Automobiles industry in India – Brief Overview
The Indian automobile industry, the seventh largest in the world, has demonstrated a phenomenal growth. The industry has grown significantly over the last ten years, during which industry volumes have increased by 3.2 times, from a level of 4.7 million numbers to 14.9 million numbers, according to Vishnu Mathur, Director General, Society of Indian Automobile Manufacturers (SIAM).
The industry, by virtue of its deep connects with several key segments of the economy, occupies a prominent place in the country’s growth canvas. It exhibits a strong multiplier effect and has the ability to be the key driver of economic growth. A robust transportation system plays a key role in a country's rapid economic and industrial development, and the well-developed Indian automotive industry justifies this catalytic role by producing a wide variety of vehicles, which include passenger cars, light, medium and heavy commercial vehicles, multi-utility vehicles such as jeeps, scooters, motorcycles, mopeds, three wheelers, tractors etc.
Auto Industry in India – Growth Drivers
The automobile sector in India has been experiencing significant growth in the last few years on the back of factors that include:
- Favourable demographic distribution with rising working population and middle class Urbanisation
- Rising affluence of the average consumer as per capita income rises - According to McKinsey, the middle class in India will grow from 50 million to 550 million by 2025. With a tremendous growth in wealth as the economy grows, there will be significant increases in spending on discretionary items and consumer durables
- Increasing disposable incomes in rural agri-sector
- Overall GDP growth, with a rise in industrial and agricultural output
- Introduction of ultra-low-cost cars
- Increasing maturity of Indian original equipment manufacturers (OEMs)
- Availability of a variety of vehicle models meeting diverse needs and preferences – robust production
- Greater affordability of vehicles
- Easy finance schemes
- Favourable government policies
Indian Automobile market – Key statistics
India's automobile industry, currently estimated to have a turnover of US$ 73 billion, accounts for 6 per cent of its GDP, and is expected to hit a turnover of US$ 145 billion by 2016.
The automobile industry currently contributes 22 per cent to the manufacturing GDP and 21 per cent of the total excise collection in the country, according to Mr Praful Patel, Minister, Heavy Industries and Public Enterprises. In 2010-11, the total turnover and export of the automotive Industry in India reached a new high of US$ 73 billion and US$ 11 billion respectively. The cumulative announced investments reached US$ 30 billion during this period. He also said that the forecasted size of the Indian Passenger Vehicle Segment is nearly 9 million units and that of 2 wheelers, close to 30 million units – by 2020.
India achieved the position of the top growing passenger car market in the world during the January-June period in 2011, overtaking the US, which grew at 14.40 per cent, according to SIAM. In passenger vehicles, India was the fastest growing market at 18.20 per cent during the six month period.
India's automobile industry is expected to grow by 11 to 13 per cent in the fiscal year ending March 2012, according to Pawan Goenka, President, SIAM. The industry body said that Indian automakers sold 143,370 cars in June 2011.
The four-wheel passenger vehicle market has grown impressively at the hands of the new middle class, and there is huge opportunity, as market penetration remains low.
Domestic market share for 2010-11
India’s automobile industry is growing fast, but two wheelers remain a dominant category. More than 78 percent of motor vehicles on the road are two-wheelers, their popularity driven by low price, high fuel mileage, and an ability to drive efficiently through dense traffic. The share of different types of vehicles during 2010-11 was passenger vehicles (16.25), commercial vehicles (4.36), three wheelers (3.39), and two wheelers (76.00).
Recent Investments/ Trends
The auto industry has made huge investments in the country. As per 2008-09, the total investment of auto industry in India was Rs 60,952 crore (US$ 13.89 billion). Another Rs 78,000 crore (US$ 17.78 billion) of new investments have been announced by the auto industry out of which some have already been made and the rest will come up over the next 2-3 years. The industry, therefore, is keeping pace with the growing demand for vehicles in all segments.
The Karnataka government has cleared investment proposals amounting to more than Rs 8,662 crore (US$ 19.74 billion), which include the plans of Honda Motorcycle India plans for a manufacturing unit in the State. Mr Murugesh Nirani, Karnataka Industries Minister, has said that Honda Motorcycles and Scooter India would be investing Rs 1,350 crore (US$ 307.7 million) in Narsapur Industrial area of Kolar district of the State.
