The Indian automobile industry is of more than ₹8 lakh crore and its turnover contributes approximately 7.1% of overall GDP, 27% of industrial GDP and 49% of manufacturing GDP. However, the pandemic has caused havoc in the automobile industry. The numbers have plummeted in FY21 for both production and sales as compared to FY20. However, FY22 has brought a little respite compared to FY21.Two-wheeler is the largest contributor to the automobile sector contributing about four-fifth to the overall industry followed by passenger vehicles contributing approximately 13% to the industry.
In the two-wheeler segments’ domestic production declined to about 1.83 crore in FY21 as compared to FY20 where it was about 2.10 crore. Similarly, sales went down to about 1.51 crore from about 1.74 for the given time.
These are some major findings of a report titled INDUSTRY OUTLOOK AUTOMOBILE INDUSTRY: EMERGING CONTOURS released by Infomerics Valuation and Rating Pvt Ltd., the well-known SEBI-registered and RBI-accredited financial services credit rating company.
The government has been taking necessary steps towards the automobile industry. Therefore, it has emerged as the top sector during the first four months of FY2021-22 with 23% share of the total FDI Equity inflow. The reforms by the government in FDI policy, investment facilitation and improving ease of doing business are some of the reasons for the increased FDI inflow. Along with enhancing the FDI route the government has floated ₹25938 crore worth new production-linked incentive (PLI) scheme for the auto sector. It is estimated that over a period of five years, the PLI Scheme for Automobile and Auto Components Industry will lead to fresh investment of over ₹42500 crore, incremental production of over ₹2.3 lakh crore and will create additional employment opportunities of over 7.5 lakh jobs. The government has also decided to extend the second phase of the Faster Adoption and Manufacturing of Hybrid and Electric vehicle (FAME) scheme by two years to 31st March 2024. Moreover, the Union Cabinet has approved ₹76,000 crore scheme to boost semiconductor and display manufacturing which will help incentivise semiconductor manufacturers amid shortages of crucial inputs.
As for India, the Indian automobile sector is characterised by the classic situation of a battle outside and a war within. For example, there has been a mismatch between funds allocated and disbursed. The Union government has only disbursed about 10% (about ₹820 crore) of the total subsidies out of ₹8596 crore earmarked under the FAME-II scheme. EV makers pointed out that the aggressive localisation criteria for qualifying for FAME-II were a reason for the limited disbursal under the scheme so far. On the top of it the semiconductor shortage has been bedevilling the industry for quite some time and could continue for some more time now. The automotive component industry is also facing harsh times since the turnover of the automotive component industry stood at ₹3.40 lakh crore (USD 45.9 billion) for the period April 2020 to March 2021, registering a de-growth of 3% over the previous year. The recent restructuring of Ford’s Indian operations caused massive anxiety for dealers and customers alike. Consequently, the future of about 170 Ford dealers with a combined investment of about ₹2000 crore and about 40000 employees is uncertain. However, the situation faced is not novel. Abrupt exits by foreign original equipment manufacturers (OEMs) over the last four years including General Motors (GM) in 2017, MAN Trucks in 2018, United Motor Cycles in 2019 and Harley Davidson in 2020 are some such examples. Accordingly, the FADA sought the introduction of legislation, viz., Automobile Dealers Protection Act, to create an enabling environment for automobile dealers. All this have resulted in a languishing recovery whereby industry body like FADA has brought out that it witnessed the worst festive season of the decade. The overall vehicle registrations saw almost 21% dip in festive season 2021 as compared to festive season 2019. Even comparing with festive season 2020 shows a dip of about 18%.
The way ahead
The report mentions that the EV segment and the sector growth is optimistic and is also likely to get an impetus by the government’s series of incentives both at the production and the consumption levels.
However, considering the semi-conductor shortage and infrastructure challenges on the EV front, the report is not very optimistic about the overall industry in the short-term. It further mentions that other factors like triple digit fuel prices and sudden exit of big companies from the market, the industry is not as strong as it was some years ago. The industry needs to work on semi-conductor issue and try to develop native capacities; the government needs to work in tandem and should consider reducing fuel prices given the purchasing power of the consumers have been severely eroded in the wake of the pandemic and exacerbated inflationary pressures.