Automotive Industry Looks For Govt Thrust For A Re-Revolution

Avishek Banerjee Nov 02, 2020

It is a known fact that the domestic automotive industry is being considered as one of the building blocks of India’s economy. Some critical enablers like liberalization policy, private player participation and numerous policy interventions by the Central government over the past decade have ensured that India becomes a manufacturing hub for global automakers. Despite going through a couple of major economic downcycles in 2009 and 2012, this sector saw sustained growth in volumes and revenues. Discerning its long-term potentialities, the central government has reiterated it's commitment to handhold the auto sector through a number of policy interventions.

This sector was on a regular capacity expansion mode, which had a positive impact on the country’s employment rate at various levels, providing direct and indirect employment to over 29 million people. As a result, the contribution of this sector to the National GDP rose from 2.77% in 1992-93 to about 7.1% in 2020. Furthermore, the Gross Value Added (GVA) in the automobile manufacturing sector witnessed an estimated growth rate of 8.1% in 2018-19.

COVID-19 pandemic and Atmanirbhar programme

It is a known fact that Corona-induced slowdown impacted multiple industries and the auto industry is no exception. Automobile and its allied industries were compelled to close its manufacturing facilities due to slowdown and later due to lockdown. Despite those headwinds, the sector is now witnessing a resurgence as sales numbers look positive over the last couple of months. The union govt has also suggested some production linked incentive schemes that will augment local production and procurement for export in sync with its vision of an ‘Aatma Nirbhar Bharat programme.

Manufacturing of Hybrid and Electric Vehicles and National Electric Mobility Mission Plan (NEMMP 2020) have also been initiated recently with an aim to support hybrid/electric vehicles market development and ecosystem. Various central and state policies have also given a lot of fillip to the production and sales of green vehicles. Some of the other consumer-friendly measures taken by the government like reduction in corporate tax, increased budgetary outlay on the infrastructure sector, increase in liquidity to financial institutions and linking of repo rate to interest charged on vehicle loans, reduction in GST for e vehicles and rebate in Income Tax, etc.

The automotive industry as has reigned in every developed economy – can be the driver of India’s growth through ‘Atmanirbhar Bharat’ when supported with the creation of a business environment conducive to growth. The fact that major global automotive brands like Ford, BMW, Daimler, Toyota and Hyundai along with others have a fair share of FDI in the Indian market and have contributed to the ecosystem in ways such as - investing in a dedicated supply chain, generating hundreds of thousands employment opportunities, bringing in technological advancement through extensive R&D - highlights their importance with the intrinsic factors of the industry being impacted by the global players

Industry reboot need of the hour

As the Central government under the leadership of Prime Minister Sh. Narendra Modi has laid enormous emphasis on paving the way for a self-reliant India, the country is expected to emerge as the third-largest Automotive market in the world in terms of volume by 2026, followed by China and USA, as predicted by the government

The Indian automobile industry attracted $24.5 billion FDI during April 2000 - June 2020, accounting for 5.1 per cent of the total FDI inflows in the country, according to Invest India, making it all the more important for India to harbour a business climate that facilitates the further flow of investments, especially now when the country is looking to become the global manufacturing hub, with all eyes on its vision for a ‘New India.’ Moreover, next-gen companies like Tesla, etc. are especially keen to set up their facilities in India due to the presence of a large pool of skilled and semi-skilled workers and a strong instructive system.

However, there are umpteen challenges down the road as the market is witnessing diminishing prospects in recent times. The industry partially attributes this to the decline in demand numbers (low purchasing power and increased prices) and policy changes (e.g. taxes, moving to BS-VI, the advent of e-vehicles). Furthermore, many companies are facing liquidity crisis and are also forced to withdraw expansion plans/investments due to the slowdown caused by the pandemic. This in turn will hamper the infrastructure growth of the auto sector and deprive the government of future taxable earnings.

The first step for course correction will be to listen to criticism of the industry, rather than dismiss concerns as mere clamour. Otherwise, India Inc. will consist of a handful of very large business empires with no scope for free and fair competition