AUTOMOBILE

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SUMMARY
  • The Automobile industry in India is a significant driver of macroeconomic growth and technological development.
  • The Automobile industry holds a 7.5% share in India’s GDP.1
  • India is projected to be the world's third-largest automotive market in terms of volume by 2026.2
  • India has 4 large auto manufacturing hubs: Delhi-Gurgaon-Faridabad in the North, Mumbai-Pune-Nashik-Aurangabad in the West, Chennai- Bengaluru-Hosur in the South and Jamshedpur-Kolkata in the East.
  • The Automobile industry manufactured 14.7 mn vehicles including passenger vehicles, commercial vehicles, three-wheelers and two-wheelers during April – September 2017 against 13.4 mn during April-September 2016.3
  • As per FY 2018-19, India has manufactured 25 mn vehicles out of which 3.5 mn have been exported. 4
  • By 2020, more than 6 mn hybrid and electric vehicles are expected to be sold annually
  • In the Automobile industry in India, the FDI equity inflows received during April 2000 – September 2018 is valued at $20.36 Bn.5
REASONS TO INVEST
  • India will emerge as the third-largest Automotive market in the world in terms of volume by 2026, followed by China and USA.6
  • The Automotive Mission Plan 2016-26 (AMP 2026) aims to drive the Automobile industry to be the engine of the “Make in India” programme, developing India as a global manufacturing center.7
  • As per the AMP 2026, the Automobile industry has a target to triple the revenues to $300 Bn and increase exports sevenfold to $80 Bn.8
  • The World Economic Forum positions India 30th on the global manufacturing index, out of more than 100 countries on the evaluation of the manufacturing competencies.
  • India’s “Make in India” initiative has played a vital role in elevating the country’s position.9
  • The rural agricultural industry is experiencing a rise in their disposable incomes, which further boosts the overall economy.
  • Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles and National Electric Mobility Mission Plan (NEMMP 2020) have been initiated with an aim to support hybrid/electric vehicles market development and ecosystem.
  • The International Centre for Automotive Technology (ICAT) is a top-class automotive testing, certification and R&D service provider under the support of NATRiP (National Automotive Testing and R&D Infrastructure Project), Government of India. ICAT is situated in the northern automotive hub of India in Manesar.10
  • Private players like Hyundai, Suzuki, General Motors are interested in setting up an R&D base in India.
  • Foreign manufacturers are keen to set up their facilities due to the presence of a large pool of skilled and semi-skilled workers and a strong educational system.
STATISTICS
  • The Automobile industry can be categorized into subsectors such as passenger vehicles, commercial vehicles, three-wheelers and two-wheelers. Two-wheelers occupy the dominant position, constituting about 80% market share and overall passenger vehicles comprise 13%.
  • India is the largest manufacturer of two-wheelers, three-wheelers and tractors in the world, and the fifth-largest vehicle manufacturer overall.
  • India is currently the fourth largest Automobile market in the world.
  • India's annual production has been 29.08 mn vehicles in FY18 as against 25.33 mn in FY17, registering a healthy growth of 14.8%.11
  • The Automobile industry in India has followed a robust growth path, growing at a CAGR of 6.26% in FY 2018-19.12
  • The sale of passenger vehicles increased by 2.70%, two-wheeler by 4.86% and three-wheeler by 10.27% in FY 2018-19 as compared to FY 2017-18.13
  • By 2026, production of passenger vehicles, commercial vehicles, two-wheelers and three-wheelers is expected to grow annually at 9.4 mn units, 2.0 mn units, 50.6 mn units and 0.95 mn units respectively.
  • By 2026, as per the Automotive Mission Plan 2016-26, the Automobile industry has the potential to contribute about 12% of total GDP and create 65 mn jobs.14
FDI POLICY
  • The Government of India has initiatives to boost foreign investment in the Automobile industry. 
  • Under the automatic route, 100% Foreign Direct Investment (FDI) is permitted along with fully delicensing. Hence, making it easy for investors to set up their manufacturing plant/shop in India.
  • The cumulative FDI inflow in the Automobile industry has been $21.38 Bn during the period April 2000 to March 2019.15
  • By 2023, the growth is expected to continue as it is estimated that the Automobile industry would attract an additional $8-10 Bn in local and foreign investment.
SECTOR POLICY

FAME INDIA SCHEME II PHASE

  • The Fame India Scheme II is proposed to be implemented over a period of 3 years from 1 April 2019, for faster adoption of electric mobility and growth of electric and hybrid technology to improve the eco-system in the country.
  • Department of Heavy Industries (DHI) is the nodal Department, responsible for planning, implementation and review of the scheme.16
  • The Government of India, in February 2019, approved the FAME-II scheme with a fund requirement of $1.39 Bn for FY20-22.17

