The long term outlook for the Indian automotive industry is excellent as only a fraction of the rapidly growing population in Asia’s third largest economy is so far motorized, but the short term has been more bumpy after last year’s low sales and reduced production.

India remains one of the future markets with a significant growth potential and is demographically well-positioned for growth, servicing both domestic demand and, increasingly, export opportunities. However the industry is recovering from a difficult year as it faced its first major downturn in over a decade during 2013-14. High inflation, soaring interest rates, low consumer sentiment, rising fuel prices, lower industrial output and the general economic slowdown led to both the automotive and the supply industry recorded substantial sales losses in 2013-2014 for the first time in 11 years.

Indian automobile production dropped by 10% in 2013 – after eleven years of recording average increases of 20-30% per annum, and this downward trend continued in 2014. At the beginning of the year, however, a little improvement was noticeable The industry produced a total of 23,366,246 vehicles including passenger vehicles, commercial vehicles, three wheelers and two wheelers in April-March 2015 as against 21,500,165 in April-March 2014, registering a growth of 8.68 percent over the same period last year.

Manufacturers of luxury automobiles fared better in 2014 than the vehicle manufacturers for the mass market with higher sales compared to 2013. The premium segment is dominated by Mercedes-Benz, BMW and Audi. Together, they hold a market share of almost 80%. Audi ended the year 2014 with 10,851 units sold – 849 more vehicles compared to 2013. Mercedes Benz sold 10,201 automobiles in 2014 and was slightly behind its competitor Audi.

This positive trend is due in part to the falling oil prices, as a result of which the operating costs of motorists have reduced considerably and boosted the demand. In addition, the reduction in Excise Duty – which only applied until 31st December 2014 – lured more buyers to the automotive houses shortly before the deadline. Excise duty on small cars, scooters, motorcycles and commercial vehicles was reduced in February last year to 8% from 12% to boost the ‘Make in India’ initiative of the Indian government. It encourages foreign investment in the automobile sector and allows 100 per cent FDI under the automatic route.

The Automotive Mission Plan for 2006-2016 aimed to make India a global automotive hub with India becoming the destination choice for design and manufacture of automobiles and auto components, with projected outputs of US$145 billion (more than 10% of GDP) and employment for over 25 million people by 2016.   According to the Confederation of Indian Industry, the sector has gone a long way to achieve these targets – but will not reach them. The CII estimates that the sector currently employs over 8,000,000 people and forecasts production to rise to Rs. 600,000 crore (US$ 94,307,076,699) by 2016.

The industry attracted foreign direct investment (FDI) worth US$ 11,857 million between 2000 and 2015, but a review of industry specialists outside India suggests caution about the short and medium term, given the recent performance and projected macro-economic trends.

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