PESTEL Caselet - Automobile Industry11June20201

INDIAN AUTOMOBILE INDUSTRY
India became the fourth largest auto market in 2018 with sales increasing 8.3 per cent year-on-year
to 3.99 million units. It was the seventh largest manufacturer of commercial vehicles in 2018.
Market share of automotive industry across India in FY 2019, by

segment
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Two-wheelers 81%
Passenger vehicles 13%
Commercial Vehicles 4%
Three Whelers 3%
The Two Wheelers segment dominates the market in terms of volume owing to a growing middle
class and a young population. Moreover, the growing interest of the companies in exploring the rural
markets further aided the growth of the sector.
India is also a prominent auto exporter and has strong export growth expectations for the near
future. Automobile exports grew 14.50 per cent during FY19. It is expected to grow at a CAGR of
3.05 per cent during 2016-2026. In addition, several initiatives by the Government of India and the
major automobile players in the Indian market are expected to make India a leader in the two-
wheeler and four-wheeler market in the world by 2020.
The government aims to develop India as a global manufacturing centre. The government has also
come up with reforms like GST to boost the growth in the sector. Under new GST regime, GST on
electric vehicles is reduced from 12% to 5%. The Government of India encourages foreign
investment in the automobile sector and allows 100 per cent FDI under the automatic route. The
government through various initiatives is providing strong support to the Electric Vehicles. Taxation
in the industry is one of the highest in the world and a car is taxed anywhere between a minimum 29
per cent to around 50 per cent.
Dynamic regulatory environment:

Major regulatory interventions, such as the accelerated transition from BS IV to BS VI, adoption of
electric vehicles, safety rules and stringent vehicle standards are leading to a shift in vehicle
technology. This is creating significant challenges, not only for automotive industry but also in
related sectors such as energy, oil & gas, transportation, and urban development.
MG Motor India entered in partnership with Tata Power to set up superfast chargers for electric
vehicles (EV) at select MG dealerships and offer end-to-end charging solutions. Under this
association, Tata Power will deploy 50KW DC superfast chargers at select MG dealerships besides
offering end-to-end electric vehicle charging solutions, the company said in a statement.
With this, MG Motor plans to lay a specific focus on the key target cities they will be venturing into
as a part of their future EV expansion plans.
India is expected to become a leader in share mobility by 2030, providing opportunities for electric
and autonomous vehicles. Shifting focus towards electric cars can also provide opportunities for the
sector.
India’s gross domestic product (GDP) expanded at the slowest pace in 11 years for the fourth quarter
and FY20 as the Covid-19 took hold in March, adding to pressures on an already slowing economy. A
nationwide lockdown was imposed on March 25 but business activity had begun grinding to a halt a
few weeks before that. After a contraction in the current financial year, India's economy is forecast
to bounce back with a sharp growth rate of 9.5 per cent next year provided it avoids further
deterioration in financial sector health, Fitch Ratings said on Wednesday. The coronavirus pandemic
will lead to shrinking of the already slowing economy in 2020-21 that started in April. Fitch Ratings
forecast a 5 per cent contraction in the GDP in the ongoing financial year.
Rise in middle class income and young population may result in strong growth.
With increasing spend capacity, high levels of product awareness, rapidly evolving expectations and
demand for personalised products & services, customers are taking the center stage of the entire
automotive ecosystem. Understanding changing customer needs and having the ability to serve
them differentially will be a key competitive advantage.
Frost & Sullivan, in a recent note titled Changing Retail Strategy & Consumer Connect - Auto Industry
Road Map, said, “With COVID-19 triggering an 80-100 percent drop in physical visits to showrooms
and contactless transactions expected by customers, digitisation has emerged as key to survival. It is
empowering automotive retail and after-sales, and enabling more meaningful customer
engagement.”
The automobile industry is supported by various factors such as availability of skilled labour at low
cost, robust R&D centres and low-cost steel production. The industry also provides great
opportunities for investment and direct and indirect employment to skilled and unskilled labour.
Indian automotive industry (including component manufacturing) is expected to reach Rs 16.16-

18.18 trillion (US$ 251.4-282.8 billion) by 2026.
Disruptive impact of technology: at three levels

• On vehicles (e.g. electric, driverless, connected)
• On supply chain and operations ( digitalisation, robotics, 3-D printing) and
• On business models (e.g. mobility as a service, vehicle sharing)
Automotive Industry participants must, therefore, reinvent themselves to find new ways of creating
and delivering value in the future.
Source: https://www.ibef.org/industry/india-automobiles.aspx
https://www.businesstoday.in/sectors/auto/india-auto-industry-to-take-6-years-to-recover-bosch/story/404692.html
https://yourstory.com/2020/06/india-automobile-industry-digitisatisation-coronavirus
https://www.pwc.in/industries/automotive.html
https://www.statista.com/statistics/1066695/india-automotive-industry-market-share-by-segment/
https://economictimes.indiatimes.com/news/economy/indicators/indias-gdp-growth-in-q4-fy20-sinks-to-11-year-
low/articleshow/76099894.cms
https://economictimes.indiatimes.com/news/economy/indicators/indian-economy-to-bounce-back-in-next-fiscal-with-
sharp-growth-rate-of-9-5-fitch-ratings/videoshow/76302959.cms

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INDIAN AUTOMOBILE INDUSTRY

Market share of automotive industry across India in FY 2019, by

Passenger vehicles 13%

Dynamic regulatory environment:

Indian automotive industry (including component manufacturing) is expected to reach Rs 16.16-

Disruptive impact of technology: at three levels

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