Domestic Automobile production increased at 2.36% CAGR between FY16-20 with 26.36 million vehicles being manufactured in the country in FY20. Overall, domestic automobiles sales increased at 1.29% CAGR between FY16-FY20 with 21.55 million vehicles being sold in FY20.
Two-wheelers and passenger vehicles dominate the domestic Indian auto market. Passenger car sales are dominated by small and mid-sized cars. Two-wheelers and passenger cars accounted for 80.8% and 12.9% market share, respectively, accounting for a combined sale of over 20.1 million vehicles in FY20. Two-wheeler sales stood at 1,195,445 units in March 2021, compared with 1,846,613 units in March 2020, recording a decline of 35.26 %.
Passenger vehicle (PV) sales stood at 279,745 units in March 2021, compared with 2,17,879 units in March 2020, registering a growth of 28.39%.
As per the Federation of Automobile Dealers Associations (FADA), PV sales in December 2020 stood at 271,249 units, compared with 218,775 units in December 2019, registering a 23.99% growth.
Overall, automobile export reached 4.77 million vehicles in FY20, growing at a CAGR of 6.94% during FY16-FY20. Two-wheelers made up 73.9% of the vehicles exported, followed by passenger vehicles at 14.2%, three-wheelers at 10.5%, and commercial vehicles at 1.3%.
EV sales, excluding E-rickshaws, in India witnessed a growth of 20% and reached 1.56 lakh units in FY20 driven by two-wheelers. According to NITI Aayog and Rocky Mountain Institute (RMI), India’s EV finance industry is likely to reach Rs. 3.7 lakh crore (US$ 50 billion) in 2030. A report by India Energy Storage Alliance estimated that the EV market in India is likely to increase at a CAGR of 36% until 2026. In addition, a projection for the EV battery market is forecast to expand at a CAGR of 30% during the same period.
Premium motorbike sales in India recorded a seven-fold jump in domestic sales, reaching 13,982 units during April-September 2019. The luxury car market is expected to register sales of 28,000-33,000 units in 2021, up from 20,000-21,000 units sold in 2020. The entry of new manufacturers and new launches is likely to propel this market in 2021.
- The Automobile industry in India is a significant driver of macroeconomic growth and technological development.
- India is projected to be the world’s third-largest automotive market in terms of volume by 2026.
- The Automobile industry manufactured 26.36 mn vehicles including passenger vehicles, commercial vehicles, three-wheelers, two-wheelers and quadricycle in FY 2019-20.
- The Department of Heavy Industry has helped set up India’s first Machine Tool Park Park (TMPT) with a world-class facility that has been developed on 530 acres of land.
- Department of Heavy Industry entails promoting engineering industry viz. machine tools, heavy electrical, industrial machinery and auto industry and administration of 29 CPSEs and 5 autonomous organizations.
Reasons to Invest
- India is expected to emerge as the third-largest Automotive market in the world in terms of volume by 2026, followed by China and USA.
- As per the AMP 2026, the Automobile industry has a target to triple the revenues to USD 300 Bn and increase exports sevenfold to USD 80 Bn.
- India’s “Make in India” initiative has played a vital role in elevating the country’s position.
- Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles and National Electric Mobility Mission Plan (NEMMP 2020) have been initiated with an aim to support hybrid/electric vehicles market development and ecosystem.
- The International Centre for Automotive Technology (ICAT) is a top-class automotive testing, certification and R&D service provider under the support of NATRiP (National Automotive Testing and R&D Infrastructure Project), Government of India. ICAT is situated in the northern automotive hub of India in Manesar.
- BHEL has spent around INR 30 cr on R&D expenditure and filled 34 patents/copyrights.
- The Gross Value Added (GVA) in the automobile manufacturing sector witnessed an estimated growth rate of 8.1% in 2018-19.
- Ministry of Heavy Industries issued a Public Procurement (Preference to Make in India) Order, 2017 – Notifying Automobile and Automotive Components in furtherance of the order for production.
- BHEL supplied the Steam Turbine and Generator package for the project India’s first of its kind, highest rated, 700 MWe Pressurized Heavy Water Reactor.
- 09th June 2021: Production Linked Incentive (PLI) scheme, ‘NATIONAL PROGRAMME ON ADVANCED CHEMISTRY CELL (ACC) BATTERY STORAGE’ for implementation of giga-scale ACC manufacturing facilities in India.
