{"id":417,"date":"2025-09-26T11:42:59","date_gmt":"2025-09-26T10:42:59","guid":{"rendered":"https:\/\/odrindia.in\/economy\/?p=417"},"modified":"2025-09-26T11:42:59","modified_gmt":"2025-09-26T10:42:59","slug":"evolution-of-domestic-value-addition-and-localisation-in-indias-automotive-sector-legacy-foundations-and-policy-driven-shifts","status":"publish","type":"post","link":"https:\/\/odrindia.in\/economy\/2025\/09\/26\/evolution-of-domestic-value-addition-and-localisation-in-indias-automotive-sector-legacy-foundations-and-policy-driven-shifts\/","title":{"rendered":"Evolution Of Domestic Value Addition And Localisation In India’s Automotive Sector: Legacy Foundations And Policy-Driven Shifts"},"content":{"rendered":"\n
\"\"<\/figure>\n\n\n\n

Abstract<\/strong><\/p>\n\n\n\n

The Indian automotive industry has undergone a profound transformation in Domestic Value Addition (DVA) and localisation, evolving from early policy-driven indigenisation in internal combustion engine (ICE)<\/strong> vehicles to targeted advancements in electric vehicles (EVs) <\/strong>under recent initiatives. This article synthesises historical milestones, technological differentiations between ICE and EV paradigms, and the nuanced impacts of policies like Make in India (2014) and the Production Linked Incentive (PLI) scheme (2021). Drawing on industry data from 2014 to 2025, it highlights how pre-2021 achievements in DVA and localisation\u2014often exceeding 50%\u2014stemmed from foundational policies<\/strong>, while post-2021 progress, particularly in EVs, can be more directly attributed to PLI. However, claims of success under Make in India often represent credit appropriation for prior efforts<\/strong>, underscoring the need for precise attribution in policy evaluations.<\/p>\n\n\n\n

Introduction: Conceptual Framework And Historical Context<\/strong><\/p>\n\n\n\n

Domestic Value Addition (DVA) quantifies the economic value contributed domestically to a product’s total cost, encompassing local materials, labor, processing, and overheads minus imported inputs. Localisation, closely aligned with DVA in practice, measures the proportion of components sourced or manufactured<\/strong> within India by value, cost, or weight. Achieving high DVA\/localisation reduces import dependence, enhances export competitiveness, and fosters job creation, with labor typically contributing 10-15% to DVA through skilled workforce development.<\/p>\n\n\n\n

The pursuit of indigenisation in India’s auto sector predates modern policies. The Phased Manufacturing Programme (PMP) of the 1980s<\/strong> mandated progressive localisation for joint ventures (JVs), while the 1997 Memorandum of Understanding (MoU) system<\/strong> required foreign entrants to reach 50% localisation by the third year and 70% by the fifth to offset foreign exchange outflows. These frameworks laid the groundwork for high DVA in traditional segments<\/strong>, with no full vehicle ever reaching 100% indigenisation due to global intellectual property (IP), trace imports for high-tech elements like sensors, software, or rare materials, and economic efficiencies from international supply chains. For instance, even “indigenous” products retain 5-10% imported content for patented technologies such as turbochargers or electronic control units (ECUs).<\/p>\n\n\n\n

By 2014, overall auto DVA stood at approximately 70%<\/strong>, rising to 80-85% by 2025, driven by Bharat Stage VI (BS-VI) emission norms (2020)<\/strong> and supplier ecosystems.<\/strong> Components like steel chassis have been nearly 100% indigenous since 2010, utilising domestic steel from Tata Steel or JSW, processed through local rolling, forging, and machining with full Indian labor. However, the sector’s evolution reveals stark contrasts between pre-2021 legacies and post-2021 innovations, particularly in differentiating ICE and EV technologies.<\/strong><\/p>\n\n\n\n

Technological Differentiation: ICE vs. EV Paradigms<\/strong><\/p>\n\n\n\n

Internal Combustion Engine (ICE<\/strong>) vehicles rely on mechanical systems powered by fuels, with core components like engines, transmissions, chassis, and exhaust systems amenable to high localisation through established domestic manufacturing. ICE designs emphasise durability for Indian conditions (e.g., rough roads, high temperatures), with refinement processes including casting, forging, machining, and assembly predominantly local. Labor application is intensive in assembly lines, contributing significantly to DVA (10-15%). By the 2010s, ICE segments like commercial vehicles (CVs) and tractors achieved 85-95% localisation<\/strong>, as simpler mechanical architectures allowed for vendor development and in-house R&D. For example, engines form 20-25% of vehicle cost and contribute 10-15% to overall DVA, with local materials (e.g., aluminum blocks) and processing dominating.<\/p>\n\n\n\n

