With a population of more than 1.3 billion people, India is the world’s second most populous nation and its largest democracy. It will overtake China in the population stakes within a decade, while it already has more people than the next five most populous nations (the US, Indonesia, Brazil, Pakistan and Nigeria) combined.

India is known for being a Third World country – and poverty is still rampant – but it also has a burgeoning middle class that reached 267 million in 2016 and is projected to reach 547 million by 2025-26.

That is one seriously large market. And in a country of traditionally low personal car ownership, it is a huge growth market with massive potential for automotive retailers and manufacturers.

In 2017, India’s passenger car sales grew 8.8 per cent, to 3.27 million, making it the world’s fifth-largest car market, overtaking the United Kingdom.

India is projected to remain the fastest-growing major car market for at least the next three to five years, as the middle class swells and the infrastructure put in place by Prime Minister Narendra Modi’s government makes personal vehicle ownership more attractive and convenient.

India’s car penetration is still dwarfed by its global counterparts. It has just 50 cars per 1,000 people, a fraction of the level of penetration in western nations. To compare, Australia has about 700 cars per 1,000 people, while China has around 200 cars per 1,000 people.

Encouraging the rise in car ownership are the rapid developments in road construction in India. The Ministry of Road Transport and Highways expects to grow the national highway network by 20,000 kilometres (66 per cent) in the next two years alone.

New roads are one factor – another is affordability. India’s household debt-to-GDP ratio is only 9.7 per cent, compared to 80.1 per cent in the US; 58.6 per cent in Japan; 48 per cent in China, and a whopping 122.2 per cent in Australia. India’s middle class clearly can afford to buy new cars.

In March alone, Indian passenger car sales grew 12 per cent year on year, and the country has now surpassed Germany to become the world’s fourth-largest car market.
The automotive industry in India is one of the largest in the world, with an annual production of 4.8 million vehicles in 2017, which makes it the world’s fifth-largest producer of cars, behind China (29 million); the US (11.2 million); Japan (9.7 million) and Germany (5.7 million).

Motorcycles have long been the vehicle of choice for Indians, with the Two Wheelers segment making up 81 per cent of the Indian Automobile market compared to 13 per cent for the overall Passenger Vehicle segment.

India is a major exporter of automobiles, with double figure growth in automobiles. Initiatives by the Indian Government and major players in the Indian automotive market are expected to make India a leader in the Two Wheeler and Four Wheeler world markets by 2020.

Investment

In order to keep up with the growing demand, several auto makers have started investing heavily in various segments of the industry. The industry has attracted foreign direct investment worth US$17.4 billion (AU$24.5 billion) during the period April 2000 to June 2017, according to data released by Department of Industrial Policy and Promotion.

In 2015 Ford opened a US$1 billion (AU$1.4 billion) vehicle assembly and engine plant in Sanand, Gujurat, which doubled its annual installed capacity in India to 610,000 engines and 440,000 vehicles.

The world’s largest air bag suppliers, Autoliv Inc; TRW Automotive Inc and Toyoda Gosei Co are setting up plants and increasing capacity in India.

General Motors plans to invest US$1 billion in India by 2020, mainly to increase the capacity at the Talegaon plant in Maharashtra from 130,000 units a year to 220,000 by 2025.

US-based car maker Chrysler has planned to invest US$525 million in Maharashtra to manufacture the Jeep Grand Cherokee model.

Mercedes Benz has decided to manufacture the GLA entry SUV in India. The company has doubled its India assembly capacity to 20,000 units per annum.

Germany-based luxury car maker BMW’s local unit has announced it will procure components from seven India-based auto parts makers.

Meanwhile, as a sign of the growing financial muscle of the Indian industry, Mahindra Two Wheelers Limited acquired a 51 per cent share in France-based Peugeot Motorcycles.

Government Initiatives

The Indian Government encourages foreign investment in the automobile sector and allows 100 per cent Foreign Direct Investment (FDI) under the automatic route.

Major initiatives undertaken by the government include:

• Making automobile manufacturing the main driver of the ‘Make in India’ initiative. It expects the passenger vehicles market to triple to 9.4 million units by 2026, as highlighted in the Auto Mission Plan (AMP) 2016-26.
• In the Union budget of 2015-16 the Government announced plans to provide credit to farmers of Rs 850,000 crore (AU$179.4 billion), which is expected to boost sales in the tractors segment.
• The government plans to promote eco-friendly cars in the country, i.e. CNG-based, hybrid and electric vehicles, and also to make mandatory 5 per cent ethanol blending in petrol.
• The government has formulated a Scheme for Faster Adoption and Manufacturing of Electric and Hybrid Vehicles in India, under the National Electric Mobility Mission 2020, to encourage the progressive introduction into the country of reliable, affordable and efficient electric and hybrid vehicles.
• The Automobile Mission Plan (AMP) for the period 2006–2016, designed by the government, was aimed at accelerating and sustaining growth in this sector. Also, the well-established Regulatory Framework under the Ministry of Shipping, Road Transport and Highways, plays a part in providing a boost to this sector.

It is clear that the current Indian automotive market is just the tip of a potentially gigantic iceberg. It is a situation we will follow with interest.