July

2017

AUTOMOBILE SECTOR COVERAGE

AUTOMOBILE SECTOR

PRESENTED BY -
ALPHA – THE INVESTMENT AND RESEARCH CLUB
FMS DELHI

Contact us – Rohit Mall | Senior Analyst | 9510738382 | alpha@fms.edu

1
Index
Economic Overview ................................................................................................................. 3
Automobile Sector Evolution & Overview ............................................................................ 5
Segments of Automobile Industry .......................................................................................... 7
Major Players in Various Segments ....................................................................................... 7
Auto Clusters in India ............................................................................................................. 8
Porter 5 Force Analysis ........................................................................................................... 9
Production Analysis ............................................................................................................... 10
Automobile Production Trends......................................................................................................... 11
Revenues & Sales Volume Analysis...................................................................................... 11
Automobile Domestic Sales Volume Trends........................................................................ 12
Exports growth Analysis ....................................................................................................... 13
Automobile Exports Trends.............................................................................................................. 14
Trends in Indian Automobile Sector .................................................................................... 15
New product launches ...................................................................................................................... 15
Improving Product Development capabilities .................................................................................. 15
Alternate Fuels.................................................................................................................................. 15
New Financing Options .................................................................................................................... 15
Luxury Cars Gaining traction in India .............................................................................................. 15
Investments ....................................................................................................................................... 15
FDI Trends........................................................................................................................................ 16
Increasing Investment by Global Car Manufacturers ....................................................... 16
Current Taxes and GST ........................................................................................................ 18
Emission Norms ..................................................................................................................... 20
The parameters determining emission from vehicles are: ................................................................ 20
Vehicular Technology ...................................................................................................................... 20
History of Emission Norms in India ................................................................................................. 20
Fuel Technology ............................................................................................................................... 21
Inspection & Maintenance (I&M) of In-use Vehicles ...................................................................... 22
Road & Traffic Management ............................................................................................................ 22
Key Growth Drivers of Auto Industry ................................................................................. 22
Growing Demand ............................................................................................................................. 22
Policy Support .................................................................................................................................. 22
Innovation ......................................................................................................................................... 23
Rising Investments ........................................................................................................................... 23
Easy availability of credit ................................................................................................................. 23
Under – penetrated Rural Markets .................................................................................................... 24
Rapid Product Introduction and Shorter Product Life Cycle ............................................................ 24
Favorable demographic profile ......................................................................................................... 24
Under developed public transport system......................................................................................... 24
Growth Drivers Segment wise .............................................................................................. 25
Two Wheelers.................................................................................................................................. 25
Under – penetrated Rural Markets ............................................................................................... 25
Rapid Product Introduction and Shorter Product Life Cycle ....................................................... 25
Favorable demographic profile .................................................................................................... 25

2
 Under developed public transport system .................................................................................... 25
Greater Affordability of Vehicles ................................................................................................ 25
Three Wheelers ............................................................................................................................... 25
Rising demand .............................................................................................................................. 25
Shrinking replacement cycles....................................................................................................... 25
Demand in export markets ........................................................................................................... 25
Low cost & Convenience ............................................................................................................. 26
Passenger Vehicles .......................................................................................................................... 26
Growing economy and decreasing inflation ................................................................................. 26
Low oil Prices .............................................................................................................................. 26
Low penetration levels ................................................................................................................. 26
Low cost of ownership ................................................................................................................. 26
Increasing disposable incomes in rural sector .............................................................................. 26
Decrease in excise duty ................................................................................................................ 26
Commercial Vehicles ...................................................................................................................... 26
Improved industrial activity ......................................................................................................... 26
Uptick in agricultural output ........................................................................................................ 26
Replacement demand ................................................................................................................... 27
Implementation of Regulations on Overloading .......................................................................... 27
Tractors ........................................................................................................................................... 27
Irrigation facility and monsoons .................................................................................................. 27
Stable farm incomes ..................................................................................................................... 27
Easy availability of credit ............................................................................................................. 27
Scarcity of farm labour ................................................................................................................. 27
Major Cost Drivers.......................................................................................................... 27
Shift towards aluminum................................................................................................................ 28
Government Policies in support of Automobile Sector .................................................... 28
Auto Policy 2002 .......................................................................................................................... 28
NATRiP ........................................................................................................................................ 29
Automotive Mission Plan 2006-16 ............................................................................................... 30
Dept. of Heavy Industries & Public Enterprises ........................................................................... 31
FAME (April,2015) ...................................................................................................................... 31
The Automotive Mission Plan 2016-26 ........................................................................................ 31
Auto Ancillary................................................................................................................. 31
Major Companies in Auto Ancillary ............................................................................................. 33
Future Prospects of Auto Ancillary ............................................................................................... 33
Impact of Budget 2017.................................................................................................... 34
Positives .......................................................................................................................................... 34
Negatives ........................................................................................................................................ 35
Impact of GST on the Automobile Industry: .................................................................... 35
Sources .......................................................................................................................... 36

