India has big plans for the future, one of which is to become the world’s biggest automobile manufacturer by 2029. Union minister Nitin Gadkari said the rise of India’s automobile sector to the numero uno position will coincide with the country’s arrival as the world’s third biggest economy by 2029.
Already, India is the world’s third largest car market, behind only China and the US. Today, the share of ‘Made in India’ cars plying globally is rising. The year 2023 was a special year for the automobile industry, as exports registered a 4 percent growth. Effectively, India’s car exports went up to 6,71,384 units in 2023.
It is this rising momentum that seems to have convinced the Narendra Modi government that the goal of turning India into the world’s biggest automobile manufacturer is well within reach.
Last week, Gadkari laid out the basic pillars on which India’s auto sector is growing. The Centre’s energies are presently focussed on building a world-class road network, shifting to alternative fuels and reducing logistics cost to boost exports.
India’s desire to emerge as a world leader in alternate and cleaner fuel is particularly noteworthy. The central government is keen to diversify away from fossil fuels, for which the annual cost of importing stands at Rs 16 lakh crore.
Gadkari said the government is working on a project with the Indian Oil Corporation in Panipat, where they are using rice straw to make ethanol and bio-bitumen. Prime Minister Narendra Modi had also called on the automobile sector to ensure that there is a made-in-India vehicle running across most of the global markets.
He also spoke about the emergence of a neo-middle class, which has just risen out of poverty and is looking to purchase vehicles to fulfil their mobility requirements. The auto sector contributes to 46 percent of manufacturing GDP and 7 percent of national GDP while providing direct employment to about 1.5 million people. Therefore, expanding this sector and making it a dominant player globally is a necessity for a country like India, which is looking to become a developed nation over the next two decades.
The prime minister did not speak about increasing India’s automobile exports around the world without good reason. The shift in global supply chains, particularly away from China, leaves India in an advantageous position. India’s auto sector could unlock $400 billion in incremental revenue by 2035 by focusing on making its exports globally competitive, as per a report released by consulting firm Arthur D Little.
The same report states that India has the potential of becoming an auto exports-led powerhouse worth $1 trillion as the world seeks a strong alternative to China. India’s auto sector, valued at $250 billion at present, is already on track to achieve $600 billion valuation by 2035.
How the numbers stack up: An indicator of India’s growing auto prowess
Indians bought a record number of vehicles last year, giving the industry much reason to celebrate. Also, the volume of luxury cars sold in India is rising. Driving growth in this segment is the youth, which encapsulates the wider trend of the country’s economy performing well and incomes rising across the board.
These are the trends driving global car manufacturers to view India as the next export hub. Last year, Toyota, Volkswagen, Hyundai, Mahindra, Tata Motors, Honda and Skoda all recorded significant jumps in exports, even as Maruti Suzuki remained the biggest brand taking Indian cars around the globe.
According to data provided by Jato Dynamics, Maruti Suzuki achieved a new milestone by exporting 2,61,700 passenger vehicles, including cars and SUVs. Similarly, Volkswagen reported a 29 percent growth in exports, while Skoda’s exports soared by 431 percent to 1,530 units last year.
2023 was also a year in which a record number of vehicles were sold domestically. As per industry estimates, about 4.5 million passenger vehicles were sold in the local market in the last calendar year, an increase of around 8.2 percent as compared to sales of 3.79 million units in 2022. Maruti Suzuki accounted for nearly 40 percent of the sales, while Hyundai Motor India sold 6,00,000 cars domestically – a record for the company.
India already has the production capacity to achieve its goal of becoming the world’s auto manufacturing hub. In 2023, the total production volume of vehicles in India was around 25.93 million units – a notable increase from the previous year. China – the world’s biggest auto manufacturer right now, produced close to 30 million vehicles last year. The gap of about 4 million is not insignificant, but it is also not unassailable for India over the next five years.
Expanding exports and the growing appetite for India’s “neo middle class” will play a crucial role in India trouncing not just China, but also the US. By the end of 2024, India’s logistics cost is estimated to reduce to about 9 percent. A corresponding one-and-a-half times rise in exports is expected as a consequence.
