacles, as well as communicate with other vehicles and traffic systems. This can mean fewer accidents and smoother traffic flow. 

Autonomous Driving Technologies:

Autonomous Driving Technologies have enabled vehicles to drive themselves without any human intervention. It utilises various sensors, cameras, radar, and artificial intelligence (AI) to detect the environment and navigate the vehicle accordingly. It is also able to identify potential dangers and alert the driver to take appropriate corrective measures. Autonomous vehicles offer a safer and more comfortable riding experience than traditional cars. It offers more convenience and safety to drivers, and it will continue to be a major focus of the automobile industry in the future.

These technologies have enabled vehicles to become more efficient, safer, and more connected. MSMEs have also been involved in the development of new materials and processes that have enabled the automotive sector to make vehicles lighter and more fuel efficient. This has been accomplished through the use of lightweight materials such as aluminium, carbon fibre, and magnesium, as well as through innovative manufacturing processes such as forging and stamping. These advancements have enabled the automotive sector to reduce emissions and improve fuel economy.

MSMEs have also been instrumental in developing and advancing secondary technologies that have enabled the automotive sector to become more efficient, such as infotainment systems, navigation systems, and advanced telematics systems.

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Automotive Export in India

Many multinationals are looking at India as a major manufacturing and export hub. MSMEs are also responsible for producing and exporting high-quality vehicles and components that are in demand in the international market and are also essential for the development of the automotive industry in India. They provide a platform for MSMEs in the country to manufacture and export quality products. MSMEs have enabled the country to become a major supplier of parts and components to global automotive manufacturers.

It helps strengthen India’s reputation as a reliable automotive manufacturer and exporter. According to another report from IBEF, India is emerging as a global hub for auto component sourcing and the exports from this industry are over 25% of its annual production. 

Automotive Mission Plan 2026

Automotive Mission Plan 2026 is an initiative by the Government of India to develop the automotive industry in the country further. This plan is an effort to make India a global hub for automobiles and auto component manufacturing and to increase the automotive sector’s contribution to the Indian economy. The plan seeks to achieve this by increasing investment in research and development, increasing the production of fuel-efficient vehicles, making the industry more competitive, and strengthening the manufacturing and supply chain infrastructure. 

The Automotive Mission Plan 2026 aims at making the Indian Automobile Industry one of the top three in the world in terms of engineering, manufacturing and exports of vehicles and components, growing in value to over 12% of India’s GDP and generating an additional 65 million jobs. To achieve this goal, the plan seeks to establish a national auto component manufacturing and design cluster, increase the number of research and development centres, and attract foreign direct investment.

It will also focus on developing electric vehicles, improving their safety and emission standards, and providing incentives to manufacturers for developing alternative fuel vehicles. According to a report from the IBEF, the Indian automotive industry is targeting to increase the export of vehicles by five times during 2016-26. In FY22, total automobile exports from India stood at 5,617,246.

The Automotive Mission Plan 2026 will also work to increase the export of vehicles and auto components. In addition, it will focus on developing the domestic market, improving credit availability, and increasing access to technology. The plan will also focus on establishing new standards for safety, emissions, and performance in the automotive industry. 

Acceleration and Innovation in the EV Market in India

Making environmentally conscious choices and combating climate change are essential due to the growing concerns about the climate crisis. Electric vehicles (EVs) are one such choice. It is a paradigm change currently unfolding in the automotive sector worldwide as the industry attempts to transition to alternative and less energy-intensive options.

According to the data from the Ministry of Road Transport and Highways, the Indian EV market is projected to grow at a Compound Annual Growth Rate (CAGR) of 49% between 2022-2030 and is expected to hit 10 million-unit annual sales by 2030. The EV industry will also create 50 million direct and indirect jobs by 2030. There are a total of 13,92,265 EVs on Indian roads as of August 2022. By 2030, this will likely increase by 45–50 million.

MSMEs are crucial to the manufacturing of EVs and their components in India. They provide the required infrastructure and technology to produce batteries, motors and other components used in EV production. This helps reduce the overall production cost and make EVs more affordable for Indian consumers. MSMEs are also essential for innovating and developing new technologies that can help reduce emissions and create a more efficient and sustainable transportation system. This includes developing smart charging systems and electric vehicle-to-grid networks, which can help reduce the strain on the power grid. 

