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Automobile Industry in India

October, 2014


The automobile industry is one of India’s most vibrant and growing industries. This industry accounts for 22 per cent of the country's manufacturing gross domestic product (GDP). The auto sector is one of the biggest job creators, both directly and indirectly. It is estimated that every job created in an auto company leads to three to five indirect ancillary jobs.

India's domestic market and its growth potential have been a big attraction for many global automakers. India is presently the world's third largest exporter of two-wheelers after China and Japan. According to a report by Standard Chartered Bank, India is likely to overtake Thailand in global auto-export market share by the year 2020.

The next few years are projected to show solid but cautious growth due to improved affordability, rising incomes and untapped markets. With the government’s backing, and trends in the international scenario such as the decline in prices of natural rubber, the Indian automobile industry is slated to witness some major growth.

Market size

The cumulative foreign direct investment (FDI) inflows into the Indian automobile industry during the period April 2000 – August 2014 was recorded at US$ 10,119.68 million, as per data by Department of Industrial Policy and Promotion (DIPP).

Data from industry body Society of Indian Automobile Manufacturers (SIAM) showed that 137,873 passenger cars were sold in July 2014 compared to 131,257 units during the corresponding month of 2013. Among the auto makers, Maruti Suzuki, Hyundai Motor India and Honda Cars India emerged the top three gainers with sales growth of 15.45 per cent, 12 per cent and 11 per cent, respectively.

The three-wheeler segment posted a 24 per cent growth to 51,461 units on the back of increased demands from the urban market. Total sales across different vehicle segments grew 12 per cent year on year (y-o-y) to 1,586,123 units.

Scooter sales have jumped by 29 per cent in the ongoing fiscal, and now form 27 per cent of the total two-wheeler market from just 8 per cent a decade back. The ever-rising demand for scooters, which has far outstripped supply has prompted Honda to set up its first dedicated scooter plant in Ahmedabad.

Tractor sales in the country is expected to grow at a compound annual growth rate (CAGR) of 8–9 per cent in the next five years making India a high-potential market for many international brands.


To match production with demand, many auto makers have started to invest heavily in various segments in the industry in the last few months. Some of the major investments and developments in the automobile sector in India are as follows:

  • Ashok Leyland plans to invest Rs 450–500 crore (US$ 73.54–81.71 million) in India, by way of capital expenditure (capex) and investment during FY15. The company is required to manage Rs 6,000 crore (US$ 980.56 million) of assets in seven locations across the world, for which maintenance capex is needed.
  • Honda Motors plans to set up the world's largest scooter plant in Gujarat to roll out 1.2 million units annually and achieve leadership position in the Indian two-wheeler market. The company plans to spend around Rs 1,100 crore (US$ 179.76 million) on the new plant in Ahmedabad, and expand its range with a few more offerings.
  • Yamaha Motor Co has restructured its business in India. Now, Yamaha Motor India (YMI) will take care of its India operations. “The restructuring is part of Yamaha’s mid-term plan aimed at improving organisational efficiency,” as per Mr Hiroyuki Suzuki, Chief Executive and Managing Director. YMI would be responsible for corporate planning and strategy, business planning and business expansion, quality control, and regional control of Yamaha India Business.
  • Tata Motors plans to use the 'hub-and-spoke' model in which India will be the key manufacturing base while it will have mini-hubs in overseas markets. The company also plans to set up mini hubs in potential markets like Africa, Middle-East and South East Asia.
  • Hero Cycles through its unit OPM Global has acquired a majority stake in German bicycle company Mitteldeutsche Fahrradwerke AG (MIFA) for €15 million (US$ 19.11 million). The company plans to invest an additional €4 million (US$ 5.09 million) as capital expenses in restructuring the acquired company.

Government Initiatives

The Government of India encourages foreign investment in the automobile sector and allows 100 per cent FDI under the automatic route. To boost manufacturing, the government had lowered excise duty on small cars, motorcycles, scooters and commercial vehicles to eight per cent from 12 per cent, on sports utility vehicles to 24 per cent from 30 per cent, on mid-segment cars to 20 per cent from 24 per cent and on large-segment cars to 24 per cent from 27 per cent.

The government’s decision to resolve VAT disputes has also resulted in the top Indian auto makers namely, Volkswagen, Bajaj Auto, Mahindra & Mahindra and Tata Motors announcing an investment of around Rs 11,500 crore (US$ 1.87 billion) in Maharashtra.

The Automobile Mission Plan for the period 2006–2016, designed by the government is aimed at accelerating and sustaining growth in this sector. Also, the well-established Regulatory Framework under the Ministry of Shipping, Road Transport and Highways, plays a part in providing a boost to this sector.

The Government of India-appointed SIAM and Automotive Components Manufacturers Association (ACMA) are responsible in working for the development of the Indian automobile industry.

Road Ahead

The future of the auto industry depends on the positive sentiments and the demand for vehicles in the market. With the festival season coming up, the Indian auto sector will see a rise in demand which is expected to bring in major growth. An auto dealer survey by firm UBS suggested that the Indian auto industry, riding on trends like the upcoming festival season and decline in fuel price, will observe a 12 per cent y-o-y growth in FY15.

Also, keeping up with international trends, there is expected to be a surge in the number of hybrid vehicles in the Indian auto sector in the years to come.

Exchange Rate Used: INR 1 = US$ 0.0163 as on October 28, 2014

References: Media Reports, Press Releases, Department of Industrial Policy and Promotion (DIPP), Automotive Component Manufacturers Association of India (ACMA), Society of Indian Automobile Manufacturers (SIAM), Union Budget 2014-15