Introduction

The Indian automobile sector is one of its most vibrant industries. The industry
accounts for 22 per cent of the country's manufacturing gross domestic product
(GDP). It comprises passenger cars, two-wheelers, three-wheelers and commercial
vehicles and is currently the seventh-largest in the world with an average annual
production of 17.5 million vehicles, of which 2.3 million are exported. The Indian
auto market has the potential to dominate the global auto industry, provided a
conducive environment is created for potential innovators to come up with new
pilot projects.
The next few years are projected to show solid but cautious growth due to
improved affordability, rising incomes and untapped markets. All these open up an
opportunity for automobile manufactures in India. In addition, with the
government's backing and a special focus on exports of small cars, multi-utility
vehicles (MUVs), two and three-wheelers and auto components, the automotive
sector's contribution to the GDP is expected to double, reaching a turnover of US$
145 billion in 2016, according to the Automotive Mission Plan (AMP) 2006-2016.
Market size
The automobile industry produced a total of 1,861,849 vehicles including
passenger vehicles, commercial vehicles, three-wheelers and two-wheelers in April
2014 as against 1,687,243 in April 2013, registering a growth of 10.35 percent over
the corresponding month of 2013. The growth is mostly attributed to the rise in
two-wheeler production.
Two-wheeler sales registered growth of 11.67 percent in April 2014 over April
2013. Within this segment, scooters, motorcycles and mopeds grew by 26.08
percent, 8.06 percent and 0.23 percent respectively.
In April 2014, passenger car sales stood at 1,786,899 units while utility vehicles
sales stood at 525,942 units, as per data from Society of Indian Mobile
Manufacturers (SIAM). Export of utility vehicles showed an improvement of 298
percent with 41,550 units.
Tractor sales in the country will grow at a compound annual growth rate (CAGR)
of 8-9 per cent in the next five years making India a high-potential market for
international brands such as Kubota, Case New Holland, AGCO, Same Deutz Fahr
and John Deere, according to JD Power Asia Pacific's maiden pilot study on the
Indian tractor market.
The cumulative foreign direct investment (FDI) inflows into the Indian automobile
industry during the period April 2000 -May 2014 was recorded at US$ 9,885.21
million, according to data published by Department of Industrial Policy and
Promotion (DIPP).
Investments
Some of the recent major investments in the automobile industry in India are as
follows:
BMW Group has launched the third generation of its sports utility vehicle
(SUV), the X5 xDrive30d, which will be Rs 1 million (US$ 16,635.94)
cheaper than the previous version, as the model will now be assembled at the
company's Chennai plant rather than being imported fully assembled.
Japan's Isuzu Motors aims to sell 50,000 pickup vehicles in India in the next
few years to gain market leadership. The company, which has a fully owned
subsidiary in Chennai, has earmarked Rs 3,000 crore (US$ 499.07 million)
for a 120,000 units per year manufacturing facility.
Mercedez-Benz India has inaugurated South India's first AMG Performance
Centre at Sundaram Motors in Bengaluru and has also launched the ML 63
AMG for the Indian market. Mercedes-AMG aims to offer a more
personalised service to its customers and further bolster its powerful luxury
SUV product portfolio in India.
VE Commercial Vehicle, a joint venture (JV) between Eicher Ltd and
Volvo, is exploring the possibility of entering the small commercial vehicle
segment with a range of mini trucks. With this move, they plan to enter the
market with bigger rivals such as Tata Motors, Mahindra and Mahindra and
Ashok Leyland.
Fiat plans to launch 12 models based on three platforms, double its
workforce to 5,000 and increase capacity by 80 per cent at its Ranjangaon
plant by 2018.
Mahindra & Mahindra (M&M) has inaugurated a factory and a research
centre for electric two-wheelers in Ann Arbor, Michigan, US. With an initial
capacity to produce 9,000 vehicles annually, the plant will assemble its first
electric two-wheeler later this year.
Government Initiatives
SIAM and the Automotive Component Manufacturers Association of India
(ACMA) are two apex bodies appointed by the Government of India to work for
the development of the automobile industry in India.
India has a well-established Regulatory Framework under the Ministry of
Shipping, Road Transport and Highways in which SIAM plays an important role.
Also, ACMA's active involvement in trade promotion, upgrade in technology,
quality enhancement and collection and dissemination of information has made the
body a vital catalyst for the industry's development.
The Indian government encourages foreign investment in the automobile sector
and allows 100 per cent FDI under the automatic route. It is a fully delicensed
industry and free imports of automotive components are allowed. Moreover, the
government has not laid down any minimum investment criteria for the automobile
industry and has formulated the Automotive Mission Plan for the period 2006-
2016 which aims to accelerate and sustain growth in this sector. The plan also aims
to double the contribution of the automotive sector to the country's GDP by taking
its turnover to US$ 145 billion and providing additional employment to 25 million
people by 2016.
Road Ahead
Faster economic growth coupled with the government's policies is likely to drive
volumes and revive the Indian automobile sector. A fall in interest rates and stable
fuel prices are expected to create an environment conducive for growth in this
industry. Many foreign companies have alsostarted to show their presence in India
leading to a very competitive automobile market in the country, which augurs well
for the sector's growth.
It has been predicted by IHS Automotive, a global market information provider
that India will become the third largest automotive market in the world by 2016
ahead of Japan, Germany and Brazil, riding on its domestic automotive sales.
Exchange Rate Used: INR 1 = US$ 0.0166 as on July25, 2014
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