Home / Industry / Manufacturing /  Govt aims to make automobiles lynchpin of manufacturing drive

New Delhi: The government wants to turn the automotive sector into the “mother of manufacturing activities" by making it the engine of Prime Minister Narendra Modi’s “Make in India" initiative, according to a government document that was to be made public on Wednesday.

The National Democratic Alliance (NDA) government expects the passenger vehicles (PV) market to triple to 9.4 million units by 2026 from 3.2 million now if the economy grows at an average rate of 5.8% a year, says the document titled Auto Mission Plan (AMP) 2016-26.

If the economy grows at an average yearly pace of 7.5%, the size of the PV market is forecast to rise to 13.4 million units, making it the world’s second largest, behind only China.

Based on the same premise, the commercial vehicle industry is expected to grow to 2 million and 3.9 million units, respectively, from 700,000 at the end of 2014-15. The two-wheeler market is likely to grow to 50.6 million and 55.5 million from 18.5 million units currently.

The report is expected to be released at the 55th annual convention of lobby group Society of Indian Automobile Manufacturers (Siam), which begins on Wednesday. Mint has reviewed a copy of the document.

To achieve the projections, the automotive industry will require an additional investment of 4.5 trillion to 5.5 trillion.

Over the next decade, the automotive sector is likely to contribute in excess of 12% of India’s gross domestic product (GDP), up from 7% now, and make up more than 40% (up from 16% now) of the manufacturing sector. Around 13% of the government’s excise duty collection will come from the auto industry. The projections come at a time when the government is seeking to attract foreign investment into manufacturing through the Make in India initiative to boost economic growth. Manufacturing’s share of India’s economic output has stagnated at around 15% in the past decade.

According to the document, the government expects the automotive industry to generate 65 million jobs in the next decade. Auto industry output is forecast to increase 3.5-4 times from 4.64 trillion to 16.16 trillion and 18.885 trillion by 2026.

According to an expert, however, the projections seem to be “too long drawn".

“Forecasting loses its relevance for such a long term," said Anil Sharma, principal analyst at sector-specific forecasting firm IHS Automotive.

IHS Automotive, however, remains bullish on the Indian automobile market. “We are very positive on the industry. We have seen oil price reduction, interest rates coming down. We see a lot of positives but they can vanish over a period of 3-4 years. Also, the industry is very cyclical. After every 3-4 years, there is a fall and then it again picks up," Sharma said.

This is the second long-term plan prepared by the government for the automobile industry. The first, launched in 2006, projected the auto sector’s contribution to GDP would rise to 10% by 2016 from 6% then and the combined output of the automobile and auto components industry to rise to $145 billion. Its contribution to manufacturing was forecast to increase to 25% from 16%.

“The rapid growth of the Indian automotive industry will provide a strong fillip to the micro & small and medium industries of the country across multiple sectors, the development of which is one of government’s principal objectives," the latest AMP document said.

A questionnaire sent to the department of heavy industries, the nodal ministry for the sector, remained unanswered. Siam declined to comment.

AMP 2026 is the collective vision of the government and the automotive industry on growth projections for the vehicles, auto components, and tractor industries over the next 10 years.

Export hub

The Indian automotive industry (both vehicles and auto components) has the potential to scale up exports to the extent of 35-40% of its overall output over the next ten years and become one of the major automotive export hubs of the world, said the document.

“On the flip side, the import intensity of automobiles is likely to increase in the coming years on account of the increasing use of electronics and the enhancement in the value of design and engineering in making of vehicles and components," it said.

India shipped 622,000 passenger vehicles in the year to March, up 4.42% from a year ago. Exports have helped auto firms mitigate risk from cyclical changes in demand at home and in overseas markets. Tepid domestic demand in the past three years prompted a renewed export thrust by auto firms.

Containing pollution

Amid concerns over increasing air pollution caused by automobile emissions, AMP 2026 calls for emission standards on par with international levels to be implemented all over the country in a transparent manner.

“The lag between global norms and the mandatory norms in India should be brought down from the present 7-8 years," it said.

Introduction of fuel emission norms will be done all over India simultaneously and not in a phased manner or in select regional areas. Currently, India has BS IV emission norms for vehicles. These were introduced in April 2010 and all passenger vehicles manufactured since then have been compliant with these emission norms. However, BS IV fuel is not available across the country because refiners such as Indian Oil Corp. Ltd and Bharat Petroleum Corp. Ltd, among others, have not managed to produce this fuel in sufficient quantities. BS IV petrol and diesel contain less sulphur, a major air pollutant, than BS III-compliant fuels, and are critical to lowering pollution and improving air quality.

Safe vehicles

The government also proposed a clear roadmap over the next decade that will make Indian vehicles and auto components comply with global standards of safety in line with the World Forum for Harmonization of Vehicle Regulations, a global standard for vehicle safety.

“Standards will be adopted and implemented in a manner that ensures that they are relevant in the Indian context, and, importantly, do not render vehicles or components unaffordable for Indian consumers," the document said.

Last year, UK-based vehicle-testing agency Global New Car Assessment Programme said many cars such as Maruti Suzuki India Ltd’s Swift and Nissan Motor India Pvt. Ltd’s Datsun Go are unstable and may increase the “probability of life-threatening injuries" in accidents.

The agency had given zero-star adult protection ratings to car models including the Maruti Alto, Tata Motors Ltd’s Nano, Volkswagen India Pvt. Ltd’s Polo, Hyundai Motor India Ltd’s i10 and Ford India Pvt. Ltd’s Figo.

Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less

Recommended For You

Trending Stocks

Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout