With US $1 trillion worth of opportunity knocking at its doors, the Indian auto industry with its low cost manpower and homegrown IT advantage is all set to grow its revenues to US$ 5 bn by FY08, a five fold increase from the current levels.

However, dated technology and competition from countries like China and Thailand might disrupt the industry growth story.

Key Positives Cost advantage - Due to cost related pressures on global auto players and Tier 1 suppliers, a lot of them have started outsourcing components from Indian auto ancillary players. The industry, which exported components worth over US$ 1 bn in FY04, is also benefiting from strong domestic sales. Large untapped market - Global auto components market is worth over US$ 1 trillion and considering India's market size, which is just 0.8% of the total market size, there exists tremendous growth opportunity for the domestic auto players to exploit. Milking the MNC experience - The entry of global players such as Ford, GM, Toyota and Honda into the Indian market has allowed the Indian manufacturers to work with these players on global production, quality and delivery systems. It has also helped the global players to see for themselves the evolution of many auto components manufacturers and they are therefore now entrusting them with more work. IT advantage - Thanks to the country's IT advantage, the industry is capable of becoming a full-fledged service provider (research, design, development, testing) to global OEMs and thus score over competitors like China and Thailand. This combined with low cost quality manpower strengthens our stand in the global arena.		Key Negatives Not enough economies of scale - Despite being around 60 years old, the domestic auto industry is even behind countries like South Korea, Brazil and Mexico in terms of production and sales, thus depriving it the benefit of economies of scale. This makes it difficult for companies to invest extensively in R&D and development, a key competitive tool in the global market. Competitive threats - Countries like China and Thailand might put a spanner in domestic industry's wheels. While China has huge economies of scale and lower labour cost than India in some areas, Thailand is believed to have excess capacity (legacy of East Asian crisis) and depreciated assets. Therefore, these countries are capable of beating India at its own game, that of low cost. Trade agreements might hurt - The growing number of FTAs (Free Trade Agreements) that are being signed by India with countries like Thailand, Singapore, China etc is likely to hurt the domestic players as they pay a relatively higher duty of around 25% as compared to 1%-10% being paid by its Asian counterparts.

Budget 2005-06: Complete Coverage

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