In contrast, Electric Vehicles (EVs<\/strong>) represent a paradigm shift, powered by batteries, electric motors, power electronics, and software-driven systems, eliminating traditional engines and gearboxes. EVs prioritise energy efficiency, regenerative braking, and connectivity, but their supply chains are complex and import-heavy due to dependencies on rare earth materials (e.g., lithium, cobalt for batteries), advanced semiconductors for inverters, and proprietary software\/IP. Batteries alone constitute 40-50% of EV costs<\/strong>, with pre-2021 localisation often below 20-30% for EV cars and buses, and 20-40% for two-wheelers (2W), as India lacked domestic cell manufacturing. Refinement in EVs involves software calibration, thermal management, and integration of advanced driver-assistance systems (ADAS), with labor shifting toward skilled electronics and IT roles. Processing includes battery assembly and PCB manufacturing, but global IP for controllers and magnets leads to trace imports (e.g., 5-10%).<\/p>\n\n\n\n

This differentiation underscores why ICE achieved high DVA early: mechanical parts are commoditised and locally replicable, whereas EVs demand high-tech ecosystems, making post-2021 policies crucial for bridging gaps. The post-2021 era marks a “total difference” from pre-2021, as EV penetration surged from <1% in 2020 to ~6% by 2025<\/strong>, driven by PLI and FAME-II subsidies, shifting focus from ICE assembly to EV innovation. Pre-2021, the industry was ICE-dominant with stable DVA growth<\/strong>; post-2021, it pivoted to EVs, with localisation rising to 40-60% by FY23-24, catalyzed by ~\u20b925,000 crore in PLI investments and 38,186 jobs.<\/p>\n\n\n\n

Pre-2021 Achievements: Legacy Of Early Indigenisation<\/strong><\/p>\n\n\n\n

Prior to the 2021 PLI norm mandating 50% DVA for incentives on Advanced Automotive Technology (AAT) products, numerous manufacturers surpassed this threshold through foundational policies, demonstrating that high localisation was not a novel outcome but a continuation of decades-long efforts.<\/p>\n\n\n\n

(1) Before 2010<\/strong><\/p>\n\n\n\n

(a) Maruti Suzuki: Starting as a JV in 1982, achieved 57.3% localization by 1986-87, escalating to 95.3% by 1988-89 for the Maruti 800 under PMP. By the late 1990s, new models targeted 75% at launch, rising to 90% within three years, with DVA closely mirroring due to vendor clusters.<\/p>\n\n\n\n

(b) Tata Motors: The Indica (1998) debuted at 77% localization, reaching ~95% by the early 2000s; Sierra (1991) and Sumo (1994) were indigenous UVs with high DVA via Pune’s R&D center.<\/p>\n\n\n\n

(c) Mahindra & Mahindra: Tractors exceeded 70% by the 1970s-1980s; Scorpio (2002) at ~85%, with >95% for tractors by 2010.<\/p>\n\n\n\n

(d) Ashok Leyland: CVs at 85%+ by early 2000s, with engines >90%.<\/p>\n\n\n\n

(e) Others: General Motors (80% for Opel Astra by 2002), Ford (90% for Ikon by early 2000s), Hyundai (90% for Santro by early 2000s).<\/p>\n\n\n\n

(2) Before 2014<\/strong><\/p>\n\n\n\n

Under the Automotive Mission Plan (2006-2016), CVs and tractors reached 85%+, with industry DVA at ~70% by 2014. Maruti maintained 90%+; Tata’s Nano (2008) at ~85%; Mahindra’s Xylo (2009) ~90%; Ashok Leyland’s engines ~85% by 2010.<\/p>\n\n\n\n

(3) Before 2021 (PLI Enforcement)<\/strong><\/p>\n\n\n\n

By 2020, industry DVA was 75-80%, with CVs\/tractors at 85%+. Maruti at 95%+; Tata’s Nexon EV (2020) ~80% overall but low for EV specifics; Mahindra’s eVerito (2016) >90% for ICE but 20-30% for EVs; Ashok Leyland’s BS-VI (2020) 92%. Hero MotoCorp (95%+ for 2W); Hyundai\/Kia (90%+).<\/em><\/p>\n\n\n\n

These milestones reduced imports from ~$14 billion in 2016 and boosted exports, positioning India as a hub.<\/p>\n\n\n\n

