Automobile
The automobile industry in India is expected to be the world's third largest by 2026.

Automobile Industry in India

Latest update: September, 2018

  • The automotive manufacturing industry comprises the production of commercial vehicles, passenger cars, three & two-wheelers.
  • Two-wheelers are by far the most popular form of vehicle in India, taking an 80 per cent share in 2015-16. India became the largest two-wheeler market in the world after selling 17.7 million two-wheelers in 2016.
  • 25.3 million automobiles produced in FY17.
  • Total production volume grew at a CAGR of 4.43 per cent during FY12-17.
  • Automobile exports from India increased 15.81 per cent year-on-year in April-February 2017-18. During the same period, two and three-wheelers exports increased 20.30 per cent and 37.02 per cent, respectively.

Note: FY18* - up to February 2018
Source: Society of Indian Automobile Manufacturers (SIAM)



Source: World Wealth Report (2011) of Merrill Lynch Wealth Management and Capgemini, Aranca Research, media sources

Last Updated: September, 2018

Introduction

The Indian auto industry became the 4th largest in the world with sales increasing 9.5 per cent year-on-year to 4.02 million units (excluding two wheelers) in 2017. It was the 7th largest manufacturer of commercial vehicles in 2017.

The Two Wheelers segment dominates the market in terms of volume 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.

India is also a prominent auto exporter and has strong export growth expectations for the near future. Automobile exports grew 26.56 per cent during April-July 2018. It is expected to grow at a CAGR of 3.05 per cent during 2016-2026. 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 and four wheeler market in the world by 2020.

Market Size

Domestic automobile production increased at 7.08 per cent CAGR between FY13-18 with 29.07 million vehicles manufactured in the country in FY18. During April-July 2018, automobile production increased 16.69 per cent year-on-year to reach 10.88 million vehicle units.

Overall domestic automobiles sales increased at 7.01 per cent CAGR between FY13-18 with 24.97 million vehicles getting sold in FY18. Auto sales in July 2018 witnessed a year-on-year growth rate of 7.9 per cent across segments, driven by 46.24 per cent growth in three-wheeler sales in terms of percentage.

Premium motorbike sales in India crossed one million units in FY18. Two leading luxury car manufacturers, BMW and Mercedes-Benz, recorded their best-ever half yearly sales in India during January-June 2018. Sales of BMW grew 13 per cent year-on-year to 5,171 units and sales of Mercedes-Benz grew 12.4 per cent year-on-year to 7,171 units.

Sales of electric two-wheelers are estimated to have crossed 55,000 vehicles in 2017-18.

Investments

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$ 19.29 billion during the period April 2000 to June 2018, according to data released by Department of Industrial Policy and Promotion (DIPP).

Some of the recent/planned investments and developments in the automobile sector in India are as follows:

  • Ashok Leyland has planned a capital expenditure of Rs 1,000 crore (US$ 155.20 million) to launch 20-25 new models across various commercial vehicle categories in 2018-19.
  • Mahindra & Mahindra (M & M) is planning to make an additional investment of Rs 500 crore (US$ 77.23 million) for expanding the capacity for electric vehicles in its plant in Chakan.
  • Hyundai is planning to invest US$ 1 billion in India by 2020. SAIC Motor has also announced to invest US$ 310 million in India.
  • Mercedes Benz has increased the manufacturing capacity of its Chakan Plant to 20,000 units per year, highest for any luxury car manufacturing in India.

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 recent initiatives taken by the Government of India are -

  • The government aims to develop India as a global manufacturing centre and an R&D hub.
  • Under NATRiP, the Government of India is planning to set up R&D centres at a total cost of US$ 388.5 million to enable the industry to be on par with global standards
  • The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the country for introduction of electric vehicles (EVs) in their public transport systems under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India) scheme. The government will also set up incubation centre for start-ups working in electric vehicles space.

Achievements

Following are the achievements of the government in the past four years:

  • Number of vehicles supported under FAME scheme increased from 5,197 in June 2015 to 192,451 in March 2018. During 2017-18, 47,912 two-wheelers, 2,202 three-wheelers, 185 four-wheelers and 10 light commercial vehicles were supported under FAME scheme.
  • Under National Automotive Testing And R&D Infrastructure Project (NATRIP), following testing and research centres have been established in the country since 2015
    • International Centre for Automotive Technology (ICAT), Manesar
    • National Institute for Automotive Inspection, Maintenance & Training (NIAIMT), Silchar
    • National Automotive Testing Tracks (NATRAX), Indore
    • Automotive Research Association of India (ARAI), Pune
    • Global Automotive Research Centre (GARC), Chennai
  • SAMARTH  Udyog – Industry 4.0 centres:  ‘Demo cum experience’ centres are being set up in the country for promoting smart and advanced manufacturing helping SMEs to implement Industry 4.0 (automation and data exchange in manufacturing technology).

Road Ahead

The automobile industry is supported by various factors such as availability of skilled labour at low cost, robust R&D centres and low cost steel production. The industry also provides great opportunities for investment and direct and indirect employment to skilled and unskilled labour.

Indian automotive industry (including component manufacturing) is expected to reach Rs 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026. Two-wheelers are expected to grow 9 per cent in 2018.

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 2017-18

Note: * - Upto July 2018

Exchange Rate Used: INR 1 = US$ 0.015 as of March 1, 2018

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

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