India became the fourth largest auto market in 2019 displacing Germany with about 3.99 million units sold in the passenger and commercial vehicles categories. Naturally, India is expected to displace Japan as the third-largest auto market by 2021.
The two-wheelers segment dominates the market in terms of volume in India. The demographic for this segment are buyers belonging to the middle class and the young population.
India is also a prominent auto exporter and has expectations for growth in exports. Furthermore, several initiatives have been taken by the government and major automobile players in the Indian market. It was anticipated that India would become a leader in the two-wheeler and four-wheeler market in the world by 2020.
- The auto-components industry expanded by a CAGR of 6% over FY16 to FY20 to reach US$ 49.3 billion in FY20.
- Domestic automobile production increased at 2.36% CAGR between FY16-20. About 26.36 million vehicles were manufactured in the country in FY20.
- Overall, domestic automobile sales increased at 1.29% CAGR between FY16-FY20. About 21.55 million vehicles were sold in FY20.
- Two-wheelers and passenger cars accounted for 80.8% and 12.9% market share, respectively in FY20.
To keep up with the growing demand, several automakers have started investing heavily in various segments of the industry during the last few months. The automobile industry has attracted FDI worth US$ 24.53 billion between April 2000 and June 2020.
Whereas the FDI inflow into the automotive industry during the period April 2000-June 2020 stood at US$ 24.53 billion according to the data released by the Department for Promotion of Industry and Internal Trade (DPIIT).
The sector is affected by various factors such as – the availability of skilled labor at low cost, robust R&D centers, and low-cost steel production. It also provides opportunities for investment and direct and indirect employment to skilled and unskilled labor, respectively. For these reasons, the Indian automobile sector has expectations to reach US$ 251 – 283 billion, and the automobile component export from India is expected to reach US$ 80 billion by 2026.
The rise in middle-class disposable income has also contributed to the increased demand. As per the trends, India could become a leader in shared mobility by 2030. This would provide opportunities for electric and autonomous vehicles to play a significant role in the future. The focus is shifting towards electric vehicles because they reduce emissions that lead to environmental hazards. The government aims to develop India as a global manufacturing center. Hence, the GST on electric vehicles is reduced from 12% to 5%. Similar reforms will boost the sector’s growth.
The Indian government aims to make automobile manufacturing the primary driver of the Make in India initiative. A scheme has been formulated for Faster Adoption and Manufacturing of Electric and Hybrid Vehicles in India. It has been set in motion under the National Electric Mobility Mission 2020 to encourage the progressive induction of reliable, affordable, and efficient electric and hybrid vehicles in the country.