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Auto sector may generate $300 billion revenue by 2026, create 65 million jobs

Economic Times:  September, 2015

New Delhi: The automotive sector is expected to generate up to $300 billion in annual revenue by 2026, contributing over 12 per cent to the nation's gross domestic product and creating 65 million more jobs, shows a document prepared jointly by the industry and government.

The Automotive Mission Plan 2016-26 seeks to make the automotive industry the engine of the 'Make in India' initiative. It was unveiled on Wednesday amid concerns that high taxes and the absence of key reforms like the goods and service tax in a sluggish economy could prove to be major impediments to growth.

Nevertheless, the document projects India's automotive industry to grow to over 70 million units a year by 2026, taking it into the league of China and the US. The AMP is aimed at mapping the progress of the country's automobile industry and setting its goals over the next decade. Around 23 million vehicles were produced in India in the year ended on March 31, 2015. The industry is estimated to be worth $74 billion now. "I think a little too ambitious, if we look at the current infrastructure situation," Rakesh Batra of Ernst & Young said, referring to the targets.

The second Automotive Mission Plan unveiled by the Society of Indian Automotive Manufactures has targets for various segments of the industry, in terms of size and contribution to the economy. The first vision document was for the period 2006-2016. "The biggest challenge (to achieve the aim) is going to be of infrastructure. In India, the second biggest cost that we have to bear is in logistics and transportation, which is about 15 per cent," said Ravindra Pisharody, executive director, commercial vehicles, at Tata Motors. "However, the projection made is quite achievable."

According to SIAM, the industry has been able to achieve the larger targets of the first edition of the AMP. The key achievements are investments in excess of Rs 1,60,000 crore and creation of jobs - the target is 35 million by the end of 2016. Besides, the industry is on course to hit the base-case target of Rs 5,49,000 crore revenue. Speaking at SIAM's annual convention in New Delhi, its president, Vikram Kirloskar, highlighted the potential of the industry, but also the risks it is facing.

"There are speed breakers in the form of slow government policies with no clear roadmap on GST and high taxes imposed on the auto industry ... the cumulative burden of taxes to customers on cars goes up to 84 per cent, making the industry highly uncompetitive," he said.

Others raised concerns over delayed reforms. Mahindra & Mahindra Executive Director Pawan Goenka said political stalemate was pushing several initiatives and this could derail economic recovery. Hero MotoCorp Chairman Pawan Munjal said: "We hope the government policy frame should improve in tune with time as we move ahead and is move in the right direction in the long-term with key reforms being addressed at the earliest."

To achieve the new targets, the government must deliver on its promises, such as on ease of doing business, said YS Guleria, senior vice president for sales and marketing at Honda Motorcycle and Scooter India.