- 14th January 2021: Elon Musk-led Tesla has registered a subsidiary company in India. To further boost investment, India plans to offer $4.6 bn in incentives to companies setting up advanced battery manufacturing facilities
- 24th November 2020: The government is planning to set up at least one electric vehicle charging kiosk at around 69 thousand Petrol Pumps across the country to induce people to go for electric mobility.
- 6th November 2020: In Electric Mobility Conference 2020, Shri Nitin Gadkari Hon’ble Minister of Road Transport and Highways & MSME, presented the aim of establishing India as a global automobile manufacturing hub in the next five years. He called Auto Industry to Reduce Costs of Electric Vehicles (EVs) for Enhancing Sales While Maintaining Quality.
- 29th September 2020: Department of Heavy Industries shared the Revised Phased Manufacturing Program for xEV parts under FAME India Scheme Phase II for information and necessary compliance by all testing agencies.
- The Automobile industry can be categorized into subsectors such as passenger vehicles, commercial vehicles, three-wheelers and two-wheelers. Two-wheelers occupy the dominant position, constituting about 80% market share and overall passenger vehicles comprise 13%.
- India is the largest manufacturer of 2W and 3W and the 4th largest manufacturers of passenger cars in the world.
- Indian Automobile Industry today is 119 bn USD industry during 2018-19.
- Automobile industry turnover constitutes 7.1% of GDP, 27% of Industrial GDP and 49% of Manufacturing GDP and provides about 37 mn direct and indirect jobs.
- The current annual sale of vehicles is about 26 mn.
- The current annual sale of vehicles of all categories is expected to reach 84.5 million by 2030.
- Category wise production Statistics (mn units) in the year 2018-19 showing world-wise ranking in manufacturing of 2W is 1st, 3W is 1st, 4W Passenger Car is 4th and Commercial Vehicles is 7th.
- By 2026, as per the Automotive Mission Plan 2016-26, the Automobile industry has the potential to contribute about 12% of total GDP and create 65 mn jobs.
FDI Policy: Under the automatic route, 100% Foreign Direct Investment (FDI) is permitted along with full delicensing. Hence, making it easy for investors to set up their manufacturing plant/shop in India. The cumulative FDI equity inflow in the Automobile industry is USD 25,848.13 mn during the period of April 2000 to March 2021. This constitutes 4.88% of the total FDI inflow received across sectors.
Fame India Scheme II Phase
- The Fame India Scheme II is proposed to be implemented over a period of 3 years with a financial outlay of INR 10,000 cr, for faster adoption of electric mobility and growth of electric and hybrid technology to improve the eco-system in the country.
- The Scheme aims to create demand by way of supporting 7000 e-Buses, 5 lakh e-3 Wheelers, 55000 e-4 Wheeler Passenger Cars and 10 lakh e-2 Wheelers.
- India is No. 2 after China in Electric Vehicles, especially Buses.
- Department of Heavy Industries (DHI) is the nodal Department, responsible for planning, implementation and review of the scheme.
- Under the 2nd Tranche of FAME India Scheme Phase-II, the incentive for INR 15.4 cr was released to the city of Navi Mumbai for the deployment of 70 electric buses.
Automotive Mission Plan 2016-26 (AMP 2026)
- The Automotive Mission Plan 2016-26 (AMP 2026) outlines the trajectory of growth of the automotive ecosystem in India, including the glide path of definite regulations and policies that govern research, design, technology, testing, manufacturing, import/ export, sale, use, repair, and recycling of automotive vehicles, components and services.
- The Automobile industry is projected to be the third-largest in the world, contributing 12% to GDP.
- The industry has the potential to generate USD 300 Bn revenue and 65 mn additional jobs by 2026.
- The Automobile industry is one of the prime movers of the manufacturing sector and the “Make in India” initiative. It aims to increase exports of vehicles by five times.
- The plan also foresees India to be the first in the world in the production/sale of small cars, two-wheelers, three-wheelers, tractors and buses; and third in passenger vehicles and heavy trucks.
Draft National Automotive Policy 2018
- Department of Heavy Industries formulated a draft National Automotive Policy, for the holistic development of the Automobile industry in India.
- The policy estimates to scale up exports to 35-40% of the overall output and makes India one of the major automotive export hubs in the world. Thus, the following propositions are made in the policy:
- Adopt a long-term roadmap for emission standards beyond BSVI and complement the same with the global standards by 2028.
