Owning a car in today’s world has become something of a necessity. With vehicles catering to each segment in the country, purchasing a personal vehicle has now become a verity for the common man. Things however were not always this merry. Flashback to the pre 1980s, automobiles in this era were a luxury reserved only for the super-rich. This was due to the fact that the industry was initially dominated by national vehicle manufacturers like premier automobile and Hindustan Motors, these two acting as a monopoly often charged exorbitant prices due to high import tariffs and costs of production which often caused a case of excess demand due to a limited supply of vehicles being produced.  However, since the advent of Suzuki’s collaboration with Maruti Udyog Ltd. in 1983, the automobile sector in the country has grown quite extensively, so much that it now accounts for 22% of the country’s GDP. With a growth of 5.23% from 2014-2015 and an annual production of 21.48 million vehicles in 2014, it is now one of the largest and most competent sector in the World.  South-eastern Asia in particular is now being regarded as the ”next big thing” owing to lenient wage laws, an educated workforce and low costs of operation. Furthermore, the rapid growth in population along with an increment in the working class population along with an improvement in living standards has further boosted demand for automobiles in the country. This has not only boosted trade but has allowed the country to significantly improve its position as an auto exporter, with experts predicting India to gain market leadership in both two and four wheeler segment by the year 2020.

Indian based firms too have witnessed growth due to a greater production efficiency resulting from an increment in foreign workforce vying for jobs in Indian MNCs. Many foreign automobile MNC’s too are looking for opportunities to enter the market and have increased their investments in various segments with FDI in the industry amounting to $12,232.06 million during the period April to February 2015. To give an overview of the current happenings, major developments in 2015 include:

  • DSK Hyosung’s announcement to set up plants in Maharashtra and an increment in the number of dealerships as well as an introduction of more models. On the other hand, BMW too has decided to take advantage of the workforce and has decided to outsource raw components from around seven India-based automakers.
  • Indian companies are not far behind either, with Mahindra Two Wheelers Ltd. taking over Peugeot Motocycles (PMTC) and Tata Motors Ltd, strengthening their presence in the Asia-pacific region by opening manufacturing plants in the region.

The above examples are just a few developments that have taken place this year alone. With FDI being increased to 100 percent under the automatic route, these should come as no surprise and with excise duty on small cars, scooters, motorcycles and commercial vehicles being reduced from 8% to 12% within a year; the “Make in India” initiative which was only a dream previously can also now be realized. There are however a couple of roadblocks  that are being faced by the industry around the world, these include the rapid consumption of nonrenewable resources which experts say will only last until 2050, the other being an exponential increment in pollution levels, especially in India wherein the total number of vehicles amount to approximately 200 million. Although the future looks grim, the government in cooperation with the private sector has come up with plans to tackle this problem which include:

  • Promotion of eco-friendly vehicles in the country i.e. CNG based vehicle, hybrid vehicle, electric vehicles as well as a law being passed requiring petrol to be blended along with Ethanol in order to save costs and lower CO2 emission levels.
  • Formulation of a a Scheme for Faster Adoption and Manufacturing of Electric and Hybrid Vehicles in India, under the “National Electric Mobility Mission 2020” which aims to encourage the progressive induction of reliable, affordable and efficient electric and hybrid vehicles in the country.

The policies above along with the support of Modi government have allowed the country to be at par with Japanese and German automobile sectors. Although the country may not possess all the necessary raw materials to manufacture a car, it does provide 97% of the materials for production.  One factor which is a major constraint and which cannot be prevented is unemployment. Granted, it’s true that as more and more companies enter the market, unemployment will decrease. Structural unemployment though will occur due to the industry leaning towards a more capital-intensive approach of production as technology progresses. The extent to which this occurs is of course a subject of debate.

Sammarth Tuli

The writer is a student at SSCBS, DU. The views expressed are based upon the analysis and research that the writer did on the topic from various books, reports and web articles.  The writer regularly writes for Corporate Monks as a research associate. The writer takes personal responsibility for the ownership of the content shared and incase some sources have not been given credit, you can directly mail the writer at-.samarth397@gmail.com