The need to get good automobiles to satisfy the basic need for transportation is a primary lookout in this country.
In 2018 the automobile sector saw a major downfall as regards sales and the inventory kept on piling up.
The automobile sector in India is a huge market and today we just can’t think of life devoid of the automobile sector because a part of our day to day activities largely depend on this industry.
India’s automobile sector is currently facing a temporary slowdown; the Society of Indian Automobile Manufacturer, announced on May the 13th that the passenger vehicle sales experienced a depression of at least 17% definitely the lowest in the last eight years or so but at the same time in the financial year 2019 export of automobile has risen by at least 14.5%.
Significance of automobile industry in India
The need to get good automobiles to satisfy the basic need for transportation is a primary lookout in this country. However, some people give priority to their aspirations as well. The aspiration or the desire to own a world-class and state of the art automobile is pretty common in India and that’s why there is still some hope that this industry will revive in the years to come and by 2020 it is expected that India will emerge as the leader as far as two-wheeler and four-wheeler markets are considered. In the Indian automobile sector, many Indian and global companies are present to cater to the needs and desires of the local Indian crowd plus the initiatives taken by the government is said to revive the situation as the exports will increase by 3.05% at compound annual growth rate and the timeframe given is between 2016 to 2026.
What is the current market size?
- If we consider looking at the entire domestic automobile sales in financial years starting from 2013 to 2019 then one thing will be absolutely clear that the sales have gone up at a CAGR of 6.71% which is why, naturally, the production too has gone up by 6.96%.
- The motorbike sales were huge (crossed 1 million units) in the financial year 2018. The growth that BMW experienced was pretty great as it sold around 7,915 units in India alone. Furthermore, the automobile company that stood first in the segment of sales satisfaction in luxury vehicles was Mercedes Benz.
- Now if we consider the sales of other two-wheelers which are electrically driven then the numbers will startle you as it almost crossed 55,000 between financial years 2017 to 2018.
- Another important factor is the changing economic trends. It is expected that by 2030 a large number of people (500 million roughly) will move to cities and around 60 million households could become a part of the consuming class.*** The income of people is expected to rise too which will play an important role in making the future of the automotive industry in India quite flourishing. In this case, rapid urbanization is the driving factor.
Current slowdown in the automobile industry in India
In 2018 the automobile sector saw a major downfall as regards sales and the inventory kept on piling up. The growth in this industry slowed down drastically due to which companies had to cut down on their production. In July 2019, Maruti Suzuki, the country’s, probably, largest automobile manufacturers experienced a downfall in sales and a 33.5 % dip was reported as far as total sales are concerned. Same with Hyundai motors, they experienced a dip of 3.8 % in total sales. Other big players in this sector like Mahindra and Mahindra, Honda, etc. have experienced the woes of this sudden depression.
Investments that can boost the current figures
The Government is quite seriously considering the need to make this sector flourish and that’s why some of the initiatives have been taken which might help in the future.
- The future of the automobile industry in India is pretty bright because the various big players in this industry are enormously investing in the different wings of this sector. You will be amazed to note that already a huge amount of US $21.38 billion from April 2000 to March 2019, as a part of Foreign Direct investment has been made.
- A huge amount of investment (US$ 155.20 million) is soon to be made by Ashok Leyland because they are planning to boost their light commercial vehicle business in India. They are all set to roll out new vehicles, by April 2020 that comply with the BSVI emission norms.
- The government too is all set to launch electrically driven vehicles as an integral part of the public transport sector in 11 cities of India under the Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India scheme. This is good news for the automobile industry in this country.
- Furthermore, the FAME II scheme got approved in February 2019 and the budget allocated for this one is US$ 1.39 billion for FY20-22.
- Tata Chemicals is all set to start their research on lithium-ion technology. Already they’ve invested in Dholera town of Gujarat to get the land to construct the factory. This entire plan is devised to facilitate the sustainable growth of the EV Ecosystem in India. As per Tata Chemicals’ FY19 annual report, “the company intends to set up operations in li-ion batteries, battery actives and li-recycling, to cater to the growing EV revolution in India at the appropriate time”. This wing of Tata Chemicals will later be helpful for Tata Motors Ltd.
- All automobiles starting from 2017 are increasingly becoming BS-VI compliant. First, this regulation was applicable in just 13 cities but with time entire India is now following this for a better tomorrow. Next up is the step of making vehicles that will comply with the non-polluting factor. Migration to BS-VI will also make usage of oxygen sensors mandatory. Many automobile companies have started designing their vehicles according to the regulations of BS-VI, for example, Maruti Suzuki is offering over 50 variants that are working according to the BS-VI norms.
Achievements that have ensured the growth of the automobile sector
- An increase in the number of vehicles from 5,197 (June 2015) to 192,451 (March 2018) under FAME scheme is impressive.
Following are the testing and research centers that have been constructed throughout the country under the National Automotive Testing and R&D Infrastructure Project (NATRIP)
- International Centre for Automotive Technology (ICAT), Manesar
- National Institute for Automotive Inspection, Maintenance & Training (NIAIMT), Silchar
- National Automotive Testing Tracks (NATRAX), Indore
- Automotive Research Association of India (ARAI), Pune
- Global Automotive Research Centre (GARC), Chennai
Smart Advanced Manufacturing and Rapid Transformation Hub (SAMARTH) – Udyog Bharat 4.0 is the initiative by Department of Heavy Industry, Government of India to increase the awareness about industry 4.0 in India to enable India in becoming a smart and intelligent manufacturing hub. This huge step towards achieving excellence will change the entire scenario of the automobile industry in this country along with this, these technology centers will help a lot of MSME sectors to benefit from various new technologies. These centers will provide technical know-how and carry out extensive research to develop newer technologies so that the quality of export products can become better hence adding to the country’s GDP.
The growth of the automobile sector in India will open up various avenues; one such important avenue is employment because this industry requires skilled and unskilled workforce, amazing R&D centers, etc. It is expected that by 2026, the Indian automotive industry including the manufacturing units that develop components, will make at least INR 16.16-18.18 trillion (US$ 251.4-282.8 billion).
The next few months and the coming years are very crucial because the challenges for the automotive industry in the country in ever-increasing. As the global players are increasing in numbers, there might be an impediment in the smooth inflow of credit cash, etc. but a lot will change, and there is still a ray of hope among many that India, by 2021, will become one of world’s third-largest passenger vehicle segments. This sector will face a lot of landmark disruptions as well as growth but these will determine the future of the automobile industry in India.
That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.
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