The Indian automotive industry is one of the top auto industries in Asia, has carved a niche for itself in the global market and is witnessing a new success story every day.
Automobile industry is one of the building blocks of the world’s most influential economies such as the US and Japan. The automobile industry, a key sector, is all set to play a similar role in India. Today, the industry is among the most vibrant, modern and growing markets in the world. India is the world’s second biggest two-wheeler market after China, the fourth largest commercial vehicle producer, the eleventh largest passenger car producer, and the largest tractor and three-wheeler producer. The auto industry accounts for about 5.2% of India’s GDP currently, and the share of this sector is expected to rise to 10% by 2016, providing employment to an additional 25 million people. For every job created directly by the automotive industry, a further seven jobs are created indirectly. India’s robust GDP growth is pushing more and more people to purchase their own private vehicles including cars and two-wheelers.
The delicensing and the subsequent opening up of the sector for 100% FDI through automatic route has pushed the country to become a center of attraction for most of the global automobile players who are shifting their base to India. These players include the US automakers General Motors and Ford, Germany’s BMW and DaimlerChrysler AG, France’s Renault, Japan’s Suzuki, Toyota and Honda, and South Korea’s Hyundai. Backed by strong engineering skills and low costs, India is an attractive outsourcing destination for global auto companies. Domestic auto ancillary companies are witnessing a boom as sourcing parts from India is 10-20% cheaper for the US automakers and about 50% cheaper for their European counterparts.
Emerging auto landscape
Amidst strong economic growth and robust gains in stock markets, the number of millionaires in India has crossed the one-lakh mark and the country is emerging as the world’s second fastest growing nation after Singapore in terms of millionaires. Money is flowing from every nook and corner and various sectors are booming like never before— be it retail, telecom or real estate sector.
According to McKinsey consultancy, the current size of 50 million Indian middle-class is set to expand 10 times to 583 million by 2025. Just a few years back, there was nothing much to say about the Indian auto industry. However, today there has been tremendous growth and positive change in the sector. The country is rapidly becoming a large player in exporting two-, three-and four-wheelers across the globe.
Huge Growth Potential
The dynamic Indian auto industry is in the take-off stage. The United Nations Conference on Trade and Development (Unctad) is very optimistic about the sector and it says, “With large-scale investments planned by domestic and foreign companies, India’s automobile industry is set to witness a major boom.” The reason is for the first time the country seems to be innovating in this sector. Between 2007 and 2013 the annual growth in automobile sales is projected to be 8.05% for China and 14.47% for India.
India’s contribution to the total industry output is estimated to increase to 8% by 2016. Alongside, the sector’s share in India’s GDP is expected to increase to over 10% by 2016 from the current 3-4% contribution. However, to realize these figures, the sector needs an investment of around $40 bn. Though global auto players like Volkswagen AG, International Truck and Engine Corp. have made investment plans of about $15.25 bn, the country’s inflexible labor laws along with its poor airports, ports, roads and general infrastructure are the major drawback against the flow of investments into the sector in a big way.
To sum up with the words of Ratan Tata, Chairman, Tata Motors, “Despite these bothersome trends, the years ahead are of great opportunity. The growth of the Indian market, the increased sophistication in components suppliers’ capabilities and global competitiveness will result in the establishment of a world-scale automotive industry.
Jany, Lead Economist
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