3
Economic Overview
Indian Economy is one of the fastest growing economies in the world and has been growing at
a CAGR of 7% over the past 4 years. The strength of the economy can be gauged from the fact
that that during the Global recession of 2008, India economy registered a GDP growth of 6.3%
as compared to global GDP growth rate of 2% and during Eurozone crises India grew at 7.1%
as compared to global GDP growth rate of 2.5%. Over the recent years, the major drivers of
economic growth in India have been availability of cheap skilled labor, huge FDI Inflows,
policy reforms, rise in domestic demand, decline in Inflation, etc.

Three Unique Features of Indian Economy:

1) Domestic Consumption: Of the total production, approximately 80% is consumed in the
country itself, such high rate of domestic consumption is favorable for India as it reduces
the risk of global growth slowdown.
2) Favorable Demographic Dividend: 70% of India’s population is less than 35 years of age
with the average age being around 26 years as compared to 38 years in US, 37 years in
China and 50 years in Japan.
3) Saving Rate: India’s savings rate usually hovers around 31% as compared to global average
savings rate of 22%. This high saving rate helps us in maintaining high growth even during
recessions as domestic demand does not fall sharply

The current government is very reform focused with legislations on goods and services tax
(GST), negotiable instruments, real estate regulation and labor reforms expected to provide
definite positive long-term economic impact. This is also factored in by World Bank as it bets
India to be the best performing economy here on.

Fig: 2020 Growth Rate Predictions vs 3 Year historical Nominal GDP CAGR1

6.0%
India
2020 Growth Rate Predictions

5.0%
China

4.0%

3.0%

Canada France Germany

Brazil 2.0% US
Italy
Japan UK
1.0%

0.0%
-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0%
Past 3 Year GDP CAGR
The graph above shows maps the historical 3 year GDP CAGR calculated in 2015 V/s the
growth rate predictions given by World Bank. It can be observed that, both in terms of historical

1
Source: World Bank Database

4
growth as well as future predictions, the Indian Economy is the ideal investment destination,
with an expected annual GDP growth rate of 5.7% till 2020. These are ominous signs for
consumer goods segment, Automobile sector as they are expected to capitalize on the
opportunities available backed by higher disposable income among the middle class,

Automobile Sector Evolution & Overview

The Indian automotive industry is witnessing testing times. The market continues to experience
volatility and is waiting to see clear signals of revival in growth. With the government and the
judiciary taking steps to make transport cleaner and safer, there is some degree of uncertainty
for automakers, especially regarding the fuel mix and the necessary investments for technology
upgrades. We believe that these are just short-term challenges as the long-term growth story
for the automotive industry in India remains intact.

The Government’s Automotive Mission Plan 2016-26 envisions the industry to grow around
four times by FY26 with approximately 10% CAGR for vehicle sales volumes. The
Government’s push to manufacturing through the “Make in India” initiative has garnered
considerable attention from the industry and brought the spotlight back on them manufacturing
sector.

As the country looks to establish its credentials as a manufacturing destination, there are some
gaps that we need to address. These include an enabling regulatory environment, developing
the requisite talent and skills, fast-tracking of infrastructure development, incubating R& D
and innovation culture, and enhancing supply chain competiveness.

Industry Size
All categories: 23.9 million units (including two-wheelers, passenger vehicles, Commercial
vehicles, three-wheelers)
Employment figure
Industry provides direct and indirect employment to 29 million people in Rural and Urban areas
Contribution to GDP
Auto Sector contributes to 7.1% of India’s GDP, 26% of Industry GDP and about 49% of
manufacturing GDP

The Sector has gone through many up and downs; let us look at how it has evolved over the
past few decades

5
Evolution of Automobile sector in India

24 Million units (2016)

11 Million units (2007)

2008 Onwards
ØMore than 35 market
0.6 Million units (1992)
1993-2007 players
ØIndian companies
ØSector de-licensed in gaining acceptance on
0.4 Million units (1982)
1983-92 1993 a global scale
ØJoint Venture (JV): ØMajor Original ØSetting up of National
Indian government Equipment Automotive Board to
Before 1982
and Suzuki formed Manufacturers act as facilitator
ØClosed market Maruti Udyog; (OEMs) started between the
ØFive players commenced assembly operations government and
production in 1983 in India industry
ØLong waiting periods
and outdated models ØComponent ØImports permitted ØLaunch of Automotive
manufacturers from April 2001 Mission Plan 2016-26
ØSeller’s market
entered the market ØIntroduction of value- in 2015
via JV added tax in 2005
Ø Buyer’s market

Evolution of Automobile Sector in India

India is the home to vibrant automobile count of more than 23 million vehicles. It has been one
of the few globally which saw strong passenger car sales during the stagnant growth over the
past two years. In fact, in 2009-10 it recorded its highest volumes ever. It is believed that this
upward trend will be sustained in the foreseeable future due to a strong domestic market and
increased thrust on exports.

