ANVESAK

ISSN : 0378 – 4568 UGC Care Group 1 Journal

INDIAN AUTOMOBILE INDUSTRY; THE PUSH AND PULL FACTOR OF THE
INDUSTRIAL SECTOR. AN ANALYTICAL STUDY

Dr.Shaju M J Associate Professor Department of Economics Baselius College, Kottayam

Arun Mathew Assistant Professor on Contract Department of Economics B A M College,
Thuruthicad

The automobile industry is a vital player in India's vision to become a USD 5 trillion
economy. "The Automotive Mission Plan of the government looks to increase the contribution of the
automobile sector to India's GDP to 12 per cent from the present 7.1 per cent and grow employment
generation to 50 million from the current 37 million.
The annual turnover of the industry is Rs 7.5 lakh crores and export of Rs 3.5 lakh crores.
The Indian automobile industry is one of the biggest markets in the world, both in terms of
usages of vehicles and production of the vehicles. Speaking of the historical roots of the automobile
market in India, the first time a vehicle entered the road was in 1897. In 1942, Birlas formed
Hindustan Motors Limited in Calcutta with a capital of about Rs. 5 crores in collaboration with
Studebaker Corporation of U.S.A. In 1944, Seth Walchand formed Premier Automobiles Limited in
Bombay with capital of around Rs. 2 crores. In 1942, Hindustan Motors Ltd. decided to assemble
cars and trucks at Calcutta. Initially fully assembled automobiles were imported. In 1948-49, they
started assembling these vehicles from components imported.
In 1944, Premier Automobiles Ltd. was established at Bombay to assemble cars and trucks
from imported components in collaboration with M/s. Chrysler Corporation of U.S.A. Until 1947,
both Birlas and Walchand did not get permission from Government to start automobile production in
India. In March 1947, Premier Automobiles Limited started car assembly. In 1950, Premier
Automobiles had another collaboration with M/s. Fiat Spa of Italy for manufacture of cars. They also
manufactured the components for these products. In 1949, Standard Motor Products of India Ltd.
was formed at Madras and in 1950, they started assembly of Standard Vanguard cars in collaboration
with M/s. Standard Motor Co. U.K. The only company manufacturing jeeps since independence is
Mahindra & Mahindra (M&M). M&M imported jeeps from Willys Overhand C o. Ltd "As the
Indian Government formulated its automobile policy and stressed that companies would have to
indigenize Hindustan Motors, Premier Auto remained in India.
Eventually multinational automakers, such as, Suzuki and Toyota of Japan and Hyundai of
South Korea, were allowed to invest in the Indian market, furthering the establishment of an
automotive industry in India. Maruti Suzuki was the first, and the most successful of these new
entries, and in part the result of government policies to promote the automotive industry beginning in
the 1980s. As India began to liberalise its automobile market in 1991, a number of foreign firms also
initiated joint ventures with existing Indian companies. The variety of options available to the
consumer began to multiply in the nineties, whereas before there had usually only been one option in
each price class. By 2000, there were 12 large automotive companies in the Indian market, most of
them offshoots of global companies.
The Indian automobile industry – comprising of the automobile and the automotive
components segments – is one of the key drivers of economic growth of India. Being deeply
integrated with other industrial sectors, it is a major driver of the manufacturing gross domestic
product (GDP), exports, and employment. This sector has grown on account of its traditional
strengths in casting, forging and precision machining, fabricating and cost advantages (on account
of availability of abundant low-cost skilled labor), and significant foreign direct investment (FDI)
inflows.
The automobile industry in India is the world’s fifth largest. India was the world's fifth
largest manufacturer of cars and seventh largest manufacturer of commercial vehicles in 2019. 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 industry attracted Foreign Direct Investment (FDI)
worth US$ 25.85 billion between April 2000 and March 2021 accounting for ~5% of the total FDI

