Prospects of India’s Automotive industry

Synopsis: Automotive Industry will help India achieve a $5 trillion economy. A favourable government policy can support the Auto industry to grow by 10-12 per cent per year for the next 10 years.

Recent developments in India’s automotive industry
  • Increase in Demand: for example, in the last 3 decades passenger vehicle volume increased 15 times, the SUV 24 times, and the two-wheeler 12 times.
  • Improvement in Quality and efficiency: The technology features, the safety, the comfort, the emissions, and the energy consumption have improved much better than 3 decades ago.
  • Developments in supply chain ecosystem:
      • India’s Indigenous supplier base has become globally competitive.
      • Quality defects have been reduced by 90 percent.
      • India’s engineering capabilities like their ability to design, engineer, and develop world-class products completely in India, improved a lot.
  • This has contributed to the increase in the global rank of the industry from 16th then to 5th now.
Significance of Automotive Industry to India’s economic growth
  1. First, contributes to the development of the MSME sector. For example, The MSME share of value-addition to a car is 35 percent. Further the automotive after market provides economic opportunities to thousands of MSMEs engaged in the auto value chain.
  2. Second, boost to the manufacturing sector. The industry contributes 6.4 percent to GDP and around 35 percent to manufacturing GDP.
  3. Third, provides employment. It supports over 8 million jobs directly and as many as 30 million more in the value chain.
  4. Fourth, attracts significant investments. For instance, it has attracted $35 billion over the last 10 years.
  5. Fifth, source of foreign capital. For example, it generates export revenue of $27 billion that is nearly 8 percent of the total merchandise exports from India.
Suggestions to support the growth of the Automotive industry

India’s automotive industry contribution to GDP is low compared to countries like Korea, Germany, Thailand, Germany, and Japan. The contribution, there, is more than 10 percent of the country’s GDP. The following measures need to be taken

  1. First, India needs to make a niche for itself in EV tech mobility through rapid localization of EV tech in the production and supply chain.
  2. Second, need to enhance local value addition to invest more in skill development and R&D. It will make it globally competitive in cost, quality, and technology.
  3. Three, to improve exports India needs to sign bilateral treaties to get favorable tariff regimes.
  4. Four, Also, there is a need to rationalize the extremely high GST rates on automobiles in a phase-wise manner.
  5. Five, the Automotive Mission Plan 2026 released by the government needs to revise in the current context by taking inputs from the industry.

If the above steps are implemented with a will, India’s automotive industry will become a $200 billion industry with exports of $50 billion by 2026.

Source: Indian Express

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