AUTOMOTIVE MISSION PLAN 2016-26 (AMP 2026)

  • The Automotive Mission Plan 2016-26 (AMP 2026) outlines the trajectory of growth of the automotive ecosystem in India, including the glide path of definite regulations and policies that govern research, design, technology, testing, manufacturing, import/ export, sale, use, repair, and recycling of automotive vehicles, components and services.20
  • The Automobile industry is projected to be the third largest in the world, contributing 12% to GDP.
  • The industry has the potential to generate $300 Bn revenue and 65 mn additional jobs by 2026.21
  • The Automobile industry is one of the prime movers of the manufacturing sector and “Make in India” initiative. It aims to increase exports of vehicles by five times. The growth of vehicles, particularly the passenger vehicles, is expected to triple to 9.4 mn units per annum by 2026.
  • The plan also foresees India to be the first in the world in production/sale of small cars, two-wheelers, three-wheelers, tractors and buses; and third in passenger vehicles and heavy trucks.

DRAFT NATIONAL AUTOMOTIVE POLICY 2018

  • Department of Heavy Industries formulated a draft National Automotive Policy, for the holistic development of the Automobile industry in India.
  • The policy estimates to scale-up exports to 35-40% of the overall output and makes India one of the major automotive export hubs in the world. Thus, the following propositions are made in the policy:
    • Adopt a long-term roadmap for emission standards beyond BSVI and complement the same with the global standards by 2028.
    • Rollout CAFÉ (Corporate Average Fuel Efficiency) norms till 2025.
    • Adoption of a differential taxation method based on a composite criterion, including parameters such as CO2 emissions and length.
    • Associate AIS and BIS standards on safety critical parts over the next 3 years.
    • Fast track adoption of Bharat New Vehicle Safety Assessment Program.

NATIONAL AUTOMOTIVE TESTING AND R&D INFRASTRUCTURE PROJECT (NATRIP)

  • The project has been set up at a total cost of $573 Mn to enable the industry to adopt and implement global performance standards.
  • It aims at converging India’s unparalleled strengths in IT and electronics with automotive engineering sectors.22
  • The main area of focus is on providing low-cost manufacturing and product development solutions.
  • Ministry of Heavy Industries & Public Enterprises has constituted NATRIP Implementation Society (NATIS), an autonomous body, for the execution of NATRIP.23
  • As a part of the program, 7 test centers have been finalized to set up the test facilities – iCAT, GARC, NATRAX, ARAI, VRDE, NIAIMT, NCVRS.24
  • Under the Samarth Udyog, ‘Demo cum experience’ centers are being set up in the country for promoting smart and advanced manufacturing serving SMEs to implement Industry 4.0 (automation and data exchange in manufacturing technology).25

NATIONAL ELECTRIC MOBILITY MISSION PLAN 2020 (NEMMP)

  • The NEMMP initiative has been taken up to encourage consistent, affordable and competent xEVs (hybrid and electric vehicles) that meet consumer performance and price expectations through government-industry collaboration.
  • Promotion and development of indigenous manufacturing capabilities, required infrastructure, consumer awareness and technology are additional objectives of NEMMP 2020.
  • India is expected to emerge as a leader in the two-wheeler and four-wheeler xEV market in the world by 2020. The total xEV sales projected as 6-7 mn units, thus, enabling the Automobile industry to achieve global xEV manufacturing leadership and contributing towards national fuel security.
  • The aim is to have 6 mn electric & hybrid vehicles per year on the road by 2020 under NEMMP 2020. A cumulative cost of $2.15 Bn is estimated for this paradigm initiative, which also includes industry collaboration.

GREEN URBAN TRANSPORT SCHEME (GUTS) 2017

  • The Green Urban Transport Scheme has been executed with the help of the private sector including assistance from the central and state governments under a 7-year mission with a total cost of $10.76 Bn.
  • The scheme promotes low carbon sustainable public transport system in urban areas. For the first phase, 103 cities have been identified. These cities are either capital cities or have a population of 0.5 mn and above.
  • The scheme encourages the promotion of Non-Motorized Transport (NMT), public bike sharing, Bus Rapid Transit (BRT) systems, Intelligent Transport Systems (ITS), urban freight management etc. 
FINANCIAL SUPPORT

R&D INCENTIVES FOR INDUSTRY AND PRIVATE SPONSORED RESEARCH

  • A weighted tax deduction is given under section 35 (2AA) of the Income Tax Act. Weighted deduction of 200% is granted to assess for any sums paid to a national laboratory, university or technological institute. The said sum is used for scientific research within a program approved by the prescribed authority.

