Automobile Industry in India
- 16 Sep 2022
- 8 min read
Why in News?
Recently, the Union Minister of Commerce and Industry addressed the 62nd Automotive Component Manufacturers Association (ACMA) Annual Session.
- The Theme of the session was ‘Future of Mobility - Transforming to be Ahead of Opportunity’.
- The ACMA is the apex body representing the interest of the Indian Auto Component Industry. Its membership of over 850 manufacturers contributes to more than 85% of the auto component industry’s turnover in the organized sector.
What are the Key Highlights of the Session?
- The 5-point action agenda was given for the Automobile Industry:
- To Focus on Quality in order to become globally competitive and reduce dependence on imports.
- To Think holistically and have a larger vision to engage with others in the spirit of openness and competitiveness.
- To Give emphasis on Value Addition.
- To Exit the Uncompetitive market and explore new market opportunities in the sectors where we can be competitive.
- To Think big and set aggressive targets and ambitions for the industry.
- Further, the government emphasize that future of the Automotive Component Industry rests on being more Connected, focusing on Convenience, orienting towards Clean Energy and clean mobility and using Cutting-edge technology.
What is the Status of Automobile industry in India?
- Automobile Industry comprises all the automobile vehicles including Passenger Vehicles, Commercial Vehicles, Three Wheelers, Two Wheelers and Quadricycles.
- India's Automotive Market was valued at USD 100 billion in 2021 and is expected to reach USD 160 billion in 2027, registering a compounded annual growth rate (CAGR) of 8.1% over the forecast period (2022-2027).
- India is the 4th largest producer of Automobiles in the world, with an average annual production of more than 4 million motor vehicles.
- India is the largest tractor manufacturer, second-largest bus manufacturer, and third largest heavy trucks manufacturer in the world.
- The Electric Vehicle (EV) market is estimated to reach Rs. 50,000 crore (USD 7.09 billion) in India by 2025.
- Share in Gross Domestic Product (GDP): 7.1%.
- Share in India’s exports: 4.7%.
- Production-Linked Incentive (PLI):
- The Union Cabinet announced the Production-Linked Incentive (PLI) Scheme in the Automobile and Auto Components sectors.
- The PLI scheme (outlay of USD 3.5 Billion) for the automobile sector proposes financial incentives of up to 18% to boost domestic manufacturing of advanced automotive technology products and attract investments in the automotive manufacturing value chain.
- Foreign Direct Investment (FDI):
- Under the automatic route, 100% Foreign Direct Investment (FDI) is permitted along with full delicensing. Hence, making it easy for investors to set up their manufacturing plant/shop in India.
- Automotive Mission Plan 2016-26 (AMP 2026):
- The Automotive Mission Plan 2016-26 (AMP 2026) outlines the trajectory of growth of the automotive ecosystem in India, including the glide path of definite regulations and policies that govern research, design, technology, testing, manufacturing, import/ export, sale, use, repair, and recycling of automotive vehicles, components and services.
- National Electric Mobility Mission Plan 2020 (NEMMP):
- The NEMMP initiative has been taken up to encourage consistent, affordable and competent xEVs (hybrid and electric vehicles) that meet consumer performance and price expectations through government-industry collaboration.
- Production-Linked Incentive (PLI):
What are the Challenges faced by the Automobile Industry?
- Shared Cars: Over the past three-four years, India has seen the rapid rise of ride-share apps like OLA, Uber, etc.
- These apps make travel far more convenient without the hassle of driving through rigorous traffic and avoiding maintenance cost of owning a vehicle, all at affordable rates. This has certainly challenged the concept of ownership and thus affected sales.
- Tight Credit Availability: 80-85% of vehicles in the country are financed by the nationalised banks, private banks or NBFCs.
- Banks have become extra-cautious in supplying credit to the people purchasing a car.
- Transition to EV: The government plans to ban internal-combustion powered two-wheelers and three-wheelers by 2023 and 2025 respectively.
- This sudden transition, when the situation of the automobile sector is already dire as the sales have slumped to a two-decade low, has worsened the situation of job cuts and market disruption.
- Decrease Demand for Commercial Vehicles: The freight carrying capacity of the new model trucks has increased. Due to this, there has been a decline in the demand for new trucks as the consumers can carry freight in their own trucks.