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during the period according to the data released by Department for Promotion of Industry and
Internal Trade (DPIIT).
The Indian automotive industry is expected to reach US$ 300 billion by 2026.
Domestic automobile production increased at 2.36% CAGR (Compound Annual Growth
Rate) between FY16-FY20 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%.
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%.
The electric vehicle (EV) market is estimated to be a Rs. 50,000 crore (US$ 7.09 billion)
opportunity in India by 2025. Several technology and automotive companies have expressed interest
and/or made investments into the India EV space. Auto companies such as Hyundai, MG Motors,
Mercedes, and Tata Motors, have launched EVs in the market. A recent study conducted by Castrol
found out, most of Indian consumers would consider buying an electric vehicle by the year 2022.
The study also highlighted for an average Indian consumer, price point of Rs. 23 lakh (or US$
31,000), a charge time of 35 minutes and a range of 401 kilometers from a single charge will be the
'tipping points' to get mainstream EV adoption. A cumulative investment of ~Rs. 12.5 trillion
(US$180 billion) in vehicle production and charging infrastructure would be required until 2030 to
meet India’s electric vehicle (EV) ambitions.
A report by India Energy Storage Alliance estimated that EV market in India is likely to
increase at a CAGR of 36% until 2026. In addition, projection for EV battery market is forecast to
expand at a CAGR of 30% during the same period.
The Government aims to develop India as a global manufacturing and research and
development (R&D) hub. It has set up National Automotive Testing and R&D Infrastructure Project
(NATRIP) centres as well as National Automotive Board to act as facilitator between the
Government and the industry. Under (NATRIP), five testing and research centres have been
established in the country since 2015. NATRIP’s proposal for “Grant-In-Aid for test facility
infrastructure for Electric Vehicle (EV) performance Certification from NATRIP Implementation
Society” under FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in
India) scheme was approved by Project Implementation and Sanctioning Committee (PISC) on
January 03, 2019. In Union Budget 2021-22, the government introduced the voluntary vehicle
scrappage policy, which is likely to boost demand for new vehicles after removing old unfit vehicles
currently plying on the Indian roads.
The Indian Government has also set up an ambitious target of having only EVs being sold in
the country. The Ministry of Heavy Industries, Government of India, has shortlisted 11 cities in the
country for introduction of EVs in their public transport system under the FAME scheme. The first
phase of the scheme was extended to March 2019 while in February 2019, the Government approved
FAME-II scheme with a fund requirement of Rs. 10,000 crore (US$ 1.39 billion) for FY20-22.
Under Union Budget 2019-20, Government announced to provide additional income tax deduction of
Rs. 1.5 lakh (US$ 2,146) on the interest paid on the loans taken to purchase EVs. 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.

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Contributing factors to the Industry
A number of factors stand to promote the automobile industry. The rise in middle class
income and young population will result in strong growth of the industry.
Initiatives like Make in India and National Electric Mobility Mission Plan (NEMMP) 2020
will give a huge boost to the sector.

sector firms, ministries and railways have come together to create infrastructure and manufacturing
components.
India’s electric vehicle (EV) market is estimated to be Rs 50000 crores opportunity by 2025
with two and three wheelers expected to drive higher electrification. India could be a leader in shared
mobility by 2030 creating five crore jobs
The automobile sector received cumulative FDI inflow of about USD 25.85 billion between
2000- 2021. The Government of India expects automobile sector to attract USD 8-10 billion by
2023.
Automotive Mission plan 2026 is a mutual initial by the government of India and Indian
Automotive Industry to lay down the roadmap for development of the industry. Announcement of
the voluntary vehicle scrappage policy to phase out old and unfit vehicles.

Conclusion
The automobile industry in India has a bright future but the players in the industry are always
in a high risk. The innovators are not able to reap the profit. The firms that cater to the safety
conditions of the government are not given sufficient support. Indigenous firms may be given
preference in the purchase of vehicles to government run projects. Firms that come up with vehicles
as per the mission of the government should be treated more favourably. Otherwise firms will come
and go like Chevrolet and Ford leaving the consumers at crossroads.

Reference
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