MANUFACTURERS WITH AN IN-HOUSE R&D CENTRE

  • Section 35 (2AB) of the Income Tax Act 26, 1961 provides weighted tax deduction of 150% of the expenditure incurred by a specified company, on scientific research in the in-house R&D centers as approved by the prescribed authority. This does not include expenditure on the cost of any land or building. The weighted tax deductions of 150% are effective until 31 March 2020. Consequently, the weighted tax deductions will be 100%.

STATE INCENTIVES

Apart from the mentioned incentives, each state in India offers additional incentives for industrial projects. Incentives are provided in the following: rebates in land cost, relaxation in stamp duty exemption on sale or lease of land, power tariff incentives, a concessional rate of interest on loans, investment subsidies/tax incentives, backward areas subsidies, special packages for mega projects. Few examples are -

  • Andhra Pradesh
    • Government of Andhra Pradesh is committed to providing land at concessional rates, along with 24 hours nonstop power supply.
    • Capital subsidy of 50% for common infrastructure in auto clusters and ASMC developers, up to a maximum of $3.07 Mn.
    • Financial assistance limited to 75% of the cost, subject to a maximum of $38,461 for obtaining patent registration. While 50% of all charges are subject to a maximum of $7,692 paid for obtaining quality certification. This is applicable to only MSME units.
    • Under marketing incentives, 50% of participation cost with a maximum amount of $7,692 to be reimbursed to at the most 10 MSME units annually, for participating in international trade fairs.
  • Gujarat
    • Auto component manufacturers can either avail general incentives under the Gujarat Industrial Policy 2015, or under the scheme for Mega / Innovative Projects.
  • Jharkhand
    • Jharkhand introduced Automobile and Auto Component Policy 2016 with an aim to make Jharkhand, a preferred destination for automobile and auto-component manufacturing units. Provision of financial assistance of 50% for fixed capital investments in building and common infrastructure up to a maximum of $3.07 Mn. 100% electricity duty exemption shall be provided for 10 years from the date of production.

EXPORT INCENTIVES

  • Under the Merchandise Export Incentive Scheme (MEIS), automobile manufacturers get a benefit of 2% on vehicle exports.
  • About 20 tariff headings have been considered as “Sensitive items” to be maintained in the negative list of India in most of the trade agreements.

