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Automobile Industry in India

January, 2015


With the increasing growth in demand on back of rising income, expanding middle class and young population base, in addition to a large pool of skilled manpower and growing technology, will propel India to be among the world's top five auto-producers by 2015.

The automobile 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 is expected to become a major automobile manufacturing hub and the third largest market for automobiles by 2020, according to a report published by Deloitte.

India is currently the seventh-largest automobiles producer in the world with an average annual production of 17.5 million vehicles, and is on way to become the fourth largest automotive market by volume, by 2015.

Market Size

The growth story for the Indian automobile industry in 2014 rode on the two-wheeler segment. The segment has clocked positive growth at 12.9 percent year-on-year to reach sales of nearly 13.5 million units by October 2014.

India's automobile sector has also picked up pace, with eight of the country's leading manufacturers' reporting combined passenger vehicle sales of 198,427 in November 2014, a 10 per cent annual rise. The rise in sales in November 2014 was led by Maruti Suzuki, whose sales increased 17 per cent to 100,024 units in the domestic market.

The commercial vehicles (CV) industry in India has registered an increase of 8.59 per cent in September 2014, as fleet owners have started to buy trucks in the anticipation of an improved economic activity.

The automobile sector in Andhra Pradesh has a potential for US$ 1 billion investment and US$ 1.50 billion output, according to a recent analysis by Automotive Components Manufacturers’ Association of India (ACMA) and city-based Andhra Chamber of Commerce and Industry Federation (ACCIF).


To match production with demand, many auto makers have started to invest heavily in various segments in the industry in the last few months. The industry has attracted FDI worth US$ 11,351.26 million during the period April 2000 to November 2014, according to the data released by Department of Industrial Policy and Promotion (DIPP).

Some of the major investments and developments in the automobile sector in India are as follows:

  • has entered into a partnership with Hero MotoCorp Ltd to sell two-wheelers and expect its online automobile sales to generate Rs 1,000 crore (US$ 162.33 million) of business in next six to 10 months.
  • Automotive supplier Uno Minda and Japan’s Toyoda Gosei Co Ltd have announced a joint venture (JV) partnership to manufacture and sell rubber hoses to automobile makers in India. The JV will be set up with a total investment of Rs 85.3 crore (US$ 13.84 million) in a phased manner.
  • Tafe Motors and Tractors Ltd (TAFE) has invested around US$ 140 million by way of equity in the US-based AGCO Corporation, a worldwide manufacturer and distributor of agricultural equipment.
  • Flipkart founders Mr Sachin Bansal and Mr Binny Bansal have led a US$ 1 million investment in Ather, an electric vehicle start-up focused on designing high-speed electric two-wheelers.
  • Harley Davidson Motor Co. has expanded their line up in India as it has launched three new models— the Breakout, Street Glide and CVO limited edition.
  • Hero Electric is looking for merger and acquisition (M&A) options or technology tie-ups to encourage its next generation electric vehicle technology.

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.

Some of the major initiatives taken by the Government of India are:

  • The government’s decision to resolve VAT disputes has 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$ 1.86 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.
  • The government plans to come out with policies to introduce clean fuels such as biodiesel, bioethanol and electricity for public transport vehicles and school buses in big cities to tackle air pollution.
  • The Lok Sabha passed the Motor Vehicles Amendment Bill, 2014, paving the way for regularisation of e-rickshaws.
  • The government has set up National Automotive Testing and R&D Infrastructure Project (NATRiP) at a total cost of US$ 388.5 million to enable the industry to be on par with global standards.

Road Ahead

India is probably the most competitive country in the world for the automotive industry. It does not cover 100 per cent of technology or components required to make a car but it is giving a good 97 per cent, highlighted Mr Vicent Cobee, Corporate Vice-President, Nissan Motor’s Datsun.

The vision of AMP 2006-2016 sees India, “to emerge as the destination of choice in the world for design and manufacture of automobiles and auto components with output reaching a level of US$ 145 billion; accounting for more than 10 per cent of the GDP and providing additional employment to 25 million people by 2016.”

Exchange Rate Used: INR 1 = US$ 0.0162 as on January 21, 2015

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