Expected to be the world's third-largest automotive market
It took India around seven years to increase annual production to four million vehicles from three million. However, the next milestone—five million—is expected in less than five years. Hitting that mark will depend on today’s rapid economic development continues, with a projected annual GDP growth rate of 7 percent through 2020, ongoing urbanization, a burgeoning consuming class, and supportive regulations and policies.
India is the world's largest manufacturer of tractors, the second-largest manufacturer of passenger cars and the third largest manufacturer of heavy trucks, and is, therefore, India is a leader in the international heavy vehicle sector.
Between 2018-19 and 2017-18, passenger car sales increased by 2.7%, two-wheelers increased by 4.86%, the two-wheelers segment dominates the market in terms of volume owing to a growing middle class and a young population. And three-wheelers increased by 10.27%. From April to March 2019, the overall export of automobiles increased by 14.5%. From April to March 2019, the entire commercial vehicle sector increased by 17.6%.
From April 2000 to June 2019, the industry attracted US $ 22.4 billion in FDI; accounting for 5.1% of total foreign direct investment inflows.
Continued government focus on supporting the industry
Through the Automotive Mission Plan, the National Electric Mobility Mission Plan (NEMMP), and other initiatives, the government seeks to achieve two objectives—facilitate long-term growth in the industry and reduce emissions and oil dependence.
In the Automotive Mission Plan 2026, the government and industry set a target to triple industry revenues, to $300 billion, and expand exports sevenfold, to $80 billion. To meet these aims, it is estimated that the sector could contribute more than 60 million additional direct and indirect jobs, and the result could be improved manufacturing competitiveness and reduced emissions.
To tackle emissions, the government seeks to bring local standards up to par with global standards, enabling India to leapfrog from BS-4 to BS-6 emissions (the Euro 6 equivalent) by 2020. Additionally, India has implemented Corporate Average Fuel Efficiency norms in which the manufacturers have to improve their fuel efficiency by 10 percent between 2017 and 2021 and by 30 percent or more from 2022.
The Government of India encourages foreign investment in the automobile sector and allows 100 percent FDI under the automatic route.
Some of the 2019 initiatives taken by the Government of India are -
• Under Union Budget 2019-20, the government announced to provide additional income tax deduction of Rs 1.5 lakh (US$ 2,146) on the interest paid on the loans taken to purchase EVs.
• The government aims to develop India as a global manufacturing center and an R&D hub.
• Under NATRiP, the Government of India is planning to set up R&D centers at a total cost of US$ 388.5 million to enable the industry to be on par with global standards.
• 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. The government will also set up an incubation center for start-ups working in electric vehicle space.
• In February 2019, the Government of India approved the FAME-II scheme with a fund requirement of Rs 10,000 crore (US$ 1.39 billion) for FY20-22.
Hub for low-cost, high-quality managerial talent
For a number of years, multinationals have been using India as a hub for low-cost talent. However, in the past few years, India has also been recognized for its high-quality managerial talent. Indians are starting to occupy major positions across industries such as consumer goods, automotive, pharmaceutical and banking, among others. Moreover, many such companies are also leveraging local talent for driving innovation through R&D centers. In the case of a leading global conglomerate, more than a quarter of their innovations are done by the team in India. Likewise, in the case of an automotive manufacturer, the local team of managers and engineers are working on products that will drive growth in the medium to long run.
The automobile industry is supported by various factors such as 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.