The Automotive Mission Plan 2016 – 2026 has the intention to place India as one of the top three automobile manufacturing hubs in the world with gross revenue of $300 billion by 2026 from the current $93 billion. Global car majors have been ramping up investments in India and setting up manufacturing plants to boost the domestic demand. There is still scope for new players to enter the market and many companies are planning to leverage India’s competitive advantage to set up export-oriented production hubs. In order to make India a prominent manufacturing destination, the Indian Government introduced favourable initiatives and is promoting innovation and R&D in the Automotive Industry.
The Goods and Service Tax (GST) regime that the Government targets to roll out from 1st of July will not directly impact the Indian Automotive Industry, however, may have an indirect effect. The expectation from the Indian Automotive industry is optimistic as there would be a better transparency and one single percentage of tax levied instead of a number of locational taxes. The current tax structure brings some complications for several sectors but the application of GST would ease this process and reduce the number from 17 tax slabs and segments to just one tax. It is expected that small cars and luxury cars in particular will benefit from the new tax rates as it will lead to a considerable relief in this price sensitive segment. With more money to spend, the consumer sentiment will be on the positive side. This is expected to boost sales of consumer vehicles and two-wheelers. The optimistic impact of this step will be especially seen in tier-2 and tier-3 cities and rural areas.
Furthermore, the GST is being viewed as a major economic reform to attract foreign capital. Italy, which is Europe’s second largest manufacturing hub, sees huge growth opportunities in India, with the automotive sector taking the top spot. Italy’s Trade Commissioner to India, Francesco Pensabene said, “2017 will be a big year for Italian investors in India. This year India is regarded as the most important destination for Italian companies. The visit by this delegation is most timely as India has a stable growing economy, stable political environment and major reforms like GST are underway. Road shows about India in Italy are also being planned.” Italy is currently the 13th largest investing country in India with a cumulative investment of $2.24 billion between April 2000 and December 2016. By 2018, Italy hopes to increase the bilateral trade with India to about $9.26 billion. Big Italian automotive companies, which are already set up in the Indian market, like Fiat Chrysler Automobiles, Piaggio and Magneti Marelli are extremely positive about the undergoing dynamic shift in India. Many Italian players are currently working on developing new technologies to bring about a sustainable and clean future.
Although the Union Budget 2017-2018 might not have announced any direct benefits for the Automotive Sector, it has provided a big scope of opportunities for it. The focus shown by the Indian Government on the development of roads itself is an important announcement, which will directly benefit the Automobile Industry and also lead to development of the next generation of vehicles. This is particularly expected to push up demand for commercial vehicles. The rise in sales of commercial vehicles has a direct connection with the development of certain sectors, resulting in growth of the overall economy.
The Indian Committee of Secretaries (CoS) approved the road transport and highways ministry’s proposal for a vehicle scrapping policy. The aim is to remove old and polluting commercial vehicles like buses and trucks which are older than 15 years from the roads. Between FY18-20, around 200,000 commercial vehicles would get scrapped and replaced. The Government estimates, the programme may help replace several million vehicles with less-polluting ones. The incentive will have a major impact to the environment and could reduce vehicular emission by 25% and save oil consumption by 3.2 billion litres a year. Besides, it is expected, that this step could boost the commercial vehicle sales volume by a cumulative 65% in these three years.
German auto component maker Bosch plans to invest $125 million annually for the next years in India. The project, which is divided into two phases, has the aim to enlarge and expand the technology development centre in Bengaluru and transform it to a modern technology park. The first phase of the plant is already complete and the second phase is ready to start. About 3,000 people, mainly fresh graduates from engineering colleges in the fields of software, IT, analytics and other technologies, will be hired in 2017. The project will be over by 2019 and according to Soumitra Bhattacharya, Managing Director of Bosch Ltd., “the base will double or triple in the coming years, depending on the business environment, and many more techies will come into the system.”
Europe’s second biggest manufacturer after Volkswagen, PSA Group, has signed an agreement with India’s CK Birla Group to make and sell cars in India by 2020. To set up manufacturing plants, the French automakers will invest around $107 million in vehicle and power train manufacturing in the southern state of Tamil Nadu. The Group will have a production level of about 100,000 vehicles per year, which will be all locally manufactured in the plant. According to reports, PSA plans to introduce smart cars. The first car from PSA could be targeting the hatchback segment and will be positioned against the Maruti Suzuki Swift and Hyundai Elite i20 in the Indian market.
The Automotive Sector in India has been on a great growth trajectory with impressive numbers in sales, manufacturing and exports over the last years. In 2016, around 24 million vehicles were manufactured and over 29 million people were employed in the Automotive Industry, making it one of the largest sectors in the world. With new initiatives and by relaxing the FDI policy, the Indian Government invites foreign companies to invest and bring in modern technologies into the country to increase the domestic demand and promote the Indian economy.
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