Automobile Industry in India

The Indian auto industry is one of the largest in the world. The industry accounts for 7.1 percent of the country's Gross Domestic Product (GDP). The Two Wheelers segment with an 80 percent market share is the leader of the Indian Automobile market owing to a growing middle class and a young population. Moreover, the growing interest of the companies in exploring the rural markets further aided the growth of the sector. The overall Passenger Vehicle (PV) segment has a 14 percent market share.

India is also a prominent auto exporter and has strong export growth expectations for the near future. Overall automobile exports grew 13.01 percent year-on-year between April-December 2017. In addition, several initiatives by the Government of India and the major automobile players in the Indian market are expected to make India a leader in the 2W and Four Wheeler (4W) market in the world by 2020.

Market Size

Production of passenger vehicles, commercial vehicles, three wheelers and two wheelers grew at 11.27 percent year-on-year between April-December 2017 to 21,415,719 vehicles. The sales of passenger vehicles and two-wheelers grew by 5.22 percent and 40.31 percent year-on-year respectively, in December 2017. The auto industry is set to witness major changes in the form of electric vehicles (EVs), shared mobility, Bharat Stage-VI emission and safety norms. Electric cars in India are expected to get new green number plates and may also get free parking for three years along with toll waivers@. 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.investments in order to keep up with the growing demand, several automakers 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$ 17.91 billion during the period April 2000 to September 2017, according to data released by Department of Industrial Policy and Promotion (DIPP).

Some of the recent/planned investments and developments in the automobile sector in India are as follows: The only electric automaker in India, Mahindra, and Mahindra Ltd has partnered with Uber for deploying its electric sedan e-Verito and hatchback e2o Plus on Uber platforms in New Delhi and Hyderabad. Vedanta Resources Plc is planning to invest around US$ 9 billion in India and create more than a million direct or indirect jobs in the country.

Government Initiatives

The Government of India encourages foreign investment in the automobile sector and allows 100 percent FDI under the automatic route. Some of the recent initiatives taken by the Government of India are -The Government of Karnataka is going to obtain electric vehicles under FAME Scheme and set up charging infrastructure across Bengaluru, according to Mr. R V Deshpande, Minister for Large and Medium Industries of Karnataka. The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the country for the introduction of electric vehicles (EVs) in their public transport systems under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India) scheme. Energy Efficiency Services Limited (EESL), under Ministry for Power and New and Renewable Energy, Government of India, is planning to procure 10,000 e-vehicles via demand aggregation and has already awarded contracts to Tata Motors Ltd for 250 e-cars and to Mahindra and Mahindra for 150 e-cars. The government is planning to set up a committee to develop an institutional framework on large-scale adoption of electric vehicles in India as a viable clean energy mode, especially for shared mass transport, to help bring down pollution level in major cities.

Road Ahead

The automobile industry is supported by various factors such as the availability of skilled labor at low cost, robust R&D centers, and low-cost steel production. The industry also provides great opportunities for investment and direct and indirect employment to skilled and unskilled labor.The Indian automotive aftermarket is estimated to grow at around 10-15 percent 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 percent to India’s Gross Domestic Product#. Exchange Rate Used: INR 1 = US$ 0.015 as of January 4, 2018