indian automobile sector

Indian Automobile Sector

Market Outlook

In a report released by Moody’s Investor Service, it has been predicted that India will have the fastest increase in car sales in Asia-Pacific in 2022.

According to the report, India, the world’s fourth largest automotive industry, is expected to rise by 10% in 2022 due to solid underlying demand reflecting the global economic recovery and customers’ preference for personal vehicles over public transportation. In 2021, India grew at a rate of 27 percent.

The Indian automotive sector is optimistic about the coming year, with sales expected to return to pre-pandemic levels. As demand remains resilient – particularly in the passenger vehicle segment – large-scale digitization, rapid economic growth, and lessons learned from the pandemic’s first two years are expected to come in handy. Furthermore, several automakers are open to implementing new technology, particularly in the electric mobility category, which is projected to result in a slew of new models in both the four- and two-wheeler categories by 2022.

Impact Of Covid-19

As we reach the third year of the pandemic, and as we face yet another wave of COVID19, the Indian auto sector has once again proven to be incredibly resilient. Given that the industry was already in its worst recession in decades when the epidemic first struck in 2020, carmakers have done a fantastic job of capitalising on the unexpected demand for personal transportation. Despite a series of lockdowns and a severe semiconductor shortage, which has thrown manufacturing timetables and launch timelines off. Despite these obstacles, car sales in India increased by 27% in 2021. 

Drivers of the Indian Auto Industry

Rapid urbanisation 

India’s automobile industry is driven by rapid urbanisation. The urbanisation rate in India is anticipated to be 33.2 percent, with a forecast of 36.2 percent by 2025, necessitating the purchase of more vehicles. By 2050, 60% of Indians will live in cities; Delhi, Mumbai, and Kolkata will be among the world’s largest cities, with populations of over 100 million. The demand for automobiles will be fueled by this growing urbanisation.

Infrastructure development and increased foreign investment

With multiple businesses joining the automotive production and development industry, India is emerging into a worldwide automotive R&D hub. The availability of a low-cost workforce, government backing through effective labour laws and other schemes, a well-established IP rights policy, cost benefits in setting up manufacturing facilities, and access to a huge consumer market to provide finished products have all contributed to this. 

By 2023, the Indian government anticipates the vehicle sector to receive USD 8,000-10,000 million in local and foreign investment. From April 2000 to June 2020, the autos sector received 5% of total FDI inflows to India. Investment into EV start-ups surged by over 170 percent in 2019 (through the end of November), reaching USD 397 million.

Growing Domestic User Base

For every 1000 persons in India, there are around 120 automobiles (all categories), which is predicted to climb to about 300 in the next ten years. The country’s consumer base is benefiting from increased income levels and improved general employment. From USD 6,393 in 2010 to USD 18,448 in 2020, the average household income has increased. By 2021, India’s emerging and middle-class sectors will total roughly 900 million individuals (or 62 percent of the country’s population), creating new economic prospects.

Key Trends

Source: ibef

The automobile industry is reliant on a number of elements, including the availability of low-cost trained labour, strong R&D centres, and low-cost steel production. The industry also offers excellent investment prospects as well as direct and indirect employment to skilled and unskilled workers.

After recovering from the ravages of the COVID-19 pandemic, the Indian auto sector is predicted to rise rapidly in 2022-23. Electric cars, particularly two-wheelers, are expected to sell well in 2022-23.

The emerging trend in FY 20-21 suggested a rise in interest in SUVs and hatchbacks. The SUV segment has grown to 32% and is performing exceptionally well. Hatchbacks, on the other hand, continue to be the more popular segment, accounting for over 47% of the market.

Another increasing trend to watch in 2022 is the resurgence of the CNG car market. CNG remains a cost-effective and widely accepted method of reducing the burden of high fuel expenses. Tata Motors has only recently entered this category, which had previously been dominated by Maruti Suzuki and Hyundai, and if the flurry of debuts in January are any indicator, expect carmakers to expand their CNG lineup dramatically in the coming year.

Before a great surge, 2022 could be a year of EV consolidation. Maruti Suzuki, Hyundai, MG Motor, and Mahindra are all planning to enter this segment with sub-15 lakh alternatives starting in 2023. Tata Motors will be the dominant player until then. In the following five years, the company plans to introduce ten additional electric vehicles, with the goal of selling 50,000 per year by 2023. 

