AUTO INDUSTRY

On the canvas of the Indian economy, automotive industry occupies a prominent place. Due to its deep forward and backward linkages with several key segments of the economy, automotive industry has a strong multiplier effect and is capable of being the driver of economic growth. A sound transportation system plays a pivotal role in the country's rapid economic and industrial development. The well-developed Indian automotive industry ably fulfils this catalytic role by producing a wide variety of vehicles: passenger cars, light, medium and heavy commercial vehicles, multi-utility vehicles such as jeeps, scooters, motorcycles, mopeds, three wheelers, tractors etc.

Automotive Industry comprises of automobile and auto component sectors and is one of the key drivers of the national economy as it provides large-scale employment, having a strong multiplier effect. Being one of the largest industries in India, this industry has been witnessing impressive growth during the last two decades. It has been able to restructure itself, absorb newer technology, align itself to the global developments and realize its potential. This has significantly increased automotive industry's contribution to overall industrial growth in the country.

Growth Drivers of Indian Automobile Market

• Rising industrial and agricultural output
• Rising per capita income
• Favourable demographic distribution with rising working population and middle class
  Urbanisation
• Increasing disposable incomes in rural agri-sector
• Availability of a variety of vehicle models meeting diverse needs and preferences
• Greater affordability of vehicles
• Easy finance schemes
• Favourable government policies
• Robust production

India's Position in World's Production

• Well-developed, globally competitive auto ancillary industry
• Established automobile testing and R&D centres
• Among one of the lowest cost producers of steel in the world
• World's second largest manufacturer of two wheeler
• Fifth largest manufacturer of commercial vehicles
• Largest manufacturers of tractors in the world
• Fourth largest passenger car market in Asia
• India is the second largest two-wheeler market in the world
• 11th largest passenger car market in the world
• Expected to be the seventh largest auto industry by 2016
  

Automobile Industry

One of the major industrial sectors in India is the automobile sector. Subsequent to the liberalization, the automobile sector has been aptly described as the sunrise sector of the Indian economy as this sector has witnessed tremendous growth.

Automobile Industry was delicensed in July 1991 with the announcement of the New Industrial Policy. The passenger car industry was, however, delicensed in 1993. No industrial licence is required for setting up of any unit for manufacture of automobiles except
in some special cases. The norms for Foreign Investment and import of technology have also been progressively liberalized over the years for manufacture of vehicles including passenger cars in order to make this sector globally competitive. At present 100% Foreign Direct Investment (FDI) is permissible under automatic route in this sector including passenger car segment. The import of technology/technological upgradation on the royalty payment of 5% without any duration limit and lump sum payment of USD 2 million is also allowed under automatic route in this sector. With the gradual liberalization of the automobile sector since 1991, the number of manufacturing facilities in India has grown progressively.

The cumulative production data for April-January 2010 shows production growth of 23.07 percent over same period last year.

Domestic Sales

Passenger Vehicles segment during April-January 2010 grew at 25.21 percent over same period last year. Passenger Cars grew by 24.75 percent, Utility Vehicles grew by 21.95 percent and Multi Purpose Vehicles grew by 37.05 percent in this period.

The overall Commercial Vehicles segment registered positive growth at 30.39 percent during April-January 2010 as compared to the same period last year. Medium & Heavy Commercial Vehicles (M&HCVs) registered growth at 20.58 percent, Light Commercial Vehicles grew at 39.66 percent.

Three Wheelers sales recorded a growth rate of 25.77 percent in April-January 2010. While Passenger Carriers grew by 32.54 percent during April-January 2010, Goods Carriers grew at 4.20 percent.

Two Wheelers registered a growth of 23.74 percent during April-January 2010. Mopeds, Scooters and Motorcycles grew by 31.73 percent, 20.56 percent and 24.32 percent respectively.

Exports

During April-January 2010,overall automobile exports registered a growth rate of 13.24 percent.

Passenger Vehicles segment, Three Wheelers and Two Wheelers segments grew by 33.92 percent, 4.60 percent and 8.84 percent respectively in this period. Commercial Vehicles recorded growth of (-) 7.52 percent.

Auto Components Industry

Surge in automobile industry since the nineties has led to robust growth of the auto component sector in the country. In tandem with the industry trends, the Indian component sector has shown great advances in recent years in terms of growth, spread, absorption of new technologies and flexibility. Indian auto component industry has seen major growth with the arrival of world vehicle manufacturers from Japan, Korea, US and Europe. Today, India is emerging as one of the key auto components center in Asia and is expected to play a significant role in the global automotive supply chain in the near future. The auto component industry is also expected to drive the growth of the engineering sector in view of its strong downstream and upstream linkages with many other segments of the engineering sector like raw materials, capital goods, intermediate products etc.Auto component industry supports industries like automobiles, machine tools, steel, aluminum, rubber, plastics, electrical, electronics, forgings and machining.India has also emerged as an outsourcing hub for auto parts for international companies such as Ford, General Motors, Daimler Chrysler, Fiat, Volkswagon, and Toyota.

During the year 2008-09,the turnover and export for auto component industry was recorded at US $ 15.85 billion and US $ 3.11 billion respectively.

Policy Initiatives

Auto Policy

Vision

To establish a globally competitive Automotive Industry in India and to double its contribution to the economy by 2010.

This policy aims to promote integrated, phased, enduring and self-sustained growth of the Indian automotive industry. The objectives are to:-

(i) Exalt the sector as a lever of industrial growth and employment and to achieve a high degree of value addition in the country;

(ii) Promote a globally competitive automotive industry and emerge as a global source for auto components;

(iii) Establish an international hub for manufacturing small, affordable passenger cars and a key center for manufacturing Tractors and Two-wheelers in the world;

(iv) Ensure a balanced transition to open trade at a minimal risk to the Indian economy and local industry;

(v) Conduce incessant modernization of the industry and facilitate indigenous design, research and development;

(vi) Steer India's software industry into automotive technology;

(vii) Assist development of vehicles propelled by alternate energy sources;

(viii) Development of domestic safety and environmental standards at par with international standards.

Full text of the policy

Automotive Mission Plan 2016

To accelerate and sustain growth in the automotive sector and to steer,co-ordinate and synergise the efforts of all stakeholders,Automotive Mission Plan (AMP) 2006-2016 has been prepared in order to make India a global automotive hub.

The Automotive Mission Plan (AMP) 2006-2016,aims at doubling the contribution of automotive sector in GDP by taking the turnover to USD 145 billion and providing additional employment to 25 million people by 2016 with special emphasis on export of small cars,MUVs,two and three wheelers and auto components.

Full text of the policy

Foreign Direct Investment

• Automatic approval for foreign equity investment upto 100 per cent of manufacture of automobiles and component is permitted.
• The automobile industry is delicensed.
• Import of components is freely allowed.

Major Automotive Players in India

MUVs: Multi utility vehicles;
MPVs: Multi purpose vehicles;
LCV: Light commercial vehicles;
M&HCVs: Medium and heavy commercial vehicles

Useful Web Links

• Society for Indian Automobile Manufacturers
• Department of Heavy Industries
• Automotive Component Manufacturers Association of India