Contribution to Economy: Automobile Industry in India
The Automobile Industry in India is a strong pillar of the economy. Since the liberalization of the industry in 1991, its contribution to the economy has become very significant. It contributes around 6.4% of India’s overall GDP, and 35% of the manufacturing GDP (IBEF). The auto components industry is also a major industry, contributing around 2.3% to the overall GDP according to the Ministry of Heavy Industries.
India is also becoming a prominent exporter of automobiles. Currently, the industry accounts for around 8% of India’s total exports. Although India is the fourth largest automobile producer in the world, it does not have such prominence yet when it comes to global automobile exporters. However, this aspect of the industry is rapidly growing. In FY22, India exported around 5.6 million vehicles, up by 36% compared to the previous financial year. In terms of monetary value, vehicle and component exports were worth $23 billion, which accounts for 5% of total merchandise export value.
In the FY23 for the months between April and July, total automobile exports were at $8.9 billion, which is up by 25% as compared to the same time period of the previous financial year. Recovery of the economy and increased demand, along with the resolving of supply chain issues were major factors in the increased exports according to IBEF.
According to SIAM data, the two wheeler segment has the largest share in automobile exports, with around 4.4 million units exported in FY22 out of the total 5.6 million automobile unit exports.
In the passenger vehicle segment, Maruti Suzuki holds the top spot, followed by Hyundai India, Kia, and Volkswagen. In the two wheeler segment, Bajaj Auto is at the top in exports, by a significant margin.
Some major export destinations of Indian automobiles are – the US, South Africa, Mexico, Bangladesh, the UAE, Saudi Arabia, Turkey, Colombia, Brazil, Nigeria, Nepal, Indonesia and the Philippines. The US is a major export partner with around $3 billion in exports as of FY22.
Finished automobile import statistics have not been made publicly available by SIAM.
Another way in which the automobile industry plays a major role in the Indian economy is by employing a large number of people, and creating new jobs. According to the Ministry of Heavy Industries, 19 million people are directly or indirectly employed by the automobile industry. As of FY22, Invest India reports this number at 37 million. According to the National Skill Development Corporation, the auto components industry directly employs 5 million people. Although the pandemic posed a challenge to employment even in this sector, the industry is expected to keep generating more employment in the next few years. Online job portal company Monster reported a 16% increase in hiring activity in February 2022 compared to the same period in FY21 on their portal. They also reported a 7% increase in jobs for auto engineers as of February 2022 for which the PLI scheme and Union Budget 2022 may be a factor. The electric vehicle industry is also experiencing a significant surge in employment. As it is expected to grow rapidly, it will also generate more employment, and employ personnel across many domains in various capacities.
Demand & Sales
The demand for automobiles in India is strong, and is expected to rise over the next few years due to two main factors – rising middle class incomes, and a large youth population (IBEF). India has one of the youngest major populations in the world with an average age of 29 years. A large portion of the buyer market for automobiles is the young population. As incomes rise, automobile demand will continue to increase. The government is also implementing incentive schemes such as subsidies to boost electric vehicle adoption, which also may be a big factor in the electric vehicle demand. There have been many challenges to the automobile industry market, such as the COVID-19 pandemic and supply chain issues. Demand reduced during the pandemic, but the market is showing strong signs of recovery.
In the last three financial years, the two wheeler segment saw moderate decreases in sales. The passenger segment sales have grown by 3.5 lakh units sold (around 13% increase) in FY22 from the previous year. The commercial vehicle segment also saw an increase in sales in FY22. The demand and sales are expected to grow as the market recovers. Even electric vehicles have experienced tremendous growth in demand, which is expected to keep increasing in the coming years. As per data by the Federation of Automobile Dealers Associations of India (FADA), retail sales hit their highest in FY22, with around 430,000 units sold, up by 218% compared to the previous financial year. In FY23, this record is expected to be broken. By Q1 of FY23, the sales of electric vehicles had already crossed 200,000, which is around 50% of the previous year. The overall passenger vehicle segment is experiencing strong increase in sales in FY23, with sales crossing the 300,000 mark for six consecutive months as of November 2022. It may be headed to record sales in a calendar year. Nearly 10% of the sales volume in November came from electric vehicles. There is also a large number of pending bookings in this industry, which is an additional indicator of demand.
During and after the COVID 19 pandemic, the industry has faced many challenges in the market demand, as well as issues in supply, such as supply chain disruptions, microchip shortages, and more. However, both these issues have been largely alleviated due to post pandemic market recovery, and resolving of supply chain disruptions. As semiconductor chip supplies have resumed, production has increased as well. The automobile industry and market in India seem to be on track for increased growth, as indicated by the expected growth statistics mentioned in the previous article in this series.
In the next article, we will discuss the financial aspects and investments in this industry, which are crucial for its growth.
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.