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Check Points Toward 2026

India could be a $300 billion automotive hub should government policies succeed in attracting larger investments into the sector

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India has come a long way in automobiles. According to OICA (the international organisation of automobile manufacturers), India has jumped from the 15th rank in 2000 to the fifth rank in 2019 behind China, the USA, Japan and Germany.

The competitive intensity in the Indian automobiles market is quite high. As many as 12 of the top 15 global automobile manufacturers are present in India. There are many home- grown players like Mahindra, Tata, Hero, Bajaj, Eicher etc., who are also making their presence felt in the international scene.

THE 2026 MILESTONE 
In 2019 the value of the Indian automobile industry was pegged at $118 billion (Rs 87 lakh crore at the current exchange rate) and the industry aims to reach $300 billion (Rs 222 lakh crore) by 2026. The automobile industry is also one of the largest employment providers in the country and employs close to 29 million people across the country.

The size of the Chinese automobile industry is much larger than that of the Indian automobile industry. It is more than five times that of India in terms of automobile production and more than seven times in terms of exports. The Chinese automobile industry has made a lot of investments in technology and on electrification of vehicles.

THE CURRENT SCENARIO 
The government aims to develop India into a global automotive hub and has an automotive mission plan in place for Mission 2026 that envisions alignment with elements such as making automotive the engine of the 'Make in India' programme and increasing exports through the automotive industry.

The government of India has taken many steps to nurture the Indian automobile industry. Some measures announced for the sector are as follows:

"    Allowed 100 per cent foreign direct investment (FDI) in the automotive sector, attracting global giants to set up shops in India

"    Identified the automotive sector among ten key sectors and announced a PLI outlay of Rs 57,000 crore over next five years

However, there are many trends that are disrupting the automobile industry, such as electrification, rise of shared mobility, environmental consciousness and regulations, changing customer preferences, cyclicity of the economy, the Covid-19 pandemic etc. The automobile companies are fighting these multiple challenges and it is a tough business.
 
Recent developments in the automotive sector have been disheartening. The present scenario is not very well received by the industry and saw  Ford give up on two-decades of its efforts, as it transferred its India assets to a joint venture with Mahindra & Mahindra (M&M) in 2019, failing to capture the market despite investing heavily in it.

A similar story came up very recently where Toyota-Kirloskar's hesitation in investing in the Indian market came to light. Harley-Davidson shutting down its manufacturing unit in India is the latest setback to the Indian auto sector that the government envisions to be a global automotive hub.  

THE STRATEGY NECESSARY
If India wants to reach the target of $300 billion by 2026 ie. 2.5 times the present value, the following must happen:

"    Increase in domestic sales
"    Increase in average value of vehicles
"    Increase in exports of fully builtup vehicles and auto components

Since the global automotive industry is quite competitive, even small differences make a difference between investing or sourcing from country A or B. India has many inherent advantages like a high-quality talent pool, the domestic market, and the already developed automobile industry. The government could support and safeguard investments and provide for a facilitative environment to the industry by measures such as:  

"    Policies that safeguard investments
"    Clear specification roadmap - emission, safety, electrification etc.  
"    Stability in policy over the investment horizon (usually over five years)
"    Extension of tax loss carry forward beyond eight years.
"    Policies that incentivise customers to move towards environmentally friendlier and higher value vehicles
"    Scrappage policy
"    Lower taxation on environmentally friendly automobile technologies and fuels
"    Policies that incentivise exports
"    PLI (production-linked incentive) scheme
Many of the above suggestions require long-term thinking and do not require immediate fiscal support. For example, by allowing tax loss carry forward, the government does not have to spend money or lose income today. However, it incentivises the industry to invest in India and look long term.

The investor confidence needs to be maintained for India to still be an attractive destination for automotive giants and for it to become a global automotive hub - nurturing the industry with the required policy changes becomes quintessential.  

The author is Managing Director at Primus Partners. 


The views expressed are personal

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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Anurag Singh

The author is Managing Director at Primus Partners.

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