India is racing to become the world’s largest carmaker

India has big plans for the future, one of which is to become the world’s largest car manufacturer by 2029. Union Minister Nitin Gadkari said India’s auto industry’s rise to world No. 1 status will coincide with the country becoming the world’s third-largest economy. By 2029.

India is already the world’s third-largest automobile market, after China and the United States. Today, the share of “Made in India” cars driving around the world is rising. 2023 is a special year for the automobile industry, with exports growing by 4%. In fact, India’s car exports will reach 6,71,384 units in 2023.

It’s this rising momentum that seems to have convinced Narendra Modi’s government that its goal of turning India into the world’s largest carmaker is within reach.

Last week, Gadkari laid out the fundamental pillars for the growth of the Indian automobile industry. The center’s current focus is on building a world-class road network, switching to alternative fuels and reducing logistics costs to boost exports.

India’s desire to become a world leader in alternative and clean fuels is particularly noteworthy. The central government is keen to diversify away from fossil fuels, which cost imports as much as Rs 1,600 crore annually.

Gadkari said the government is working on a project with Indian Oil Corporation in Panipat to produce ethanol and bio-bitumen from rice straw. Prime Minister Narendra Modi has also called on the auto industry to ensure that Indian-made cars run in most global markets.

He also talked about the emergence of a new middle class who have just emerged from poverty and are looking to purchase vehicles to meet their travel needs. The automobile industry contributes 46% of manufacturing GDP and 7% of national GDP, while providing direct employment to approximately 1.5 million people. Therefore, for a country like India, which hopes to become a developed country in the next two decades, expanding this area and making it a global dominant player is necessary.

The Prime Minister is not talking about increasing India’s automobile exports around the world for no reason. The shift in global supply chains, especially away from China, has put India in a strong position. According to a report released by consulting firm Arthur D Little, the Indian automobile industry can achieve $400 billion in incremental revenue by 2035 by focusing on improving the global competitiveness of exports.

The same report states that India has the potential to become a dominant auto exporter worth $1 trillion as the world looks for a strong alternative to China. The Indian automobile industry is currently valued at US$250 billion and is expected to reach US$600 billion by 2035.

How the numbers stack up: An indicator of India’s growing automotive prowess

Indians bought a record number of cars last year, giving the industry every reason to celebrate. Additionally, luxury car sales are rising in India. Driving growth in this segment is young people, reflecting the general trend of the country’s economy performing well and increasing incomes across the board.

These trends have prompted global automakers to consider India as the next export hub. Toyota, Volkswagen, Hyundai, Mahindra, Tata Motors, Honda and Skoda all saw significant growth in exports last year, although Maruti Suzuki remained the largest-selling Indian car brand globally.

Data provided by Jato Dynamics shows that Maruti Suzuki achieved a new milestone by exporting 2,61,700 passenger vehicles, including sedans and SUVs. Similarly, Volkswagen’s exports increased by 29% last year, while Skoda’s exports surged 431% to 1,530 units.

2023 will also be a record year for domestic car sales. According to industry estimates, about 4.5 million passenger vehicles were sold in the local market last year, an increase of about 8.2% from 3.79 million units in 2022. Maruti Suzuki accounted for nearly 40% of sales, while Hyundai Motor India sold 600,000 vehicles domestically, a record for the company.

India already has the production capacity to achieve its goal of becoming the world’s automobile manufacturing hub. In 2023, India’s total automobile production will be approximately 25.93 million vehicles, a significant increase from the previous year. China is currently the world’s largest car manufacturer, producing nearly 30 million vehicles last year. The gap of about 4 million is not small, but it is not unassailable for India in the next five years.

Expanding exports and growing demand for India’s “new middle class” will play a crucial role in India defeating China and the United States. By the end of 2024, logistics costs in India are expected to drop to about 9%. Export volumes are expected to increase accordingly by one and a half times.

With these numbers in mind, India hopes to overtake China in the next five years to become the world’s largest carmaker. One should never think of the vehicle as a whole.

In fact, there is a dedicated industry working behind the scenes to provide Indian carmakers with the nuts and bolts. This is the Indian auto parts industry, which is writing history on its own. About 50% of India’s manufacturing GDP comes from the automobile industry.

The share of the auto parts industry in this cannot be ignored. In fiscal year 2023, the auto parts industry’s turnover reached an all-time high of 5.6 billion rupees ($69.7 billion), a year-on-year increase of 32.8%.

Domestically, auto component sales to original equipment manufacturers (OEMs) grew 39.5% to Rs 476 crore in the last fiscal.

Why is the Indian automobile industry so prosperous?

Automakers were boosted by the Centre’s performance-linked incentive (PLI) scheme, which was extended for another year on January 1. The total expenditure under the scheme has increased to Rs 25,938 crore. Incentives as part of the program will now be implemented during FY24 to FY28, compared to incentives during FY23 to FY27 during the previous tenure of the program.

The auto sector plan attracted proposed investments of Rs 67,690 crore, exceeding the initially expected target of Rs 42,500 crore. Rs 13,037 crore has been invested in the scheme and is expected to create 1.48 lakh jobs.

The PLI scheme aims to overcome cost barriers in India’s manufacturing industry of advanced automotive technology products. The incentive structure is designed to encourage new investments by domestic industry in indigenous global supply chains for advanced automotive technology products.

At the same time, the PLI program of Advanced Chemistry Cells (ACC) and Faster Adoption of Electric Vehicle Manufacturing (FAME I and II) are helping India move away from the traditional fossil fuel-based automobile transportation system and towards environmentally cleaner, sustainable, advanced and more efficient system electric vehicles.

India’s electric vehicle sales increased significantly last year, with more than 1.5 million units sold, a 50% increase from 2022. The overall share of electric vehicles in Indian car sales will rise significantly from 1.75% in 2021 to 6.38% in 2023. This suggests that electric vehicles have found a larger audience among India’s car-buying class. This year, the goal of adding more than 2 million electric vehicles to the domestic market seems easily achievable.

Here’s how government intervention plays a role in the automotive industry:

Since its launch in 2019, FAME II has supported the sale of approximately 1.2 million electric motorcycles, 141,000 three-wheelers and 16,991 four-wheelers through subsidies.

Experts expect 940 billion rupees ($12.6 billion) to be invested specifically in the electric vehicle ecosystem over the next five years.

The Indian electric vehicle market is expected to grow at a compound annual growth rate of 49%, with annual sales approaching 10 million units by 2030.

The government’s master plan to make India a global manufacturing hub remains incomplete until the full potential of the Indian automobile industry is unleashed. To this end, Commerce and Industry Minister Piyush Goyal in January urged the auto industry to set a target to increase exports to 50% of all passenger cars produced in the country by 2030.

In the last fiscal year, it was about 14%. The minister was very specific that the industry should not limit itself to achieving a 25% export share but should aim higher.

Several factors work in India’s favour. First, India’s regulatory norms are now almost entirely in sync with global standards – a result of continued government push. Second, “Made in India” cars are almost immediately available to foreign consumers and require minimal adjustments to export markets. India’s low-cost manufacturing, labor cost arbitrage, availability of skilled labor and a developed supplier base that provides automakers with a competitive cost advantage are other factors working in its favour.

The future of Indian cars looks promising. As incomes continue to grow and the economy gains further momentum, the automotive market will benefit significantly. The fact that Indian manufacturers are keen on exporting cars across the world bodes well for Viksit Bharat’s vision, furthering the country’s goal of becoming a global manufacturing hub.