Sansad TV: Indian Automobile Industry | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Introduction

• The automobile sector stands as a leader in product and process technologies within the manufacturing industry. It has garnered recognition as a key driver of economic growth, with the domestic automobile industry often regarded as a barometer for the overall economy. This perspective aligns with international trends, where the performance of the automobile industry in mature economies reflects the health of the economy.
• In the Indian economy, the automobile sector has emerged as a sunrise industry. This sector is categorized into four segments: two-wheelers, passenger vehicles, commercial vehicles, and three-wheelers. Over the past decade, India has risen as one of the world's favored destinations for manufacturing high-quality automotive components and vehicles of various types. This growth has narrowed the gap between India and several established manufacturing hubs. Moreover, the projection of over 500 million people residing in Indian cities by 2030, combined with rising income levels, is expected to expand India's consumer class. This, in turn, will lead to increased spending on vehicles across various segments, presenting automotive companies with a ready-made market.

Contributions of the Auto Industry to India's Economic Growth

• India ranks as the fourth-largest producer of automobiles globally, with an average annual production of more than 4 million motor vehicles.
• The Indian auto industry exemplifies the spirit of "Atmanirbhar Bharat" (self-reliant India), offering valuable lessons for other industries.
• The industry contributes 6.4 percent to GDP, approximately 35 percent to manufacturing GDP, and directly supports over 8 million jobs (including OEMs, suppliers, and dealers), along with an additional 30 million jobs in the value chain.
• It has attracted cumulative investments of $35 billion over the last decade and generates export revenue of $27 billion, nearly 8 percent of India's total merchandise exports.
• The auto industry significantly bolsters the MSME (Micro, Small, and Medium Enterprises) sector, a crucial employment generator in India and a vital component of the Indian economy. MSMEs contribute 35 percent to the value addition in the production of automobiles. Additionally, the automotive aftermarket creates economic opportunities for thousands of MSMEs. While an exact count is unavailable, estimates suggest that the total number of MSMEs involved in the auto value chain ranges from 25,000 to 30,000.

Challenges Faced Today

• The Indian automobile sales experienced their steepest decline in nearly 19 years in July 2019, plummeting by 18.71 percent, resulting in almost 15,000 workers losing their jobs in the past quarter.
• Globally, the automobile sector has faced a slowdown, with low sales figures in Europe and the USA. While the situation improved slightly from July onwards, challenges persist.
• Even during the past two years when the market was strong, auto sales in major cities like Delhi, Mumbai, and Bangalore were on the decline, while growth was observed in smaller towns.
• The ecosystem in smaller towns faced disruptions, possibly due to factors like demonetization and the transition to the Goods and Services Tax (GST).
• Uncertainty surrounding BS VI norms also negatively impacted auto sales.

Way Forward

• The current downturn in the automobile industry is likely a temporary phase, with the festive season and favorable monsoons expected to provide a much-needed boost.
• Consideration should be given to temporarily reducing the Goods and Services Tax (GST) on cars and two-wheelers. State governments should also consider reducing road taxes.
• Efforts should be made to transform liquidity into a willingness to finance. Encouraging Non-Banking Financial Companies (NBFCs) to provide financing for vehicle purchases can boost retail car sales.
• The market has the capacity to accommodate both internal combustion engines and Electric Vehicles (EVs). Government policies should be formulated to support this coexistence.
• Overall, there is a pressing need to stimulate the economy to increase disposable income and, subsequently, overall demand.
• The government must ensure that the auto industry is not unduly burdened during the transition to more environmentally friendly fuels.
• If India aims to become a $5 trillion economy, the auto industry must play a significant role in achieving this goal.