Near-100% Indigenisation Cases: Ashok Leyland Engines and Mahindra Tractors (2014-2025)<\/strong><\/p>\n\n\n\n

Ashok Leyland’s H-series engines, developed with AVL collaboration, transitioned to 85% localization by 2014, reaching 95% by 2025 at Hosur\/Ennore plants. Imports dropped from 15% (turbochargers, sensors) to 5% (electronics), with DVA from 75% to 90%. iEGR technology (2017-2020) was 100% local R&D; EV prototypes aim for 80% by 2025. 100% local parts: blocks, pistons; labor: 100% Indian, automation from 30% to 60%.<\/p>\n\n\n\n

Mahindra tractors (e.g., Yuvo) hit >95% by 2015, 98% by 2025. Imports from 5% (hydraulics) to 2% (electronics); DVA from 90% to 96%. mPower engines and chassis 100% local; EV prototypes target 60% battery DVA. Labor: 100%, mechanization 40-70%; 41% market share by 2023.<\/p>\n\n\n\n

Year<\/th>Ashok Leyland Engines Localization %<\/th>Imported Parts (%\/Items)<\/th>DVA %<\/th>Mahindra Tractors Localization %<\/th>Imported Parts (%\/Items)<\/th>DVA %<\/th>Key Notes<\/th><\/tr><\/thead>
2014<\/td>85%<\/td>15% (turbo, injectors)<\/td>75%<\/td>95%<\/td>5% (hydraulics)<\/td>90%<\/td>Make in India launch; local processing dominant.<\/td><\/tr>
2015<\/td>87%<\/td>13% (electronics)<\/td>77%<\/td>96%<\/td>4% (sensors)<\/td>91%<\/td>>95% tractor milestone.<\/td><\/tr>
2016<\/td>88%<\/td>12% (fuel systems)<\/td>78%<\/td>96%<\/td>4% (electronics)<\/td>92%<\/td>Supplier automation starts.<\/td><\/tr>
2017<\/td>89%<\/td>11% (turbo)<\/td>80%<\/td>97%<\/td>3% (hydraulics)<\/td>93%<\/td>iEGR launch.<\/td><\/tr>
2018<\/td>90%<\/td>10% (sensors)<\/td>82%<\/td>97%<\/td>3% (ECUs)<\/td>93%<\/td>BS-VI prep.<\/td><\/tr>
2019<\/td>91%<\/td>9% (electronics)<\/td>83%<\/td>97%<\/td>3% (specialty)<\/td>94%<\/td>Engine competitiveness 0.6.<\/td><\/tr>
2020<\/td>92%<\/td>8% (injectors)<\/td>84%<\/td>98%<\/td>2% (sensors)<\/td>94%<\/td>COVID; BS-VI.<\/td><\/tr>
2021<\/td>93%<\/td>7% (turbo)<\/td>85%<\/td>98%<\/td>2% (electronics)<\/td>95%<\/td>PLI launch.<\/td><\/tr>
2022<\/td>94%<\/td>6% (ECUs)<\/td>86%<\/td>98%<\/td>2% (IP)<\/td>95%<\/td>EV prototypes.<\/td><\/tr>
2023<\/td>94%<\/td>6% (sensors)<\/td>87%<\/td>98%<\/td>2% (hydraulics)<\/td>95%<\/td>Competitiveness 0.8.<\/td><\/tr>
2024<\/td>95%<\/td>5% (electronics)<\/td>88%<\/td>98%<\/td>2% (batteries)<\/td>96%<\/td>Battery localization.<\/td><\/tr>
2025<\/td>95%<\/td>5% (alloys)<\/td>90%<\/td>98%<\/td>2% (sensors)<\/td>96%<\/td>80% EV engines.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

(4) Post-2021 Achievements: PLI-Driven Progress In EVs<\/strong><\/p>\n\n\n\n

Only after the 2021 PLI norm did certain manufacturers meet 50% DVA for EVs<\/strong>, where pre-2021 levels were low (0-40%). By 2025, 16 of 84 firms certified, with challenges like rare earth imports.<\/p>\n\n\n\n

(a) Ola Electric:<\/strong> No pre-2021 DVA; 50% from 2023 for S1 series, reaching 50-60% by 2024; 35-38% E2W share. But Ola\u2019s story may end as a cautionary tale of hype over substance<\/a><\/strong>.<\/p>\n\n\n\n

(b) Tata Motors:<\/strong> EV DVA ~30-40% pre-2021; 50% from 2024 for Nexon EV et al.; claims \u20b9142 crore, 53-70% share. (Will Analyse In More Detail Soon).<\/em><\/p>\n\n\n\n

(c) Mahindra & Mahindra:<\/strong> EV ~20-30% pre-2021; 50% from 2023 for Treo\/XEV; \u20b9104 crore claims, 9% share. (Will Analyse In More Detail Soon).<\/p>\n\n\n\n

(d) TVS Motor:<\/strong> iQube ~30-40% pre-2021; 50% from 2024; 20.8% E2W share. (Will Analyse In More Detail Soon).<\/p>\n\n\n\n

(e) Bajaj Auto:<\/strong> Chetak ~35-45% pre-2021; 50% from 2024; 19.7% share, despite 2025 shortages. (Will Analyse In More Detail Soon).<\/p>\n\n\n\n

(f) Eicher Motors:<\/strong> e-buses 0-10% pre-2021; 50% from 2024 for Skyline Pro E. (Will Analyse In More Detail Soon).<\/p>\n\n\n\n

From 2020-2021, EV sales were hampered by COVID and low localisation; post-2021, PLI reduced imports (~$20 billion in 2022) and supported 30% EV target by 2030, despite vulnerabilities like magnet shortages in 2025.<\/p>\n\n\n\n

True Impact Of Make In India: Attribution And Credit Dynamics (2021-2025)<\/strong><\/p>\n\n\n\n

Launched in 2014<\/strong>, Make in India aimed for 100% localisation in key sectors, but its impact on auto assembly is overstated<\/strong>, as pre-2014 policies (PMP, MoU) had already propelled DVA to 70%+ by 2014<\/strong>. From 2014-2020, gains (e.g., import reduction) built on momentum from Automotive Mission Plan, with ICE localisation continuing organically.<\/em><\/p>\n\n\n\n

True attribution to Make in India\/PLI emerges post-2021 in EVs<\/strong>, where incentives (Rs 25,938 crore budget) mandated 50% DVA, spurring investments in battery ecosystems (e.g., PLI-ACC for cells) and raising EV DVA from 10-20% to 25-60%. This facilitated assembly shifts from import-reliant kits to domestic production, reducing dependencies and creating jobs. However, for ICE, post-2014 claims often grab credit for prior works<\/strong>\u2014e.g., Ashok Leyland’s indigenisation predated 2014, and Mahindra’s >95% tractors by 2015 owed more to Swaraj acquisition (2007) than Make in India. Government narratives attributing overall DVA rises (e.g., 80-85% by 2025) to Make in India overlook foundational contributions from previous administrations, highlighting policy continuity over disruption.<\/em><\/p>\n\n\n\n

Conclusion: Balancing Legacy And Innovation<\/strong><\/p>\n\n\n\n

India’s auto sector exemplifies resilient indigenisation, with pre-2021 legacies in ICE providing a strong base, while post-2021 PLI drives EV transformations. Differentiating ICE (mechanical, high DVA) from EV (electronic, import-challenged) reveals the era’s shift. While Make in India accelerated certain aspects from 2021-2025, its broader claims risk undervaluing prior policies, emphasising the need for evidence-based attribution in future analyses.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Abstract The Indian automotive industry has undergone a profound transformation in Domestic Value Addition (DVA) and localisation, evolving from early policy-driven indigenisation in internal combustion engine (ICE) vehicles to targeted advancements in electric vehicles (EVs) under recent initiatives. This article … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-417","post","type-post","status-publish","format-standard","hentry","category-indian-economy"],"_links":{"self":[{"href":"https:\/\/odrindia.in\/economy\/wp-json\/wp\/v2\/posts\/417","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/odrindia.in\/economy\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/odrindia.in\/economy\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/odrindia.in\/economy\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/odrindia.in\/economy\/wp-json\/wp\/v2\/comments?post=417"}],"version-history":[{"count":13,"href":"https:\/\/odrindia.in\/economy\/wp-json\/wp\/v2\/posts\/417\/revisions"}],"predecessor-version":[{"id":431,"href":"https:\/\/odrindia.in\/economy\/wp-json\/wp\/v2\/posts\/417\/revisions\/431"}],"wp:attachment":[{"href":"https:\/\/odrindia.in\/economy\/wp-json\/wp\/v2\/media?parent=417"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/odrindia.in\/economy\/wp-json\/wp\/v2\/categories?post=417"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/odrindia.in\/economy\/wp-json\/wp\/v2\/tags?post=417"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}