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Introduction: Automobile Industry in India

Introduction: Automobile Industry in India

Around 23.80 lakh units were sold in November this year, compared to 18.93 lakh units in November 2021 and 23.44 lakh units in November 2019, a pre-Covid year. Registering a growth of 26% on an annual basis, auto retails in November 2022 clocked record high numbers, according to the Federation of Automobile Dealers Associations (FADA). All categories of automobiles saw growth in November, data shows. 2-wheelers, 3-wheelers, passenger vehicles (PVs), tractors and commercial vehicles (CVs) each saw a growth of 24%, 80%, 21%, 57% and 33% respectively

The demand and supply dynamics of automobile industry can clearly be understood from the figures above. The automobile industry in India is the fourth largest in the world, valued at $ 32.70 billion in 2021. India’s Automotive Industry is worth more than $222 billion and contributes 8% of the country’s total export and accounts for 7.1% of India’s Gross Domestic Product (GDP) and is set to become the 3rd largest in the world by 2030.

According to IBEF, It is expected to grow at a CAGR of 9% between 2022 and 2027, reaching a valuation of $54.84 billion in five years. In 2022, 22.9 million units of vehicles were produced in India.

Source: Society of Indian Automobile Manufacturers (SIAM)

The industry manufactures a wide range of vehicles (finished automobiles). The two wheeler segment is the largest in terms of volume with 81.2% market share.

In the heavy vehicles segment, the Indian automobile industry has a strong position globally, being the largest tractor producer and the second largest bus manufacturer, and third largest heavy trucks manufacturer in the world (IBEF report). India’s trucking market is expected to grow over 4x by 2050. The number of trucks is expected to more than quadruple, from 4 million in 2022 to roughly 17 million trucks by 2050.

India also has a growing electric vehicle industry. According to India Energy Storage Alliance, the electric vehicle market in India is expected to grow at a CAGR of 36% till 2026. Another prediction shows that The EV market is expected to grow at CAGR of 49% between 2022-2030 and is expected to hit 10 million-unit annual sales by 2030. The EV industry will create 50 million direct and indirect jobs by 2030. A market size of $50 biliion for the financing of EVs in 2030 has been identified—about 80% of the current size of India’s retail vehicle finance industry, worth $60 billion today.

In the National Industrial Classification (NIC), the automobile sector comes under Section C – manufacturing, Division 29 – Manufacture of motor vehicles, trailers and semi-trailers, Group 291 – Manufacture of Motor Vehicles.

The automobile manufacturing regions in India are grouped into a few major clusters. In western India, it is the Mumbai-Pune-Nashik-Aurangabad cluster – major companies being Ashok Leyland, Bajaj Auto, FIAT, Mahindra and Mahindra, Eicher, Skoda, Bharat Forge, Tata Motors, Volkswagen, Renault Nissan, Mercedes Benz.

In the east, there is the Kolkata-Jamshedpur cluster with Tata Motors, Hindustan Motors, and more. In the South is the Chennai-Bangalore-Hosur cluster, with Ashok Leyland, Mahindra and Mahindra, Toyota Kirloskar, Volvo, Enfield, Hyundai, BMW, TVS Motor Company, Renault Nissan, Daimler, Caterpillar, Hindustan Motors, and more. And in the north, the Delhi-Gurgaon-Faridabad cluster with Ashok Leyland, Force Motors, Piaggio, Eicher, Honda SIEL, Maruti Suzuki, Tata Motors, Bajaj Auto, Hero Group, JCB, Yamaha, Mahindra, Suzuki Motorcycles, and more. Gujarat is also a growing automobile manufacturing state.

Major Automobile Manufacturing clusters in India

The main raw materials required for the automobile industry are steel, aluminium, magnesium, copper, plastics, composites, rubber, glass, fabric, and leather. Electric vehicles also have some special raw material requirements, for example the semiconductors and batteries used in them which require silicon and other metals and minerals to manufacture.

The infrastructural requirements for manufacturing automobiles are access to electricity, majorly for the production plants, water, warehousing for storing finished products or components, and transportation at various stages of the production process.

Multiple regions in India have well-developed infrastructure and access to raw material and skilled labour required for automobile manufacturing. More regions are taking a proactive approach to the development of this industry.

The automobile industry in India is already a strong pillar in the Indian economy and has grown tremendously over the past few decades. However; faces a lot of challenges. Some of the areas causing distress in the automotive sector are: slowdown in economic growth, high cost of vehicle finance, high interest rates, high fuel prices, high inflation and negative market sentiments, increase in the commodity prices, high customs duty on Alloy Steel, Aluminium Alloy and Secondary Aluminium Alloy, high rate of service tax and excise duty, high and varied rate of road taxes in the States, low growth of export markets etc. Ministry of Heavy Industries and Public Enterprises has been consistently taking up the matter of providing some kind of stimulus package with prompt fiscal and other measures to put the industry back on track. As a result, in the interim budget for the year 2014-15, reduction in excise duty in case of cars, two wheelers and truck chassis was announced. Further, some other measures are urgently required to be taken, such as, removal of customs duty of raw materials such as steel. Aluminium etc. revisit of CENVAT rules, review of import policy, duty draw back schemes, excise and customs rules, direct tax benefit to promote automotive R&D, and , above all, containing inflation and control of interest rates to make loans more affordable to the people etc. Immediate steps are required so that the Indian Auto Industry once again becomes the engine of growth of the Indian manufacturing sector.

Despite of challenges, the industry has continued to grow. The consistent growth and further potential in the Indian economy for the automobile industry makes it a great opportunity for investment. This will be discussed in detail in next article of the series.

The Production Linked Incentive (PLI) scheme for the automobile sector with an outlay of Rs. 25.9 thousand crores will help propel this growth. The industry will also generate much more employment, and will have a big contribution to the overall economy. The details of the PLI scheme and how it may impact the automobile sector will be discussed in further articles.

Dhruv Chaudhari

Dhruv Chaudhari is a Research Intern at Tatvita. Presently he is pursuing his bachelors in the Liberal Arts department at the Savitribai Phule Pune University.    

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