Techno-global Impacts of Government Policies on Passenger Car Industry

Abstract

Indian passenger car industry has seen various technological advancements over the years with chronological milestones being introduction of assembly line, electric starters, four-wheel brakes, power steering, air bags, navigation & today’s modern electric cars.

Today, Indian automobile industry is witnessing a rapid change with changing lifestyles, economic and technological enhancement, environmental awareness, etc. Government initiatives like Make in India, NEMMP 2020, Automotive Mission Plan 2026 are steps towards the same goal. Government too is becoming environmentally conscious and has banned BS3 complying vehicles. This is encouraging automobile manufacturers to come up with technologies like an electric car, self-driven cars, vehicles complying with BS4 emission norms, etc.

Indian car industry is the second fastest growing industry throughout the world with a growth rate of 9.23% . Such a booming industry have attracted a lot of foreign players into the Indian market. Also, the recent implementation of GST is helping foreign players in better distribution and segmentation of the market.

So, to cope up with recent trends and demands of consumers, both domestic and foreign players are busy in upgrading their technologies and taking ideas from each other which is causing a rapid growth in Indian passenger car industry.

Introduction

The Indian automotive industry is one of the largest in the world and is one of most important factors in the growth of Indian economy. It accounts for 7.1% of country’s GDP. Around 25 million automobiles were produced in India in FY17. Production volume grew by CAGR of 5.56% between FY12-17. Overall passenger car segment has 13% market share of the overall production. India is also a prominent exporter of automobiles which saw a growth of 1.91% last year. Overall passenger car industry also registered a huge growth of 5.24%. Apart, from helping economic growth, automobile sector also is a huge source of employment in India. Though passenger car industry is on the rise and is contributing a lot towards GDP and exports, but the government needs to keep checking this growth against the welfare of society as a whole. Today, we are facing many global issues such as Global warming, depletion of non-renewable resources which are directly connected to this industry. These issues if not handled will not only affect public health but can also lead to slowing the market growth with increasing cost of fuel. So, to counter such issues, Indian government have started coming out with policies to ban vehicles not meeting required environmental norms (for, e.g., ban on BS3 emission engines) and in this way forces automobile manufactures to innovate better technologies. It has also started many initiatives aiming India to be a global leader in automobile manufacturer harnessing green energy.

Government Initiatives

Make in India

Make in India is an initiative launched by the Government of India to make India as the manufacturing hub of the world. Through make in India, the government intends to encourage national, as well as multi-national companies to manufacture their products in India. Make in India campaign has helped India improved the World Bank’s Ease of Doing Business from 142 in 2015 to 130 in 2016. Because of this improved environment for manufacturers, leading global car manufacturers like ISUZU Motors, Tata Motors, FORD Motor, and Suzuki Motor have invested heavily in setting up greenfield units, manufacturing, and new assembly lines thus boosting the manufacturing of cars in India. Pre Make in India campaign the Indian passenger car industry was suffering from a negative growth rate of 6.06% in the FY 2013-14. After the launch of this campaign in 2014, the growth rate jumped to 3.90% in FY 2014-15(EY,2016). With the boost from make in India, the passenger car industry has become the world’s second fastest growing industry in the world.

India is becoming a manufacturing hub for companies like Ford, General Motors, Nissan, and Volkswagen. These companies are exporting more cars than what they are selling in India. For example, Nissan exported 111612 cars in FY 2015-16 and sold only 30389 cars in India. Among these companies, Ford, General Motors, and Volkswagen had a positive growth rate of 35.86%, 1621.00%, 16.92% in the FY 2015-16  . These positive figures have been possible because of the thrust given by the make in India campaign to the passenger car industry.

Goods and Service Tax

GST is an indirect tax introduced in India on July 1, 2017. It replaced multiple cascading taxes levied by the central and state governments. Passenger car industry was majorly affected by just the announcement of this policy. It stated that all closing stocks of finished goods and inputs could not be transferred to GST regime with full tax benefits. This saw major players giving huge discounts on their cars and calling it a pre-GST discount. However, due to mixed consumer sentiments towards actual implication of GST, passenger car business saw a drop in sales with major players like Tata dropping 10% and M7M declining 3% sales in utility vehicle segment.

Post inaction of GST, mid-size cars which account for nearly 25-30% of the market will will see a positive growth as tax has been reduced by 9% for them .

