India's auto-component suppliers are sitting on approximately ₹98,000 crore in inventory, and could free up between ₹29,000 crore and ₹39,000 crore in working capital through targeted operational improvements, according to a report released on Thursday, 3 September by Vector Consulting Group. The findings point to systemic inefficiencies across the supply chain that are constraining both cash flow and capacity.

Key Findings from the Report

The report identified frequent changeovers, quality losses, rework, and poor material flow as the primary drivers of operational drag. As a result, plants across the sector are running at only 75–85 per cent of installed utilisation capacity. Nearly 91 per cent of respondents flagged capacity as a major challenge.

Vector Consulting Group found that adopting consumption-based replenishment — a practice where inventory is restocked in response to actual demand rather than forecasts — could reduce inventory levels by 30–40 per cent. Applied industry-wide, this shift could release the estimated ₹29,000–₹39,000 crore in working capital. Within the MSME supplier base alone, the unlocked capital could range from ₹4,000 crore to ₹5,600 crore.

What Industry Leaders Said

Ravindra Patki, Managing Partner at Vector Consulting Group, underscored the strategic imperative behind the findings. '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,' he said.

Patki added: '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 MSME Capability Gap

MSMEs make up 80 per cent of India's auto-component manufacturers and are disproportionately affected by these inefficiencies. The report estimated that auto-component MSMEs account for approximately ₹2.4–₹2.9 lakh crore in annual turnover. A 30 per cent improvement in productivity across this base could generate an additional ₹74,000–₹88,000 crore in annual turnover.

Yet the capability readiness picture is stark. Some 95 per cent of industry leaders said MSMEs are not investing fast enough in capabilities required for future growth. While every respondent agreed that systems integration and product development are critical for competitiveness, only 14 per cent estimated that MSMEs currently possess these skills. Embedded software was cited as important by 81 per cent of respondents, but only around 10 per cent estimated MSMEs currently have this capability. Advanced engineering was considered important by all respondents, while only 38 per cent estimated current capabilities are at developing-to-mature levels.

Why This Matters for India's Auto Transition

The report noted that India's automotive industry is undergoing a structural transformation driven by technologies such as autonomous vehicles and alternative powertrains — including EVs, hybrids, hydrogen, ICE, and fuel cells. This transition demands significant investment in R&D, new materials, and workforce training.

The ability of MSME suppliers to upgrade their capabilities is described in the report as critical to the competitiveness of the entire industry. With working capital trapped in operational inefficiencies, these suppliers have limited headroom to fund the technology leap that the sector's future demands. How quickly they can close that gap will shape India's position in the global automotive value chain.