Indian automobile sector: Rising Star in the Manufacturing Sector

The globally competitive manufacturing sector is India's greatest potential to drive economic growth and job creation this decade. Due to factors like power growth, long-term employment prospects, and skill routes for millions of people, India has a significant potential to engage in international markets. Several factors contribute to their potential. These value chains are well-positioned to benefit from India's advantages in terms of raw materials, industrial expertise, and entrepreneurship. They can take advantage of four market opportunities: expanding exports, localizing imports, internal demand, and contract manufacturing. One of the best-performing manufacturing sectors is the Automobile sector.

India is a well-recognized Automobile manufacturing hub worldwide because of its low-cost production. Cheap labor, easy availability and low cost of raw materials, and a weak currency are the factors driving the manufacturing Industry. India is the 4th largest producer of Automobiles in the world, with an average annual production of more than 4 million motor vehicles.

The automobile sector accounts for 7.1% of India's GDP and 49 % of the manufacturing GDP. Hence, the automobile sector in India is a significant driver of macroeconomic growth and technological advancement. The government is also focused on increasing the share of the automobile industry by introducing various norms and schemes.?

The automobile sector is witnessing growth due to rising Investments and Government Initiatives. Make in India also provided aid as it's a timely solution to a crisis to transform India into a global design and manufacturing hub.

In 2021, the Government of India introduced a new vehicle scrappage policy, where the key objective was to identify and scrap unfit automobiles from the road. This is done to reduce the emission of more greenhouse gases from the older vehicles and make way for the new vehicle to comply with BS6 (Bharat Stage 6 - similar to Euro6) emission norms.

When scrapping an old vehicle, vehicle owners may be eligible for tax savings as an incentive. As a result, the recycling business will generate more cash. Compared to older automobiles, the new vehicles will be safer, aiding the overall automobile market in India.

From the different segments, The two-wheeler segment dominates the market in terms of volume, owing to a growing middle class and a huge percentage of India’s population is young. Moreover, the growing interest of companies in exploring the rural markets further aided the growth of the sector. The rising logistics and passenger transportation industries are driving up demand for commercial vehicles. Future market growth is anticipated to be fueled by new trends including the electrification of vehicles, particularly three-wheelers and small passenger automobiles.

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 attracted Foreign Direct Investment equity inflow (FDI) worth US$ 32.84 billion between April 2000-March 2022, accounting for 6% of the total equity FDI during the period.

India also enjoys a strong position in the global heavy vehicles market as it is the largest tractor producer, second-largest bus manufacturer, and third-largest heavy truck manufacturer in the world. India’s annual production of automobiles in FY22 was 22.93 million vehicles.

India is also a prominent auto exporter and has strong export growth expectations for the near future.?

Several initiatives by the Government of India such as the Automotive Mission Plan 2026, and production-linked incentive scheme in the Indian market are expected to make India one of the global leaders in the two-wheeler and four-wheeler market by 2022.?

In August 2022, the Indian government launched India’s first double-decker electric bus in Mumbai. Looking long term, the government feels it is necessary to overhaul the country’s transportation system. It is working to create an integrated electric vehicle (EV) mobility ecosystem with a low carbon footprint and high passenger density with an emphasis on urban transportation reform.

As a cumulative effort, many manufacturers are investing in new manufacturing plans and existing plants to cater to the increasing demand for the production of vehicles in the country. Like in July 2021, Maruti Suzuki India stated that it would invest INR 18,000 crore (USD 2.42 billion) in a new production facility in Haryana, with an annual manufacturing capacity of 7.5-10 lakh vehicles.

With increased opportunity, some factors are challenging the growth rate of the Indian automotive sector, like the new environmental safety regulations, fuel price hikes, and liquidity crunch, amongst others. Some of the most crucial issues that all automobile manufacturers are currently facing include a global shortage of semiconductors, and rising commodity prices.

By 2023, it is expected, the vehicle sector to receive USD 8-10 billion in domestic and foreign investment. However, investment firms need to overcome several economic hurdles and market uncertainties to achieve sustainable growth. To explore the avenues better, an inclusive approach, in-depth market insight, and strategic planning are necessary. This will ensure sustainability, better return of interest, and unending growth.

In the modern age-the development of the economy of any country cannot be imagined without the development of the automobile industry. In recent years, the global share of the automotive industry in the GDP structure is increasing, and the growth dynamics will create new jobs and increase the average wage. The automotive industry contributes to the expansion of the taxable base and revenues of the state budget, develops auxiliary branches, influences scientific and technical progress, testifies to the level of solvent demand and the standard of living of the population of the country, and much more. Thus, the effective functioning and development of the automotive industry are important not only economically but also socially significant for any country.