Future Of Automobile Market In India

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Pranjal Agrawal
May 13, 2019   •  7 views

The Indian auto industry became the 4th largest in the world with sales increasing 9.5 per cent year-on-year to 4.02 million units (excluding two wheelers) in 2017 and it is expected to emergeas the world’s third-largest passenger-vehicle market by 2021.

It took India around seven years to increase annual production to four million vehicles from three million. However, the next milestone—five million—is expected in less than five years.

Currently, the automotive sector contributes more than 7 percent to India’s GDP.The Automotive Mission Plan 2016–26 sets an aspiration to increase the contribution to 12 percent.

A number of economic trends could help in meeting this target.Rapid urbanizationmeans the country will have over 500 million people living in cities by 2030—1.5 times the current US population. Rising incomes will also play a role, as roughly 60 million households could enter the consuming class (defined as households with incomes greater than $8,000 per annum) by 2025. At the same time, more people will join the workforce. Participation could reach 67 percent in 2020, as more women and youth enter the job market, raising the demand for mobility.

Some of them would leap straight into four-wheeler segment, and others will graduate from two- to four-wheelers. Over 44 percent of the consuming-class households will be in 49 growth clusters—for example, Delhi is expected to have the same GDP per capita at purchasing power parity as the entire country of Russia in 2025.Cities like Delhi are a sweet spot for car manufacturers to target.

Mini cars and hatchback cars have been the mainstay for the automobile industry in India, with share around 50 percent and growth of 6 to 7 percent between financial year 2014 and 2017. These segments will continue to maintain a dominant position, but the majority of growth is expected to come from new segments such as compact SUVs, sedans, and luxury vehicles.

The automobile industry is supported by various other factors such as availability of skilled labor at low cost, robust R&D centres and low cost steel production. The industry also provides great opportunities for investment and direct and indirect employment to skilled and unskilled labor.

Indian automotive industry (including component manufacturing) is expected to reach Rs 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026.

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