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Sansad TV: Indian Automobile Industry

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Introduction:

Automobile sector is leader in product and process technologies in the manufacturing sector. It has been recognized as one of the drivers of economic growth and the domestic automobile industry is believed to be the barometer of the economy. Such a belief is in line with international trends since in most mature economies the automobile industry’s performance is viewed as a reflection of the economy’s health.

This sector has emerged as sunrise sector in the Indian economy. The automobiles sector is divided into four segments – two-wheelers, passenger vehicles, commercial vehicles and three wheelers. Over the past ten years, India has emerged as one of the most preferred locations in the world for manufacturing high-quality automotive components and vehicles of all kinds, narrowing its gap over several established locations in the process. Over 500 million people are expected to be living in Indian cities by 2030.

Clubbed with growing income levels, it is expected that India’s consumer class will expand, leading to higher spending on more and better vehicles across segments – providing automotive companies with a ready-made market.

Contributions of Auto Industry to India’s economic growth

  • The Indian auto industry truly embodies the spirit of Atmanirbhar Bharat, and perhaps many other industries can take some lessons from it.
  • The industry contributes 6.4 per cent to GDP, around 35 per cent to manufacturing GDP, supports over 8 million jobs directly (OEMs, suppliers and dealers) and as many as 30 million more in the value chain.
  • It accounts for cumulative investments of $35 billion over last 10 years, and generates export revenue of $27 billion that is nearly 8 per cent of the total merchandise exports from India.
  • The auto industry does a lot of good for the MSME sector which is a big employment generator for India and an important cog in the Indian economy.
  • The MSME share of value-addition to a car is 35 per cent.
  • Further, the automotive aftermarket provides economic opportunities to thousands of MSMEs.
  • While no official count is available, one estimate puts the total number of MSMEs engaged in the auto value chain in the range of 25,000-30,000.

Challenges faced today

  • Automobile sales in India witnessed its sharpest decline in nearly 19 years in July 2019, dropping 18.71%, rendering almost 15,000 workers jobless over the past quarter.
  • This year, in major parts of the world, the automobile sector is witnessing slowdown, sale figures are low in Europe and in the USA, only from the month of July, the situation has improved a little.
  • In the past two years, when the market was good, auto sales in cities like Delhi, Mumbai and Bangalore were declining. The growth was coming from the small town India.
  • The ecosystem in the small towns has got disturbed, may be due to demonetisation and transition to the Goods and Services Tax (GST).
  • Uncertainty on BS VI norms also killed auto sales.

Way Forward

  • The present slump in the automobile industry seems to be a temporary phase. Festive season and good monsoon will provide a much needed trigger.
  • At least for some time, there is a need to reduce GST on cars and that on the two wheelers. The state governments also need to reduce the road tax.
  • Liquidity needs to be converted into aggressiveness or willingness to finance. The NBFCs need to be encouraged to provide finance to people for buying cars. This would help in increasing sales of cars at retail level.
  • The market is large enough to accommodate both internal combustion engines as well as Electric Vehicles. The government just needs to frame its policies accordingly.
  • Overall, there is a need to provide a boost to the economy, so that disposable income of people increases and thus the overall demand.
  • The government needs to ensure that the auto industry does not bear the brunt of transition to more environment-friendly fuels
  • If the nation wants to be a $5 trillion economy, it cannot happen without the auto industry making a major contribution.