Keeping these figures in mind, India hopes to cover the distance over the next five years and beat China as the world’s biggest automobile manufacturer. One must not look at vehicles as a single entity.
In fact, there is a dedicated industry working behind the scenes, providing nuts and bolts to Indian car manufacturers. This is the Indian auto components industry, and it is scripting history in its own right. About 50 percent of the manufacturing GDP of India comes from the auto sector.
The share of the auto components industry in this cannot be ignored. In the 2023 fiscal, the auto components industry registered its highest-ever turnover of Rs 5.60 lakh crore ($69.7 billion), and grew 32.8 percent year-on-year.
Domestically, auto component sales to original equipment manufacturers (OEMs) grew 39.5 percent to Rs 4.76 lakh crore in the previous fiscal.
Why is India’s auto sector booming?
Automobile manufacturers are buoyed by the Centre’s performance-linked incentive (PLI) scheme, which on January 1 was extended by another year. The total outlay of the scheme has been increased to Rs 25,938 crore. The incentives as part of the scheme will now be available from FY24 to FY28, as compared to the incentives available for FY23 to FY27 under the previous tenure of the scheme.
The scheme for the auto sector has attracted a proposed investment of Rs 67,690 crore, exceeding the original target estimate of Rs 42,500 crore. The scheme has already seen Rs 13,037 crore invested and is expected to generate 1.48 lakh jobs.
The PLI scheme envisages to overcome the cost disabilities to the industry for manufacture of advanced automotive technology products in India. The incentive structure is aimed at encouraging domestic industry to make fresh investments in an indigenous global supply chain of advanced automotive technology products.
Simultaneously, the PLI scheme for advanced chemistry cell (ACC) and faster adoption of manufacturing of electric vehicles (FAME I & II) are helping India move away from traditional fossil fuel-based automobile transportation systems to environmentally cleaner, sustainable, advanced and more efficient electric vehicles.
India recorded a significant uptick in EV sales last year, with over 1.5 million units being sold – a jump of 50 percent from 2022. The overall share of EVs in India’s auto sales has risen sharply to 6.38 percent in 2023 from 1.75 percent in 2021. This is indicative of EVs finding a greater audience among India’s automobile-purchasing class. This year, the target of adding over two million EVs to the domestic market looks easily attainable.
Here is a look at the role government interventions are playing in the automobile sector:
Since its inception in 2019, FAME II has supported the sales of approximately 1.2 million electric motorcycles, 141,000 three-wheelers, and 16,991 four-wheelers through subsidies.
Experts are foreseeing an investment of Rs 94,000 crore ($12.6 billion) dedicated to the electric vehicle ecosystem over the next five years.
The Indian EV market is expected to grow at a compound annual growth rate of 49%, a trajectory which will lead to annual sales of close to 10 million units by 2030.
The government’s broad plan of making India a global manufacturing hub will remain incomplete until the full potential of the Indian automobile industry is unleashed. To that effect, commerce and industry minister Piyush Goyal in January urged the automobile industry to set a target of increasing the share of cars being exported to 50 percent of all passenger vehicles produced in the country by 2030.
In the last fiscal, that share stood at about 14 percent. The minister was quite specific in pointing out that the industry should not limit itself to achieving a mere 25 percent export share and should aim higher.
There are several factors working to India’s advantage. First, Indian regulatory norms are now almost completely in sync with global standards – the result of a sustained governmental push. Second, ‘Made in India’ vehicles are ready to use almost instantly for foreign consumers and need minimum adaptation for export markets. India’s low-cost manufacturing, arbitrage in labour costs, availability of skilled manpower and a well-developed supplier base offering carmakers a competitive cost advantage are among the other factors working to its advantage.
The future of India’s automobile looks promising. As incomes continue to rise and the economy gains further momentum, the car market stands to benefit significantly. The fact that manufacturers in India are keen to export their vehicles around the world bodes well for the vision of a Viksit Bharat, adding further muscle to the country’s goal of becoming a global manufacturing hub.
Comments
0 comment