The automotive industry in India is one of the key contributors to the economic growth of the country. India is predicted to become 3rd largest automotive market by 2030. India’s annual production of automobile including tractor, bus, heavy-truck, passenger vehicles, three-wheelers, two-wheelers, and quadri-cycles was 22.93 million vehicles in FY22. The automotive industry is accounted for 6.4% of total GDP and 35% of its manufacturing GDP. With the high growth of Indian automotive industry now the target for export has increased by five times during year 2016-26 and during FY22 the export by automotive industry was recorded 5,617,246 units (IBEF.org, 2023).
Indian automotive industry is highly responsible for creating employment supporting a large pool of skilled people. India's ability to produce all kinds of automobiles at a large scale has been the pillar of its growth and innovation. Yet, the infrastructure for automotive is needed to be improved for rapid growth in future allowing conducting of custom research on market trends, innovation, technology and customer preferences in the automotive industry.
Growth and Innovation in Indian Automotive Industry
There are many big Indian automotive brands along with brands all around the world that are seeing India as a land of opportunity for growth and innovation in the industry.
Key points to support this statement are-
Government Schemes and Grants
The Indian government has been working to encourage and increase the growth of the automotive industry by supporting it through various grants and schemes.
• Indian Government issued a notification for a PLI (Production Linkage Incentive) scheme supporting automotive worth US$ 3.49 million in September 2021.
• Indian Government has issued SOP for the PLI-AUTO scheme to propose a domestic boost to the automotive industry through AAT (advanced automotive technology) on April 2023.
• Indian Government supports FDI (foreign direct investment) in the automotive industry and has allowed 100% FDI for automatic vehicles.
Ability to Adopt the Latest Technology
Michael Perschke, CEO of Quantron AG has said India is a hub to source brain power because they have a big pool of skilled people and huge potential to develop large infrastructure. Both factors help India to adopt the latest technology quicker than ever.
• India is predicted to be a leader in shared mobility by 2030, providing opportunities for electric and autonomous vehicles.
• The EV vehicle market in India is predicted to reach US$ 7.09 billion by 2025.
• Automotive brands like Hyundai, MG Motors, TVS Motor Company and BMW Motorrad are investing in India for EV vehicle production.
• Minus Zero, a Bengaluru-based AI startup introduced zPod, India's first auto-driving car in June 2023 aiming to compete with Google Waymo and Tesla.
Local and Global Investments
The growing demand for automobiles globally has attracted many automakers to invest in the Indian automotive industry. India has gained FDI worth US$ 33.77 billion during 2000-2022.
• MG Motor India to invest US$ 100 million to expand capacity for 70% growth in 2023.
• Mahindra & Mahindra has invested approx. US$ 1.2 billion for an EV manufacturing plant in Pune in November 2022.
• In November 2022, Maruti Suzuki India announced an investment worth US$ 865.12 million for different projects and facilities.
• Hero MotoCorp invested US$ 60 million in California-based Zero Motorcycles to develop EV motorcycles in September 2022.
• Skoda Auto Volkswagen India has started custom research for their next phase of investment in India after rolling out its India 2.0 strategic plan.
Though industry is fast moving and highly growing still there are some barriers which are needed to resolve for the further growth of the industry such as-
• Oligopoly Industry- Automotive industry in India is oligopoly where market entry is tough due to high infrastructure building cost and competitor sells vehicle at almost similar prices at low margin.
• Shortage of Raw Materials- India is dependent on many other countries like China, Japan and Korea for the raw materials for automotive industry which increase production cost.
• Tax Policies- Import taxes in India is very high for automotive industry where vehicles with landed cost under $40,000 is taxed at 70%. Tax slab on the vehicle is also very confusing different GST rates are applicable at different kind of vehicles divided in different sub-categories.
Since the Indian automotive industry is getting support from the government as well as attracting investments from local and global automotive brands, the industry should start focusing on collaborating with the latest technology to increase production, efficiency and profitability while supporting environmental sustainability. Though there are some challenges as well in the industry. The road to success is long which opens the door for multiple custom research and development in the industry.