AREA-BASED INCENTIVES

  • Incentives for units in SEZ/NIMZ as specified in respective acts or the setting up of projects in special areas like the North-east, Jammu & Kashmir, Himachal Pradesh and Uttarakhand.
INVESTMENT OPPORTUNITIES
  • Passenger vehicles: passenger cars, utility vehicles, multi-purpose vehicles.
  • Two-wheelers: mopeds, scooters, and motorcycles.
  • Three-wheelers: passenger carriers, goods carriers.
  • Commercial vehicles: light commercial vehicles, medium and heavy commercial vehicles.
  • Huge demands for low-cost electric vehicles that are suited for safe short-distance urban commutes (averaging 50-100 km/trip) that are rugged enough to perform reliably through India's summers and monsoon. It is estimated that total electric vehicles sales would amount to 6-7 mn units by 2020.
FOREIGN INVESTORS
  • BMW (Germany)
  • Borgward Automotive India Private Limited (Germany)27
  • Daimler India Commercial Vehicles Pvt Ltd (Germany)
  • FIAT (Italy) Ford (USA)
  • General Motors (USA)
  • Honda (Japan)
  • Hyundai (South Korea)
  • Kia Motors (South Korea)27
  • Mercedes (Germany)
  • Nissan (Japan)
  • Piaggio (Italy)
  • Renault (France)
  • Sumitomo Corporation (Japan)27
  • Suzuki (Japan)
  • Toyota (Japan)
  • Volkswagen (Germany)
  • Volvo (Sweden)
AGENCIES
SOURCES
  1. Press Information Bureau, Ministry of Heavy Industries & Public Enterprises - ICAT - A World Class Automotive Testing Centre, http://pib.nic.in/newsite/PrintRelease.aspx?relid=189887 accessed on 08 May 2019
  2. Mckinsey & Company, The future of mobility in India’s passenger vehicle market, https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/the-future-of-mobility-in-indias-passenger-vehicle-market accessed on 08 May 2019
  3. Department of Heavy Industries, Annual Report, https://dhi.nic.in/writereaddata/DHI_2017-18_annual_report/files/basic-html/page49.html accessed on 08 May 2019
  4. Society of Indian Automobile Manufacturers, Performance of Auto Industry during 2018-19, http://www.siamindia.com/statistics.aspx?mpgid=8&pgidtrail=9 accessed on 08 May 2019
  5. EY Industry report of Emerging Markets Information Service (EMIS), Indian Automobiles Industry – Update,  accessed on 08 May 2019
  6. Society of Indian Automobile Manufacturers, Automotive Mission Plan 2016-26: A curtain raiser, http://www.siamindia.com/uploads/filemanager/47AUTOMOTIVEMISSIONPLAN.pdf accessed on 08 May 2019
  7. Society of Indian Automobile Manufacturers, Automotive Mission Plan 2016-26: A curtain raiser, http://www.siamindia.com/uploads/filemanager/47AUTOMOTIVEMISSIONPLAN.pdf accessed on 08 May 2019
  8. Mckinsey & Company, The future of mobility in India’s passenger vehicle market, https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/the-future-of-mobility-in-indias-passenger-vehicle-market accessed on 08 May 2019
  9. Mckinsey & Company, The future of mobility in India’s passenger vehicle market, https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/the-future-of-mobility-in-indias-passenger-vehicle-market accessed on 08 May 2019
  10. Press Information Bureau, Ministry of Heavy Industries & Public Enterprises - ICAT - A World Class Automotive Testing Centre, http://pib.nic.in/newsite/pmreleases.aspx?mincode=53 accessed on 08 May 2019
  11. Society of Indian Automobile Manufacturers, Performance of Auto Industry during 2018-19, http://www.siamindia.com/statistics.aspx?mpgid=8&pgidtrail=9 accessed on 08 May 2019
  12. Society of Indian Automobile Manufacturers, Performance of Auto Industry during 2018-19, http://www.siamindia.com/statistics.aspx?mpgid=8&pgidtrail=9 accessed on 08 May 2019
  13. Society of Indian Automobile Manufacturers, Performance of Auto Industry during 2018-19, http://www.siamindia.com/statistics.aspx?mpgid=8&pgidtrail=9 accessed on 08 May 2019
  14. Indo American Chamber of Commerce, IACC Automotive and Auto Ancillaries Forum, https://www.iaccindia.com/automotive/ accessed on 08 May 2019
  15. Department for Promotion of Industry and Internal Trade, Fact Sheet on Foreign Direct Investment, https://dipp.gov.in/sites/default/files/FDI_Factsheet_27May2019.pdf accessed on 28 May 2019
  16. Department of Heavy Industries, Office Memorandum, https://dhi.nic.in/writereaddata/UploadFile/publicationNotificationFAME%20II%208March2019.pdf accessed on 08 May 2019
  17. EY Industry report of Emerging Markets Information Service (EMIS), Indian Automobiles Industry – Update,  accessed on 08 May 2019
  18. Press Information Bureau, Year End Review 2018 – Ministry of Heavy Industries & Public Enterprises, http://pib.nic.in/newsite/pmreleases.aspx?mincode=53 accessed on 08 May 2019
  19. Press Information Bureau, Year End Review 2018 – Ministry of Heavy Industries & Public Enterprises, http://pib.nic.in/newsite/pmreleases.aspx?mincode=53 accessed on 08 May 2019
  20. Secunded European Standardization Expert in India, Indian Automobile Industry, http://www.sesei.eu/wp-content/uploads/2018/12/Automotive-Sector-Report_-Final.pdf accessed on 08 May 2019
  21. Indo American Chamber of Commerce, IACC Automotive and Auto Ancillaries Forum, https://www.iaccindia.com/automotive/ accessed on 08 May 2019
  22. Secunded European Standardization Expert in India, Indian Automobile Industry, http://www.sesei.eu/wp-content/uploads/2018/12/Automotive-Sector-Report_-Final.pdf accessed on 08 May 2019
  23. Secunded European Standardization Expert in India, Indian Automobile Industry, http://www.sesei.eu/wp-content/uploads/2018/12/Automotive-Sector-Report_-Final.pdf accessed on 08 May 2019
  24. Secunded European Standardization Expert in India, Indian Automobile Industry, http://www.sesei.eu/wp-content/uploads/2018/12/Automotive-Sector-Report_-Final.pdf accessed on 08 May 2019
  25. Secunded European Standardization Expert in India, Indian Automobile Industry, http://www.sesei.eu/wp-content/uploads/2018/12/Automotive-Sector-Report_-Final.pdf accessed on 08 May 2019
  26. Income Tax Department, Section 35: Notified Scientific Research Association, https://www.incometaxindia.gov.in/Pages/utilities/Notified-Scientific-Research.aspx accessed on 08 May 2019
  27. Society of Indian Automobile Manufacturers, Performance of Auto Industry during 2018-19, http://www.siamindia.com/statistics.aspx?mpgid=8&pgidtrail=9 accessed on 08 May 2019
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