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Automobile Industry in India

September, 2016


The Indian auto industry is one of the largest in the world. The industry accounts for 7.1 per cent of the country's Gross Domestic Product (GDP). The Two Wheelers segment with 81 per cent market share is the leader of the Indian Automobile market owing to a growing middle class and a young population. Moreover, the growing interest of the companies in exploring the rural markets further aided the growth of the sector. The overall Passenger Vehicle (PV) segment has 13 per cent market share.

India is also a prominent auto exporter and has strong export growth expectations for the near future. In April-January 2016, exports of Commercial Vehicles registered a growth of 18.36 per cent over April-January 2015. In addition, several initiatives by the Government of India and the major automobile players in the Indian market are expected to make India a leader in the Two Wheeler (2W) and Four Wheeler (4W) market in the world by 2020.

Market Size

Sales of passenger vehicles increased by 16.7 per cent to 258,000 units in August 2016 driven by better-than-expected monsoon and strong buying sentiment*. Sales of commercial vehicles grew by 1.53 per cent to 52,996 units.

The two-wheeler industry also performed well. Motorcycle sales grew 22 per cent to 1 million units, while overall two-wheeler sales grew 26.3 per cent to 1.64 million units.


In order 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 has attracted Foreign Direct Investment (FDI) worth US$ 15.06 billion during the period April 2000 to March 2016, according to 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:

  • Jaguar Land Rover, the UK-based automotive company, plans to manufacture Land Rover SUV for the local market and as well as for export, most probably at its plant in Pune.
  • Italian automobile manufacturer Fiat has announced its plans to start local production at Ranjangoan plant in Pune from the second quarter of next year at the launch of its two sports utility vehicles (SUVs), namely Jeep Wrangler and Grand Cherokee.
  • MV Agusta, the Italy-based premium motorcycle manufacturer, has entered India through an exclusive partnership with Pune-based Kinetic group with the launch of three luxury bikes, which will be sold through the ‘Motoroyale’ chain in Pune.
  • Sweden-based electric vehicle maker Clean Motion plans to invest US$ 10 million in India over the next three years in order to expand operations including setting up of an assembly unit for its Zbee three-wheelers in the country.
  • Isuzu Motors, the Japan-based utility vehicle manufacturer, has inaugurated its greenfield manufacturing unit in SriCity, Andhra Pradesh, at a cost of fcRs 3,000 crore (US$ 450.94 million).
  • Japanese two-wheeler manufacturer Honda Motorcycle and Scooter India (HMSI) has opened its fourth and world’s largest scooter plant in Gujarat, set up to initially produce 600,000 scooters per annum to be scaled up to 1.2 million scooters per annum by mid-2016.
  • American car maker Ford has unveiled its iconic Ford Mustang in India and will make its debut in second quarter of FY2016 within the price band of Rs 45 lakh (US$ 66,146) and Rs 50 lakh (US$ 73,496) in the Indian market.
  • Nissan Motor Co. Ltd is in discussion with Government of India to bring electric and hybrid technologies to India as the government plans to reduce air pollution caused by vehicles.
  • Global auto major Ford plans to manufacture in India two families of engines by 2017, a 2.2 litre diesel engine codenamed Panther, and a 1.2 litre petrol engine codenamed Dragon, which are expected to power 270,000 Ford vehicles globally.
  • The world’s largest air bag suppliers Autoliv Inc, Takata Corp, TRW Automotive Inc and Toyoda Gosei Co are setting up plants and increasing capacity in India.
  • General Motors plans to invest US$ 1 billion in India by 2020, mainly to increase the capacity at the Talegaon plant in Maharashtra from 130,000 units a year to 220,000 by 2025.
  • US-based car maker Chrysler has planned to invest Rs 3,500 crore (US$ 513.5 million) in Maharashtra, to manufacture Jeep Grand Cherokee model.
  • Mercedes Benz has decided to manufacture the GLA entry SUV in India. The company has doubled its India assembly capacity to 20,000 units per annum.
  • Germany-based luxury car maker Bayerische Motoren Werke AG’s (BMW) local unit has announced to procure components from seven India-based auto parts makers.
  • Mahindra Two Wheelers Limited (MTWL) acquired 51 per cent shares in France-based Peugeot Motorcycles (PMTC).

Government Initiatives

The Government of India encourages foreign investment in the automobile sector and allows 100 per cent FDI under the automatic route.

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

  • Mr Nitin Gadkari, Minister of Road Transport, Highways & Shipping has announced plans to set up a separate independent Department for Transport, comprising of experts from the automobile sector to resolve issues such as those related to fuel technology, motor body specifications and fuel emissions, apart from exports.
  • Government of India aims to make automobiles manufacturing the main driver of ‘Make in India’ initiative, as it expects passenger vehicles market to triple to 9.4 million units by 2026, as highlighted in the Auto Mission Plan (AMP) 2016-26.
  • In the Union budget of 2015-16, the Government has announced to provide credit of Rs 850,000 crore (US$ 124.71 billion) to farmers, which is expected to boost the tractors segment sales.
  • The Government plans to promote eco-friendly cars in the country i.e. CNG based vehicle, hybrid vehicle, and electric vehicle and also made mandatory of 5 per cent ethanol blending in petrol.
  • The government has formulated a Scheme for Faster Adoption and Manufacturing of Electric and Hybrid Vehicles in India, under the National Electric Mobility Mission 2020 to encourage the progressive induction of reliable, affordable and efficient electric and hybrid vehicles in the country.
  • The Automobile Mission Plan (AMP) 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.

Road Ahead

India’s automotive industry is one of the most competitive in the world. 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, as highlighted by Mr Vicent Cobee, Corporate Vice-President, Nissan Motor’s Datsun.

Leading auto maker Maruti Suzuki expects Indian passenger car market to reach four million units by 2020, up from 1.97 million units in 2014-15.

The Indian automotive sector has the potential to generate up to US$ 300 billion in annual revenue by 2026, create 65 million additional jobs and contribute over 12 per cent to India’s Gross Domestic Product#.

Exchange Rate Used: INR 1 = US$ 0.0149 as on September 27, 2016

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 2015-16, Union Budget 2016-17

Notes: * - According to a report by the Society of Indian Automobile Manufacturers (SIAM), # - As per the Automotive Mission Plan 2016-26 prepared jointly by the Society of Indian Automobile Manufacturers (SIAM) and government