Furthermore, MSMEs can also help to develop and test new materials and components that can help reduce the weight and cost of EVs, thereby making them more attractive to Indian consumers.

Sustainable Evolution of the Auto Industry

The Indian automotive industry is racing into a new world of improved mobility and sustainability, and technology is the key to helping automakers achieve both. Alternative-fuel technology has developed alongside petrol-powered cars since their inception. Fossil fuels have been the primary energy source of choice for many years due to their abundance and availability.

However, with increasing environmental concerns, the industry is shifting towards alternative sources like electric vehicles that are being developed to reduce emissions from transportation. This shift is largely driven by the need to reduce emissions and mitigate climate change to pave the way for a more sustainable future.

Hence, the industry is beginning to embrace the switch to alternatives. The long-term impact of this shift is yet to be seen, but it is clear that fossil fuels can no longer be the only energy source of choice. The development of viable hybrid and fully electric vehicles has heralded a new era for car manufacturers and consumers focusing on reducing carbon emissions. 

MSMEs are often in a unique position to provide innovative solutions to the challenges that the automotive industry faces. This includes designing and producing components with new materials and technologies that reduce the weight and cost of vehicles while also improving their performance and efficiency. In addition, MSMEs are well-placed to develop technologies that reduce emissions and improve sustainability. They produce and supply components and parts that are needed to build and maintain green vehicles.

This enables automakers to reduce their carbon footprint and production cost. Additionally, MSMEs can create innovative solutions for the production of green vehicles, such as developing components and parts that are lighter and more efficient, resulting in reduced fuel consumption and emissions. 

MSMEs can also provide technical and engineering expertise to help auto companies design and develop green technologies. This can help automakers to develop new technologies and reduce their dependence on fossil fuels. MSMEs can also help the auto industry to promote green technologies. By creating and distributing marketing materials, MSMEs can help to educate consumers about the advantages of green vehicles and encourage their adoption. Finally, MSMEs can also help to create a network of green auto manufacturers and suppliers. This can help to create a competitive environment, which can lead to more efficient production and more affordable prices.


MSMEs are the major players in the automotive industry in India, providing components, parts and accessories for manufacturing cars, buses, trucks and other vehicles. MSMEs are responsible for producing a wide range of automotive components, including engine parts, brakes, suspension components, body parts, and transmission parts.

MSMEs also contribute to the growth of the automotive industry through the implementation of innovations to create improved products and services. They have the ability to adapt quickly to changing market needs. This helps the automotive industry to stay competitive and grow. MSMEs also create employment opportunities for people in the automotive industry. This helps to increase the number of skilled workers and thus helps to increase the productivity of the industry.

Non-Banking Financial Companies (NBFCs) are playing an important role in the growth of the Indian automotive industry. They provide flexible financing options to MSMEs, enabling them to purchase vehicles, expand their business, and increase their production capacity. NBFCs like Kinara Capital offer convenient and easy loan options to MSMEs which are often unable to access traditional banking loans. Small Business Loans from Kinara help MSMEs maximise their available resources and maximise their productivity. 

Kinara Capital is an RBI-Registered Systemically Important NBFC in India that has been devoted to driving financial inclusion for MSME entrepreneurs by providing collateral-free Business Loans. Kinara serves the ‘missing middle’ of MSMEs, which formal lending institutions like banks largely overlook. By providing them access to capital, Kinara promotes sustainable growth and helps create jobs and improves local economies reliant on the MSME sector.

Hence, applying for a Business Loan from Kinara Capital can be a great way for MSME owners to access necessary financing to help their businesses thrive. Kinara Capital‘s digital process enables MSME owners to check their eligibility in just 1-minute through the myKinara App. MSME entrepreneurs can avail of Unsecured Business Loans from ₹1 lakh – ₹30 lakhs within 24-hours. Also, we have a dedicated customer support team available between Monday – Friday (9.30 AM – 6.00 PM) at our toll free number 1800-103-2683 for any questions or assistance. This ensures that entrepreneurs can get the help they need throughout the loan process.

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