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Business News/ Industry / Manufacturing/  Govt’s Make in India pitch points to auto sector turnaround

Govt’s Make in India pitch points to auto sector turnaround

Aim is to make India the world's fourth largest market for automobiles by 2015 and third largest by 2016, behind only China, US

Photo: MintPremium
Photo: Mint

New Delhi: The Indian government plans to make the automobile industry a lynchpin of Prime Minister Narendra Modi’s ‘Make in India’ programme, aimed at attracting foreign investments and turning the country into a manufacturing hub.

The aim is to make India the world’s fourth largest market for automobiles by 2015 and third largest by 2016, behind only China and the US.

“Auto industry will be the main driver for manufacturing growth in the India. Therefore, the automotive sector has been chosen as a top priority area under the Prime Minister’s Make in India programme. We are working on the plan," a top government official said on condition of anonymity.

According to industry lobby group Society of Indian Automobile Manufacturers (Siam), combined sales of passenger and commercial vehicles grew at a compounded annual growth rate (CAGR) of 14.04% between 2001-01 and 2011-12 before slowing to a pace of 1.17% in 2012-13 and declining by 9.86% in 2013-14.

In a pitch to investors on its Make in India website, the government said the country is poised to become the third largest automobile market by 2016—next only to China and the US—and account for 5% of global vehicle sales. The site made no mention of absolute sales numbers.

India is now the sixth-largest automobile market, behind China, the US, Japan, Brazil and Germany.

In calendar year 2013 the Chinese market for passenger and commercial vehicles was 22 million units, followed by the US (15.88 million), Japan (5.37 million), Brazil (3.76 million), Germany (3.25 million) and India (3.24 million), according to Siam quoting the Organization Internationale des Constructeurs d’Automobiles, or OICA, a Paris-based federation of automobile manufacturers.

Modi launched the Make In India campaign in September to attract foreign companies to invest and manufacture in India and export to other countries after leading the National Democratic Alliance to victory in the April-May general election.

Modi and his Bharatiya Janata Party (BJP) have placed special emphasis on manufacturing, in which India lags behind Asian economies such as China, to boost economic growth that slumped to sub-5% levels in each of the past two fiscal years. India has set for itself an ambitious target of increasing the contribution of manufacturing output to 25% of gross domestic product (GDP) by 2025, from 16% now.

The automobile industry accounts for almost 7% of India’s GDP and employs about 19 million people, both directly and indirectly. India is currently the seventh largest automobile producer in the world with an average annual production of 17.5 million vehicles, of which 2.3 million are exported.

Passenger vehicles sales are to increase at a CAGR of 16% between 2013 and 2020 to more than 6 million units, according to the government’s Make in India pitch. Two-wheelers and three-wheelers are projected to expand at a CAGR of 9% between 2013 and 2020.

“A growing working population, an expanding middle class and increasing disposable incomes in the rural agri-sector are expected to remain key demand drivers," the government said on its Make in India website, adding that India’s per capita GDP, which rose from $1,432.25 in 2010 to $1,500 in 2012, is expected to reach $1,869.34 by 2018.

India has the world’s 12th largest number of high net-worth individuals, with an annual growth of 20.8%, the highest among the top 12 countries, according to the Make in India pitch.

According to R.C. Bhargava, chairman of India’s largest car maker, Maruti Suzuki India Ltd, India has the potential for the kind of growth needed to become the third largest automobile market.

“Whether that will happen is another question? First, the economy will have to kick off and then the growth momentum has to be sustained," he said.

Bhargava is just back from a “very well managed" Vibrant Gujarat summit, which he said received a “never seen before" response.

“The response was amazing—both from Indian as well as foreign delegates. Things like these tell you the potential of India’s growth story," he said.

Consulting and forecasting firm IHS Automotive said it had revised its projections from July 2013 when it said India will become the world’s third largest market by 2016—a forecast similar to the government’s—by deferring the year.

“We have revised projections for India, now expecting it to overtake Japan in 2018," Anil Sharma, senior analyst at IHS Automotive, said.

According to IHS, India will sell 4.91 million units of passenger and commercial vehicles in 2018 as against Japan’s 4.74 million units.

China and the US would continue to dominate the global automotive market with sales of 29.8 million and 17.7 million vehicles, respectively.

“In India, a lot will depend on what happens in the six months from now," Sharma said.

The new government faces the task of re-igniting investors’ interest, he said. “Its ability to do so will also be a function of its ability and intent to reform antiquated laws and make doing business easier in the country," he said.

According to the latest ranking of the World Bank’s Doing Business Index, India ranks 142 among 189 countries in terms of the ease of doing business.

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Updated: 15 Jan 2015, 12:57 AM IST
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