Operational Fixes Could Unlock Up To Rs 39,000 Crore Working Capital For India's Auto Suppliers

(MENAFN- IANS) New Delhi, Sep 3 (IANS) India's auto‐component suppliers are carrying about Rs 98,000 crore in inventory and could unlock Rs 29,000–39,000 crore of working capital through operational fixes, a report said on Thursday.

The report from Vector Consulting Group cited operational inefficiencies such as frequent changeovers, quality losses, rework and poor material flow, as reasons for plants running at 75–85 per cent installed utilisation.

Nearly 91 per cent of respondents considered capacity as a major challenge. The report highlighted that consumption‐based replenishment could reduce inventory by 30–40 per cent, and such a practice could release Rs 29,000–39,000 crore of working capital industrywide.

It could also release Rs 4,000–5,600 crore of working capital within the MSME supplier base.

“When operational instability ties up working capital and erodes productive capacity, suppliers have less surplus to invest in engineering, technology and product development. The idea is to change that cycle," said Ravindra Patki, Managing Partner, 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,” he added.

MSME suppliers, which make up 80 per cent of manufacturers, are most affected by operational inefficiencies limiting the fresh investment needed for India's automotive technology transformation.

"India's automotive industry is undergoing a structural transformation driven by technological advancements such as autonomous vehicles and alternative powertrain technologies, including EVs, hybrids, hydrogen, ICE and fuel cells," the report said.

This shift calls for significant investments in R&D, including the development of new technologies and materials, as well as the training of manpower. The ability of MSME suppliers to upgrade their capabilities is critical to the competitiveness of the entire industry, the report said.

However, 95 per cent of industry leaders responded that MSMEs are not investing fast enough in the capabilities required for future growth.

Every respondent agreed systems integration and product development are key for future competitiveness, but only 14 per cent estimated that MSMEs currently possess these capabilities.

Embedded software was cited as important by 81 per cent of respondents, but only around 10 per cent estimated that MSMEs currently have this capability.

Similarly, advanced engineering is considered important by all respondents, while only 38 per cent estimate that current capabilities are at developing-to-mature levels.

The report also estimated that India's auto component MSMEs account for approximately Rs 2.4- Rs 2.9 lakh crore in turnover. A 30 per cent improvement in productivity across this base could enable Rs 74,000-Rs 88,000 crore of additional annual turnover.

-IANS

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