Indian Automotive Industry: Emerging Global Auto Hub

• Sept, 2011
• By Taruna Sondarva

The Indian Automotive Industry is one of the largest industries and a key contributing sector of the economy. It consists of manufacturers of a wide range of automobiles and auto components. The industry began its journey from 1991 with the government's de-licensing of the sector and subsequent opening up for 100 per cent FDI through automatic route. Since then many large global companies have set up their facilities in India taking the production of vehicle from 2 million in 1991 to 9.7 million in 2005-2006 and during 2010-11 it touched to 17.91 million units.

The entry of global auto-majors in India has significantly altered the automobile manufacturing scenario in the country. The changes in the design and adaptation of international technologies have enabled the Indian automotive industry to compete globally, and thus exposed to global challenges. Alongside the challenges, the trend also presents a plethora of opportunities to the Indian automotive industry. Higher growth rate of the Indian automotive industry vis-à-vis the stagnant growth rate of the automotive industry in the United States of America (USA), European Union (EU) and Japan has led to large scale shifting of capacity creation to India. This is facilitated by the easy availability of trained manpower at low cost and increasing productivity in the industry.

According to research by IKON Marketing Consultants, the automotive market in India is set to grow more than fourfold by 2016. The size of the industry expected to grow at 13 per cent per annum over the next decade to reach around US$ 120 billion-US$ 160 billion by 2016. The two-wheeler segment expected to lead the growth, with estimated sales of 27.8 million units by 2016. Indian players dominate this segment as well as foreign players such as Hero, Bajaj Auto, Honda Motors, TVS Motors and Suzuki.

Further, the domestic Indian passenger vehicle market has grown at a compound annual growth (CAGR) of 15 per cent over the last six years to reach 2.52 million units in 2010-11. All major global players in the passenger vehicle segment such as Ford, GM, Toyota, Mercedes and Hyundai have a presence in India. Among the newer global players establishing bases in India are Volkswagen, Nissan and BMW.

Exports of cars from India have grown at a CAGR of 30 per cent in the last seven years to reach 331,000 units in 2008-09. During 2009-10 it touched to 4,41,710 units. The substantial growth in car exports is a strong indicator of India moving closer to becoming a manufacturing hub for global players. Many leading automobile companies either have set up their own manufacturing base in India or have tied up with Indian automotive firms to roll out new products.

Even though India's auto component industry conventionally relied on exports for its profits, the domestic market itself is ripe with rapidly growing opportunities. According to IKON's estimates, the country will be able to offset China and other Southeast Asian countries' traditional manufacturing advantage in the coming years, facilitating the industry's achievement of its targeted market value of US$ 40-45 billion by 2014.

With investments around US$ 15 billion slated for the sector over the next few years, the prospects for India's automotive market are bright. Also, it looks forward to manufacturing and implementing new innovations such as electric cars, alternate fuels like CNG and LPG, and probably customized Internet automobile orders.

Related Report: Automotive Market in India 2009

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