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Growth of the sector

The Indian auto industry is one of the largest in the world. The industry accounts for 7.1% of the country’s Gross Domestic Product (GDP). The two wheelers segment with 80 % market share is the leader of the Indian Automobile market owing to a growing middle class and a young population. Moreover, the growing interest of the companies in exploring the rural markets further aided the growth of the sector. The overall Passenger Vehicle (PV) segment has 14% market share.

India is a prominent auto exporter and has strong export growth expectations for the near future. Overall automobile exports grew 13.01% in 2017. In addition, several initiatives by the Government of India and the major automobile players in the Indian market are expected to make India a leader in the 2W and four wheeler (4W) market in the world by 2020.Production of passenger vehicles, commercial vehicles, three wheelers and two wheelers grew at 11.27 % year-on-year between April-December 2017 to 21,415,719 vehicles. The sales of passenger vehicles and two wheelers grew by 5.22 % and 40.31 % year-on-year respectively, in December 2017. Electric cars in India are expected to get new green number plates and may also get free parking for three years along with toll waivers. India’s electric vehicle (EV) sales increased 37.5 %to 22,000 units during FY 2015-16 and are poised to rise further on the back of cheaper energy storage costs and the Government of India’s vision to see six million electric and hybrid vehicles in India by 2020.The Indian automotive aftermarket is estimated to grow at around 10-15 % to reach $16.5 billion by 2021 from around $7 billion in 2016. It has the potential to generate up to $ 300 billion in annual revenue by 2026, create 65 million additional jobs and contribute over 12 % to India’s Gross Domestic Product.

In order to keep up with the growing demand, several auto makers have started investing heavily in various segments of the industry during the last few months. The industry has attracted Foreign Direct Investment (FDI) worth $ 17.91 billion during the period April 2000 to September 2017, according to data released by Department of Industrial Policy and Promotion (DIPP).

Challenges

However, despite these strong figures to the back and a bright future ahead, the auto component manufacturing sector had been facing a rough weather. Apart from major slump in the sales of two, three and four-wheelers in India, the major challenges faced by them include infrastructure deficit, talent crunch, scaling up the industry, access to world-class technology and quality practices, remaining cost competitive, access to and availability of cost-effective capital. As regards trade policy, the challenges mainly faced by Indian manufacturers are slowing down of investment in the OEM auto sector and sharp rise in imports mainly from ASEAN countries.

The government thus is coming up with initiatives to curb the issues threatening the sector. The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the country for 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. Energy Efficiency Services Limited (EESL), under Ministry for Power and New and Renewable Energy, the Government of India, is planning to procure 10,000 e-vehicles via demand aggregation, and has already awarded contracts to Tata Motors Ltd for 250 e-cars and to Mahindra and Mahindra for 150 e-cars. The incorporation of e-mobility was also a welcoming step by the government for the expansion of this industry. Dharmesh Arora , CEO, Schaeffler India opined, “India holds huge potential for growth. Increased allocation towards key infrastructure sectors like road construction, railways expansion and up-gradation, raw material sectors like steel and cement etc. will bode well for spurring economic activity. These sectors also hold promise for large scale job creation. Government should come out with a clear long term policy on supporting mobility needs of future. We believe the transition to e-mobility is a good step but it must include hybrid vehicles as a necessary and viable intermediate step. Appropriate support to the industry in creating the pull from end consumers and tax breaks to the component industry by means of zero duty imports of components going into e-mobility, tax breaks for investments in local research and development will encourage quicker adaption of new technology. On the taxation front, continuing the announced roadmap for reduction of corporate taxes will support industrial growth and investments.”

On asking him about the budget expectation for this sector, he added, “ We expect a balanced budget supported by right monetary policy that creates a positive investment climate and promotes consumption led growth.”

The Indian automotive aftermarket is estimated to grow at around 10-15 % to reach $16.5 billion by 2021 from around $7 billion in 2016. It has the potential to generate up to $300 billion in annual revenue by 2026, create 65 million additional jobs and contribute over 12 % to India’s Gross Domestic Product.

Budget allocation of automobile
industry in 2017-18

1. Focused on farm credit positive for tractors and two-wheelers: Allocation for rural sector for fiscal year 2018 was recorded Rs 1, 87,200 crore, an increase of 24%.

2. Under the Pradhan Mantri Gram Sadak Yojna, roads work accelerated to 133 km roads per day in 2016-17 against 73 km per day during 2011-14. These allocations were good news for makers of heavy machinery and construction equipment like JCB or Tata Hitachi; and also CV makers like Tata and Ashok Leyland.

3. The income tax rate cut from 10% to 5% for individual tax payers earning under Rs 5 lakh per annum created a positive sentiment among likely first time buyers for entry level and small cars. However, there is nothing substantial for R&D for automotive industry, EV and Hybrid vehicles.

4.  Allocation under MNREGA increased from Rs 38,500 crore to Rs 48,000 crore benefited  the two wheeler brigade that sees a chunk of sales coming from tier-3 towns and rural India, like Hero and HMS.

5. Skill centres was increased from 60 to 600 under Pradhan mantra Kaushal kill centres to enhance skill development.