Sansad TV: Automobile Sector in India | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Introduction

• The auto industry in India includes Passenger Vehicles, Commercial Vehicles, Three Wheelers, Two Wheelers, and Quadricycles.
• There are three key factors that have led to the rise of the auto industry in India.
• Nowadays, India's auto suppliers, both domestic and multinational corporations, can compete with the best in the world.
• Quality issues have reduced significantly by 90%, and now they are on par with the most advanced markets.
• Finally, the ability to create and develop world-class products entirely in India is perhaps the most important factor.

The Contributions of the Auto Industry to India's Economic Development

• With an average annual production of more than 4 million vehicles, India is the fourth-largest producer of automobiles in the world.
• The auto industry embodies the spirit of Atmanirbhar Bharat and serves as an excellent example for other industries.
• The industry contributes 6.4% to the GDP, around 35% to the manufacturing GDP, and supports over 8 million jobs directly (OEMs, suppliers, and dealers) and as many as 30 million more in the value chain.
• Over the last ten years, it has attracted cumulative investments of $35 billion and generates export revenue of $27 billion, which is almost 8% of India's total merchandise exports.
• The auto industry is a significant supporter of the MSME sector, which is a vital employment generator for India and an important component of the Indian economy.
• The MSME share of value addition to a car is 35%.
• Moreover, the automotive aftermarket provides economic opportunities to thousands of MSMEs.
• Although no official count is available, an estimate suggests that the total number of MSMEs engaged in the auto value chain is between 25,000-30,000.

Challenges Faced by the Indian Automobile Industry

• In July 2019, automobile sales in India experienced their sharpest decline in nearly 19 years, dropping 18.71% and causing almost 15,000 workers to lose their jobs in the past quarter.
• This year, the automobile sector is experiencing a slowdown in major parts of the world, with low sales figures in Europe and improved but still low sales in the USA since July.
• In the past two years, when the market was good, auto sales in major cities such as Delhi, Mumbai, and Bangalore were declining, with growth coming from small towns in India.
• However, the ecosystem in these small towns has been disturbed, possibly due to demonetization and the transition to the Goods and Services Tax (GST).
• Uncertainty surrounding BS VI norms has also negatively impacted auto sales.

Way Forward

• The current slump in the automobile industry appears to be a temporary phase, with the festive season and good monsoon providing much-needed triggers for growth.
• To increase sales at the retail level, there is a need to reduce the Goods and Services Tax (GST) on cars and two-wheelers, as well as for state governments to reduce road tax.
• Liquidity needs to be converted into aggressiveness or willingness to finance, with encouragement for NBFCs to provide financing for people looking to buy cars.
• The market is large enough to accommodate both internal combustion engines and electric vehicles, and the government needs to frame policies accordingly.
• Overall, there is a need to boost the economy so that disposable income increases and demand rises.
• The government must ensure that the auto industry does not bear the brunt of the transition to more environment-friendly fuels.
• If India wants to become a $5 trillion economy, the auto industry must make a significant contribution.