GST will also be a promotional factor for foreign players. Initially due to the presence of inter-state tax which varied from state to state, tax (cess) applied on the procurement of raw materials for manufacturing and transportation of finished products was a heavy burden. With GST, this cess has been removed, and now free inter-state transportation of goods is allowed. (Philip.L, Thakkar.k,2017)

NEMMP (National Electric Mobility Mission Plan) 2020

NEMMP 2020 plan was launched on 9th Jan 2013 with a vision to promote affordable, reliable & efficient xEVs (hybrid and electric vehicles) meeting consumer performance and price expectations. It is a Government – Industry collaboration for promotion and development of indigenous manufacturing capabilities, infrastructure, consumer awareness & technology. It aims to help India to emerge as a leader and achieve global xEV manufacturing leadership and contributing towards National Fuel Security.(Press information bureau,2015)

Adoption of electric mobility is the need of the hour with fast depletion of fossil fuels, increase energy costs, detrimental effects of transportation on the environment, etc. Technological developments for attaining the set goal includes progress in the area of engine downsizing, development of non-rare earth material motors, battery management system, stability, performance, smart charging, etc. R&D have identified “India’s right to win R&Ds areas” where India has higher chances of success [Exhibit 2]. This is measured on the basis of current capabilities, the investment required and global competition intensity.

Currently, Indian OEMs Mahindra (10 patents), TVS (5-7 patents) and TATA (1 patent) have been able to come up with successful R&D in areas related to battery management systems, electric motors, and electronics.

Current barriers to the project includes high development costs, consumer acceptance of xEVs, and lack of charging infrastructure. Currently,

NEMMP is expected to save 9500 Million Liters of crude oil equivalent to Rs. 62000 Cr. savings. This initiative of the government will reduce country’s fuel dependency on imports and also help in reducing GHG emission in India. The FAME scheme was launched under NEMMP project in the Union Budget for 2015-16 with an initial outlay of INR 75 crore.

Till now in support for the cause, only Mahindra has come out with as a major player with 2 models Mahindra e2oPlus and Mahindra e-Verito with 80 charging stations across 10 cities in India. Tata Power Distribution Lt. has announced to invest 100crore to setup 1000 charging stations across Delhi.

Automotive Mission Plan 2026

The government of India along with SIAM (Society of Indian Automobile Manufacturers) has set a roadmap for the automobile sector for the year 2016-2026. AMP 2026 envisions Indian auto industry to grow about four folds from USD 74 billion in 2015 to USD 260 - 300 billion in 2026. The passenger car industry contributes 42% of the total revenue generated by the automobile industry. Therefore passenger car industry is going to be the driving factor of the growth envisioned in the AMP 2026.

Emission norms in India

Bharat stage emission standards were introduced by the government of India in the year 2000 with the aim to regulate the output from the engines. Bharat Stage IV emission norms have been in place since 2010. It was enforced in only some of the cities in India like Agra, New Delhi, Mumbai, etc.

Sale and registration of Bharat Stage III cars were banned from April 1, 2016. This decision came from the supreme court of India but was, this decision left the Indian car manufacturers with a huge pile of unsold BS3 cars. The total number of BS3 cars lying with the manufacturers stood at 16,198 which they had to sell at huge discounts. Mahindra which is the third largest car manufacturer in India sold its Bolero car on discounts up to Rs100, 000 [Exhibit 5].

The government of India announced to skip the BS-V norms and adopt BS-VI norms by the year 2020. This is a huge task for the car manufacturers because a lot needs to be done to convert a car from one stage to another stage of the norms. Indian car Industry was unprepared for the ban on BS-III vehicles and it is possible that it will be unprepared for the ban of BS-IV cars too.

Future trends in Passenger Car Industry

Amid fears of rising level GNG (greenhouse gases) which pose a major risk to public health, globally a program for banning diesel and petrol engines vehicles is going on. Britain and France have estimated a complete ban by 2040. India is also planning an all-electric car fleet by 2030. Meanwhile, production of hybrid cars is promoted as an intermediate remedy.

This initiative has prompted electric car maker Tesla Inc., to introduce its cars in India by summer of 2017.

The Indian government is planning to introduce a new “Green Urban Transport Scheme” with an estimated investment of about Rs 25,000 crore (US$ 3.75 billion) for the scheme. This will be aiming to boost the growth of urban transport along low carbon path for a considerable reduction in pollution.

National Automotive Testing and R&D Infrastructure Project (NATRIC).

It is an initiative taken by the government of India, several state governments, and the Indian automotive industry. It aims to create a state of the art Testing, Validation and R&D infrastructure for the passenger car industry in India. Six centers are being established as a part of this project in Manesar, Indore, Chakan, Ahmednagar, Chennai, and Silchar. This project will help achieve the targets of AMP 2026 by deepening manufacturing and encouraging localized R&D.(Chaphalkar.K,2016) These R&D centers will help the industry in undertaking technology developments like improved safety, mileage and IT integration in the car. These technological advances will help Indian car industry in competing in the global car market.

Conclusion

The passenger car industry is seeing an enormous growth. The factors that have led to the growth of this industry is favorable government policy & the role played by supporting industries. Government has come out with many initiatives that have not only aimed to increase its market growth but attract more foreign players. It is also promoting the use of electric vehicles which will help in cleaning the air and also reduce dependency on oil. Such initiatives have created huge interest among the analyst, policy makers, and researchers. Thus, it can be positioned as one of the world’s most attractive automotive markets for both manufacturers & consumers; its benefits which provide support to the economy, employment.