Indian Automotive Industry : Towards Leading Position

Introduction

Indian Auto Industry is a big industrial sector in India with its segments like Two Wheeler and Passenger Vehicle as the major contributors and making its share about 7 per cent of the country’s GDP. Also, with the changes in the Indian export rules and an eye to establish its presence in the global market the industry has registered a growth of 16.20 per cent and 4.99 per cent in the exports of Commercial Vehicle and Passenger Vehicle respectively. The industry with this growth rate in export is very confident to be a major Auto exporter in the near future.

In addition to this, with the constant efforts from the Government of India and Major Automobile Players in Indian Market, it is expected that India will become a global leader in the Two Wheeler and Passenger Vehicle segment by the end of 2020.

Market Size

Production of passenger vehicles, commercial vehicles, three wheelers and two wheelers grew at 5.41 per cent in FY17 to 25,316,044 vehicles from 24,016,599 vehicles in FY16.The sales of passenger vehicles, commercial vehicles and two wheelers grew by 9.23 per cent, 4.16 per cent and 6.89 per cent respectively, during the period April-March 2017.

India’s electric vehicle (EV) sales increased 37.5 per cent to 22,000 units during FY 2015-16 and are poised to rise further on the back of cheaper energy storage costs and the Government of India’s vision to see six million electric and hybrid vehicles in India by 2020.

Investment

In order to keep up with the growing demand, several auto makers have started investing heavily in various segments of the industry during the last few months. The industry has attracted Foreign Direct Investment (FDI) worth US$ 17.40 billion during the period April 2000 to June 2017, according to data released by Department of Industrial Policy and Promotion (DIPP).Some of the major investments and developments in the automobile sector in India are as follows:

  • JSW Energy, a subsidiary of Jindal Group, has signed a Memorandum of Understanding (MoU) with the Gujarat government to set up an electric vehicle-manufacturing company at a cost of Rs 4,000 crore (US$ 613 million) which will have the capacity to produce 2,00,000 electric vehicles every year.
  • Kia Motors is expected to sign a memorandum of understanding (MoU) with the Government of Andhra Pradesh (AP) to set up a factory in Penukonda in Anantapur district and the company will invest around US$ 2 billion on this plant and it will have manufacturing capacity of the 3 lakhs car per annum.
  • Several automobile manufacturers, from global majors such as Audi to Indian companies such as Maruti Suzuki and Mahindra & Mahindra, are exploring the possibilities of introducing driverless self-driven cars for India.
  • BMW plans to manufacture a local version of below-500 CC motorcycle, the G310R,in TVS Motor’s Hosur plant in Tamil Nadu, for Indian markets.
  • Hero MotoCorp Ltd seeks to enhance its participation in the Indian electric vehicle (EV) space by pursuing its internal EV Programme in addition to investing Rs 205 crore (US$ 30.75 million) to acquire around 26-30 per cent stake in Bengaluru based technology start-up Ather Energy Pvt Ltd.
  • Ford Motor Co. plans to invest Rs 1,300 crore (US$ 195 million) to build a global technology and business centre in Chennai, which will be designed as a hub for product development, mobility solutions and business services for India and other markets.

Government Initiatives

The Government of India encourages foreign investment in the automobile sector and allows 100 per cent FDI under the automatic route.Some of the major initiatives taken by the Government of India are:

  • Government is planning to introduce biofuel vehicles for road and water transportation. India needs to cut fossil fuel imports and look for alternative and cheaper fuels like methanol.
  • Government of India extended support to the industry by increasing custom duty on CBUs of commercial vehicles from 10 per cent to 40 per cent and reducing duty on chassis for ambulance manufacturing from 24 per cent to 12.5 per cent.
  • The Government of India plans to introduce a new Green Urban Transport Scheme with a central assistance of about Rs 25,000 crore (US$ 3.75 billion), aimed at boosting the growth of urban transport along low carbon path for substantial reduction in pollution, and providing a framework for funding urban mobility projects at National, State and City level with minimum recourse to budgetary support by encouraging innovative financing of projects.
  • Government of India aims to make automobiles manufacturing the main driver of ‘Make in India’ initiative, as it expects passenger vehicles market to triple to 9.4 million units by 2026, as highlighted in the Auto Mission Plan (AMP) 2016-26.
  • The government has formulated a Scheme for Faster Adoption and Manufacturing of Electric and Hybrid Vehicles in India, under the National Electric Mobility Mission 2020 to encourage the progressive induction of reliable, affordable and efficient electric and hybrid vehicles in the country.

Road Ahead

The automobile industry is supported by various factors such as availability of skilled labour at low cost, robust R&D centres and low cost steel production. The industry also provides great opportunities for investment and direct and indirect employment to skilled and unskilled labour.

The Indian automotive aftermarket is estimated to grow at around 10-15 per cent to reach US$ 16.5 billion by 2021 from around US$ 7 billion in 2016. It has the potential to generate up to US$ 300 billion in annual revenue by 2026, create 65 million additional jobs and contribute over 12 per cent to India’s Gross Domestic Product.

According to Mr Guillaume Sicard, president, Nissan India Operations, the income tax rate cut from 10 per cent to 5 per cent for individual tax payers earning under Rs 5 lakh (US$ 7,472) per annum will create a positive sentiment among likely first time buyers for entry level and small cars.

 

 

Source: India Brand Equity Foundation (IBEF)