- Rollout CAFÉ (Corporate Average Fuel Efficiency) norms till 2025.
- Adoption of a differential taxation method based on a composite criterion, including parameters such as CO2 emissions and length.
- Associate AIS and BIS standards on safety-critical parts over the next 3 years.
- Fast track adoption of Bharat New Vehicle Safety Assessment Program.
National Automotive Testing and R&D Infrastructure Project (NATRIP)
- The project has been set up at a total cost of USD 573 Mn to enable the industry to adopt and implement global performance standards.
- It aims at converting India’s unparalleled strengths in IT and electronics with the automotive engineering sectors.
- The main area of focus is on providing low-cost manufacturing and product development solutions.
- Ministry of Heavy Industries & Public Enterprises has constituted NATRIP Implementation Society (NATIS), an autonomous body, for the execution of NATRIP.
- As a part of the program, 7 test centres have been finalized to set up the test facilities – iCAT, GARC, NATRAX, ARAI, VRDE, NIAIMT, NCVRS.
National Electric Mobility Mission Plan 2020 (NEMMP)
- The NEMMP initiative has been taken up to encourage consistent, affordable and competent xEVs (hybrid and electric vehicles) that meet consumer performance and price expectations through government-industry collaboration.
- Promotion and development of indigenous manufacturing capabilities, required infrastructure, consumer awareness and technology are additional objectives of NEMMP 2020.
- policies aimed at gradually ensuring a vehicle population of about 6-7 mn electric/hybrid vehicles in India by the year 2020 along with a certain level of indigenisation of technology, thereby ensuring India’s global leadership in some vehicle segments.
Production Linked Incentive (PLI) Scheme: Hon’ble Prime Minister, Shri Narendra Modi has given its approval to introduce the Production-Linked Incentive (PLI) Scheme in the Automobile and Automobile Components Sector through the Department of Heavy Industries of with a financial outlay of INR 57,042 cr over a five-year period for Enhancing India’s Manufacturing Capabilities and Enhancing Exports – Atmanirbhar Bharat. Two key products are Automobile and Automobile Components.
R&D Incentives for Industry and Private Sponsored Research: A weighted tax deduction is given under section 35 (2AA) of the Income Tax Act. A weighted deduction of 200% is granted to assess for any sums paid to a national laboratory, university, or technological institute. The said sum is used for scientific research within a program approved by the prescribed authority.
Manufacturers with In-house R&D Centre: Section 35 (2AB) of the Income Tax Act 26, 1961 provides a weighted tax deduction of 150% of the expenditure incurred by a specified company, on scientific research in the in-house R&D centers as approved by the prescribed authority. This does not include expenditure on the cost of any land or building. The weighted tax deductions of 150% are effective until 31 March 2020. Consequently, the weighted tax deductions will be 100%.
- Under the Merchandise Export Incentive Scheme (MEIS), automobile manufacturers get a benefit of 2% on vehicle exports.
- About 20 tariff headings have been considered as “Sensitive items” to be maintained in the negative list of India in most of the trade agreements
Area Based Incentives: Incentives for units in SEZ/NIMZ as specified in respective acts or the setting up of projects in special areas like the Northeast, Jammu & Kashmir, Himachal Pradesh, and Uttarakhand.
BMW (Germany), Borgward Automotive India Private Limited (Germany), Daimler India Commercial Vehicles Pvt Ltd (Germany), FIAT (Italy), Ford (USA), General Motors (USA), Honda (Japan), Hyundai (South Korea), Kia Motors (South Korea), Mercedes (Germany), Nissan (Japan), Piaggio (Italy), Renault (France), Sumitomo Corporation (Japan), Suzuki (Japan), Toyota (Japan), Volkswagen (Germany), Volvo (Sweden).
The automobile industry is supported by various factors such as the availability of skilled labor at low cost, robust R&D centers, and low-cost steel production. The industry also provides great opportunities for investment and direct and indirect employment to skilled and unskilled labor.
Indian automotive industry (including component manufacturing) is expected to reach Rs. 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026.
The Indian auto industry is expected to record strong growth in 2021-22, post recovering from the effects of the COVID-19 pandemic. Electric vehicles, especially two-wheelers, are likely to witness positive sales in 2021-22.