Demand for two-wheelers from six of the eight domestic mobike manufacturers rose 16 per cent in June to more than 880,000 units, compared to 761,000 units in June 2010.
Australia is looking at possibilities of building better relations between its world-class firms and rapidly growing Indian automotive industries with an objective to create new export opportunities.
Pune-based Force Motors has signed an agreement with Daimler AG, under which Daimler will supply technology for the development of a multi-purpose vehicle (MPV) by Force Motors
Swedish automobile manufacturer Volvo Cars Corp is looking at introducing corporate editions of its luxury sedans S60 and S80 to shore up volumes in the Indian automobile market.
French car maker PSA Peugeot Citroen has selected a site near Sriperumbudur, to the west of Chennai, in Tamil Nadu for setting up its car plant. The company is planning to invest Rs 4,000 crore (US$ 911.72 million) in an integrated automobile project.
Toyota has launched its first made-for-India small car, the EtiosLiva, in the intensely competitive hatchback segment. The car, priced between Rs 399,000 and 599,000 (US$9,094 and 13,653), will compete with Maruti Suzuki Swift, Hyundai i20, Volkswagen Polo and Ford Figo.
Auto industry in India – Government Initiatives
With the gradual liberalisation of the automobile sector since 1991, the number of manufacturing units in India has grown progressively.
Currently, 100 per cent Foreign Direct Investment (FDI) is permissible under automatic route in this sector including passenger car segment. The import of technology/technological upgradation on the royalty payment of 5 per cent without any duration limit and lump sum payment of US$ 2 million is also allowed under automatic route in this sector.
The automobile industry is delicensed, and import of components is freely allowed.
With an objective of accelerating and sustaining growth in the automotive sector and to steer,co-ordinate and synergise the efforts of all stakeholders, the Automotive Mission Plan (AMP) 2006-2016 was prepared. The plan aims at making India global automotive hub.The AMP 2006-2016 aims at doubling the contribution of automotive sector in GDP by taking the turnover to US$ 145 billion and providing additional employment to 25 million people by 2016.
In the long term, the government has expressed plans to follow a two pronged strategy for spurring automotive Research &Development (R&D). The first is aimed at addressing the existing infrastructure gap in the field domain of automotive testing and homologation through the Department’s flagship National Automotive Testing and R&D Infrastructure Project(NATRiP), which is being implemented at a cost of Rs 2,288 crores (US$ 521.5 million), and is expected to be completed by the end of 2012. The second part of the strategy is aimed at leveraging the investments being made in NATRiP facilities for collaborative R&D with the industry, especially for the small and medium enterprises (SMEs) in the auto component space.
Further, with the recent announcement of the launch of the National Mission for Electric Mobility and the setting up of the National Council and Board for Electric Mobility, Mr Patel emphasised on the commitment of the government for early adoption of electric vehicles, including hybrid vehicles, and the manufacturing of these vehicles and their components.
The government is considering setting up two automotive manufacturing hubs spread over 10,000 acres each in central and eastern India.The new hubs, aimed at consolidating India's position as an important destination for low-cost automotive production, will be in addition to the three existing zones — Haryana, Maharashtra and Tamil Nadu.
Auto Industry in India – Road Ahead
The automotive industry is at the core of India’s manufacturing economy - India is all set to become one of the world’s most attractive automotive markets for both manufacturers and consumers. The resulting benefits to society, such as economic growth, increased jobs, and stability for families employed by the automotive industry, are significant.
The long-term potential for growth of the auto industry is very favourable, on account of low vehicle penetration in the country. As income levels rise and easy finance is available, the industry will continue to see a healthy growth rate. SIAM estimates that the growth of the auto industry in FY12 will be in the region of 12-15 per cent.
Exchange Rate Used: INR 1 = US$ 0.0227929, as on July 27, 2011
References: Society of Indian Automobile Manufacturers (SIAM), Press Information Bureau, Press Releases, Report by Booz & Company - Revving theGrowth EngineIndia’s AutomotiveIndustry Is on aFast Track, Automotive Component Manufacturers Association of India (ACMA)
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