Inter-state automobile transactions are now difficult and expensive, limiting the expansion of India’s used vehicle market. All inter-state transactions are subject to an integrated goods and services tax imposed by the Indian government. Changes in regulations are expected during the next five years, in line with the government’s reform strategy, making an interstate vehicle transfer hassle-free, convenient, and cost-effective.

Emerging technologies such as Artificial Intelligence (AI), the Internet of Things (IoT), and Machine Learning (ML) are being used by industry players to improve product development, manufacturing, and delivery capacities as part of the industry’s transformation. Digital trucking, automated warehouses, robotics, and enhanced factory automation are just a few examples of technology applications. The Indian government launched ASPIRE in 2020, a technology platform to help players with R&D and technical development.

Increased discretionary income in India has resulted in higher aspirations, resulting in a reduction in average ownership duration. The average time spent owning a car and a motorcycle has decreased from 4-6 years in 2015 to 3–5 years in 2019. Furthermore, governmental measures such as the ban on the sale of diesel cars older than ten years in Delhi-NCR have reduced the average length of car ownership.

Major Challenges for the Auto Sector

A Shortage of Qualified Workers 

Industry growth, a growing economy, rapidly changing technologies, increased disposable income, and shorter life cycles for new consumer cars have all prompted an increase in the demand for new trained labour and upskilling within the industry. 

Lack of trained people is the greatest threat to the automotive industry’s growth. To meet expanding demands and provide employment for 15 million people by 2022, the industry will require an additional manpower of roughly 30 million workers. Slow infrastructure development can restrain the industry’s ability to grow and accelerate, therefore advancing skilled labour is critical.

New regulations are causing disruptions. 

New restrictions are causing technological upheavals in the auto sector. Automobiles must comply with Bharat Stage IV to Bharat Stage VI, an emission control standard, starting in April 2020, to bring India up to level with sophisticated countries such as Europe and the United States. 

The transition from Bharat Stage IV to Bharat Stage VI emission standards has posed hurdles to the automobile industry on both the manufacturing and sales fronts, requiring technological upgrades and the shutdown of operations to avoid stockpiling outdated inventory. The exorbitant expense of complying with new standards, along with the enormous pressure to invest in BSVI technologies, is wreaking havoc on the car sector.

Adoption of information and communication technologies (ICT) is low. 

When compared to worldwide standards, ICT adoption in the Indian automobile sector is substantially lower. Many companies are having difficulty adopting IT, which is critical for improving efficiency, competitiveness, and the industry’s overall growth. 

The ICT interface allows OEMs to engage with vendors and consumers on a regular basis, as well as incorporate their ideas and preferences into vehicle design. Increased IT use in the automotive sector not only improves the industry’s competitiveness in existing markets, but it also opens up new markets for the Indian industry. The IT sector has a significant role to play in the development of the Indian automobile industry in order for it to attain its worldwide goals.

Government Policies

Favourable government policies, such as the recently announced Rs. 76,000 crores for semiconductor manufacturing, the extension of FAME-II until 2024, improved incentives for the two-wheeler segment, production-linked incentive (PLI) scheme for the auto and auto component sector for Rs. 26,000 crores, and PLI for advanced chemistry cell for Rs. 18,000 crores, will provide enormous support to the sector as it implements innovative technologies.

Union Budget 2022 – Auto Sector

With the start of a new year comes a new Union Budget for 2022, which is expected to strengthen the economy even more than the previous year. As part of the ‘Azadi ka Amrit Mahotsav’ effort, this year’s budget focuses on providing a framework for preparing India and its economy for the vision of India at 100.

Nirmala Sitharaman, the Finance Minister, has proposed a growth-oriented Budget for this year. Here’s a look at all the effects of Union Budget 2022 on Indian Automobile Sector –

Capex allocation has been improved.

A rise in capex spending, as well as a broader focus on infrastructure, is a significant plus in the growth of the sector. The government has announced a substantial increase in capex outlay of 35.4 percent to INR 7.5 lakh crore this year, up from INR 5.54 lakh crore last year. This move will provide the commercial vehicle industry a much-needed boost, particularly in the M&HCV class, which has seen dramatic demand contraction over the last two years.

Incentives for start-ups under the tax code

“This step will give a boost to the startup community and along with my proposal on extending tax benefits to manufacturing companies and startups reaffirms our commitment to Atma Nirbhar Bharat” – Nirmala Sitharaman.

The number of mobility startups has exploded in recent years, and more support has been accessible in all areas. The finance minister stated on Tuesday that the time of incorporation for qualifying companies will be extended by one year in order to provide tax benefits, in an effort to bolster the country’s “growth drivers.”

