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July, 2011

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.