The Indian automotive industry is recovering slowly, in the individual segments, from the sharp decline in domestic demand in the past financial year 2014-15. The sales of passenger cars rose by 3.9% and motorized two-wheelers continued their strong growth trend with 8.1%. Commercial vehicles, however, are still in a deep crisis, and their domestic sale declined by 2.8%. The weak economic growth, the low output of the industry as well as the slow implementation of infrastructure projects, coupled with the high level of interest rates still make the market outlook for automotive manufacturers and suppliers a little hazy.
The budget 2015-16 has been slightly disappointing from the perspective of the motor vehicle industry. It does not provide an extension on the reduction in either excise duty (as desired by the manufacturers) or any reduction in interest rates for the purchase of vehicles. The excise duty cut, which was initially provided in February 2014 across all categories, was rolled back as of January 2015. This resulted in an increase in prices across categories by 4-6 per cent. A positive pulse, however, is the announcement of promotion of environmentally-friendly vehicles. Furthermore, India has raised the customs duties for the import of commercial vehicles by 20%. This could be an incentive for foreign companies to relocate their production to India.
According to experts, the industry will slowly improve in 2015-16. The trade associations of the automotive sector and its suppliers, Society of Indian Automobile Manufacturers (SIAM) and Automotive Component Manufacturing Association of India (ACMA) expect an increase in the sales in the passenger car segment by approximately 1-2% for the fiscal year 2015-16.
The commercial vehicle segment is more affected by the crisis than the car market. Areas such as infrastructure, industry and mining have suffered because of the weak economic development in the recent years. This had an impact on the demand for commercial vehicles. The domestic sales declined from April 2014 to March 2015 to 2.83%.
The biggest car manufacturers in India are Maruti Suzuki, Hyundai Motors India, Tata Motors, Mahindra & Mahindra, General Motors India, Ford India and Toyota Kirloskar Motors. The major producers of commercial vehicles are Tata Motors, Mahindra & Mahindra and Ashok Leyland. Daimler is new in the market with its truck brand BharatBenz and soon will follow it up with the production of buses. The investment climate in the automotive and automotive parts industry is currently hesitant but remains positive. A joint report of the Trade Association, ACMA, and the consulting firm, McKinsey, predicts an increase in the sales of the automotive industry from an estimated 35.1 billion US $ in 2013 to around 100 billion US $ to 2020.
Despite the current crisis, the automotive industry is one of the main future markets in India. Rising incomes, a growing middle class, a high proportion of young people and a low level of motorization drive the demand. Only about 18 of 1,000 Indians own a car. According to industry data, more than 60% of car buyers are first-time buyers. Motorcycles are, so far, the most important means of transportation in the country. With the rising incomes, the demand will shift gradually to cars. The potential of commercial vehicles is large. In India, an estimated five commercial vehicles go with 1,000 inhabitants While in Indonesia and China, they are 35 respectively.
To read the latest news on Automotive Industry in India click Automotive Newsletter