The Finance Minister also proposed a 15% fee on long-term capital gains deriving from the transfer of any sort of asset in her Budget speech. She also proposed forming an expert council to oversee the mobilisation of money for startups via venture capitalists and private equity.

Efficient Electric Vehicle Policies

Electric Vehicles receive a boost in the form of efficiency-focused EV legislation, as climate action and sustainable development become a primary priority for this budget. With the Battery as a Service approach, an emphasis on battery swapping policies is being highlighted to improve EV uptake in cities. This will aid in the development of interoperability standards, making electric vehicles more affordable and accessible.

Support for MSMEs 

The government’s Raising and Accelerating MSME Performance (RAMP) programme, which will cost INR 6,000 crore over five years, will give a boost to the manufacturing MSME sector. The goal of this initiative is to boost MSMEs’ credit and market access. The Finance Minister further stated that the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) plan will be reformed with the necessary infusion of money, allowing MSMEs to access extra credit worth INR 2 lakh crore and creating jobs.

MSMEs account for over 80% of local car parts, and RAMP programmes will assist them address many of their pressing concerns, including payment delays and loan access.

A Boost for the Local Parts Manufacturers 

Import duties on specific components (such as brake systems, electronic and engine elements including lights, windshield wipers, and turbo chargers) were suggested to be raised to 15% from 7.5 percent to 10% in the Budget. This would undoubtedly boost local manufacturing of key components, which has been a government priority.

Other Major Policies

  • 400 new generation Vande Bharat high speed trains with better efficiency to be brought in during the next 3 years. 
  • 100 PM Gati Shakti Cargo terminals to be developed during next 3 years 
  • Metro systems to be standardised keeping in mind Indian conditions and needs
  • PLI scheme extended to solar equipment for higher efficiency solar power modules. This could lead to improved charging infrastructure on highways and cities.

Future Outlook


Favourable Demand and Market Outlook

The demography of India is changing with the middle class and young population rising at a rapid pace. This is expected to give India an opportunity to lead shared mobility by 2030 owing to new and upcoming opportunities for EV and autonomous vehicles. Changing consumer preference on personal mobility owing to the change in demography, and the rising disposable income resulting from the higher middle class segment in the country, and the various government initiatives supporting the Indian automobile industry are expected to create more demand for automobiles.

Growing EV Market

The Indian electric vehicle market is still in its infancy, but it is expected to develop at a 90 percent CAGR from 2021 to 2030. In terms of penetration, electric car sales in India will account for only 1.3 percent of total vehicle sales in 2021. The market, on the other hand, is fast expanding and is predicted to grow in value. By 2030, India’s transition to shared, electrified, and connected mobility could save roughly one gigatonne of carbon dioxide emissions.

Expanded digital service options 

Companies are implementing end-to-end digitisation of sales with the creation of user-friendly online retail platforms in the automobile industry to better service customers and promote online sales. The number of visitors to dealer websites has increased. For instance, Maruti Suzuki has seen a five-fold surge in digital sales, which now account for 20% of total sales. 

To enable online financing solutions, OEMs are cooperating with banks and finance partners. In addition, digital media is becoming significant in influencing car consumers’ purchasing decisions – Online video is also playing a larger part in the auto-buying process.


In 2019, South Korean brand Kia and Chinese car manufacturer MG Motors entered the Indian market; Tesla recently entered the Indian market; and companies such as FAW Haima, Citroen, and Great Wall Motors are planning to launch in India; and this is driving an increase in product development collaboration between foreign and Indian companies. Partnerships between Ford and Mahindra & Mahindra, Citroen and the CK Birla group, for example. 

Due to a growing middle class and a large part of India’s population being young, the two-wheeler category dominates the market in terms of volume. 

India is a major vehicle exporter, with excellent export growth prospects in the near future. In addition, many initiatives by the Indian government and major vehicle manufacturers are expected to propel India to the forefront of the global two-wheeler and four-wheeler markets by 2022.

Over the last four years, the Indian automobile industry has been put to the test, and COVID-19 has proven to be a litmus test. The sector has endeavoured to use this time to reflect; some have even attempted to reskill employees, strategize for future improvement, and examine new technology. 

Although the sector has exhibited signs of recovery since August 2020, and higher sales patterns are encouraging, the road to recovery is still long. The auto sector is cautiously optimistic about 2022, yet much will depend on how the economy develops.

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