Auto component suppliers grappling with massive Rs 98,000 crore inventory pile-up

Auto component manufacturers across India are sitting on an estimated Rs 98,000 crore in excess inventory, creating a substantial drag on their working capital positions amid ongoing market uncertainties. The accumulation reflects demand-supply imbalances in the automotive ecosystem, which has struggled with production volatility and shifting customer preferences in recent quarters.

Micro, small and medium enterprises (MSMEs) are among the hardest hit, accounting for approximately 80 per cent of auto component manufacturers nationally. The sector's largest opportunity for working capital relief lies within this MSME ecosystem, where inventory normalization could unlock between Rs 4,000-5,600 crore in trapped capital.

The excess inventory situation underscores structural challenges facing component suppliers, who must balance maintaining production readiness against the rising costs of carrying unsold stock. Rising interest rates and tightening credit conditions have compounded the challenge, as suppliers face higher borrowing costs to finance their operations.

Industry observers suggest that inventory rationalization will be critical for restoring financial health across the supply chain. Faster inventory turnover could provide crucial liquidity relief to smaller manufacturers already facing margin pressures from raw material costs and labour expenses.