The sector has emerged as one of the pillars of the Indian economy. It plays a significant role
in driving economic growth. The industry employs 29 million people, directly and indirectly.
Automobile industry contributes for about 7.1 % of total GDP, 26% of Industry GDP and about
49% of manufacturing GDP.

Dynamic economic growth in large emerging markets like India has significantly improved the
economic prospects for large swaths of population, but gains in income and especially wealth
have been concentrated at the top of the social classes. While we have seen middle income and
wealthy households make significant gains in terms of percentage growth since the 2008
recession, the vast majority of the population is concentrated at the bottom of the income and
wealth scales. This leaves great long-term potential for continued motorization, but for 2017
and the immediate future it implies a limited addressable audience for new cars leading to likely
slow growth in India. Income and wealth inequality are a common feature of emerging markets
and make these markets particularly susceptible to macroeconomic shocks. A small but
growing middle class is reliant on rapid economic growth for wealth accumulation necessary
for major purchases like automobiles.

6
 Segments of Automobile Industry

Automobiles

Commercial Passenger
Two Wheelers Three Wheelers
Vehicles Vehicles

Light Commercial
Mopeds Cars Passenger Carriers
Vehicles

Medium and
Scooters &
Heavy Commercial Utility Vehicles Goods Carriers
Motorcycles
Vehicles

Electric Two Multi-Purpose

Wheelers Vehicles

The automobiles sector is compartmentalized in four different segments which are as follows:

 Two-wheeler segment which comprise of mopeds, scooters, motorcycles and electric two-
wheelers
 Passenger Vehicle segments which include passenger cars, utility vehicles and multi-
purpose vehicles
 Commercial Vehicle segment that includes light and medium-heavy vehicles
 Three Wheeler segment that includes passenger carriers and goods carriers

9%

27% 45%

19%

Commercial Vehicles Passenger Vehicles Two Wheelers Others

Revenue breakdown by segment
Major Players in Various Segments
The automotive industry is majorly commanded by the dominance of domestic players, with

7
AUTOMOBILES
PRESENCE OF A CLEAR LEADER IN EACH MARKET SEGMENT
PRESENCE
The automotive industry OF A CLEAR
is majorly commanded by domestic LEADER
players, with anIN EACH
immense MARKET
market share in the SEGMENT
country
1
during FY16 .
The automotive market
an immense industry is majorly
share commanded
in the countryby domestic
during FY16players, with an immense market share in the country
1
during FY16 .

Passenger
Market leader Others
Vehicles
Passenger
Market leader Others
Vehicles
Passenger Cars 52.8% 21.2% 9.3% 5.6%
Passenger Cars 52.8% 21.2% 9.3% 5.6%

Utility Vehicles 36.4% 14.7%

Utility Vehicles 36.4% 14.7% 13.6% 9.9%
13.6% 9.9%
Vans 81.8% 12.26% 5.98%

AUTOMOBILES Vans 81.8% 12.26% 5.98%

AUTOMOBILES
Commercial
Commercial
Vehicles
Vehicles
Market leader
Market leader
Others
Others

M&HCV
PRESENCE52.9%
OF A CLEAR LEADER
31.7%
IN EACH MARKET10%SEGMENT
M&HCV PRESENCE52.9%
OF A CLEAR LEADER
31.7% IN EACH MARKET SEGMENT
10%
The automotive industry is majorly commanded by the dominance of domestic players, with an immense market share
inThe
theautomotive
country during
LCV FY16is1 majorly commanded
industry 42.9% by the dominance of37%
domestic players, with an immense market
7.4% share
in the LCV
country during FY161 42.9% 37% 7.4%

Source:
Source: SIAM,
SIAM, Company
Company annual
annualreport,
report,TechSci
TechSciResearch
Research
2015 ––November
1
Three Wheeler Market leader Others Note:
Note: 1Data
Data isis for
forApril
April2015 November2015
2015
Three Wheeler Market leader Others
DECEMBER
DECEMBER 2016
2016 For
For updated
updated information,
information, please
please visit www.ibef.org 21
visit www.ibef.org 21

Passenger
PassengerCarrier
Carrier 55.3%
55.3% 25.8%
25.8% 8.8%
8.8% 5.5%
5.5%

LoadCarrier
Load Carrier 54.3%
54.3% 20.6%
20.6% 20.1%
20.1% 4.9%
4.9%

Two Wheeler Market leader Others

Two Wheeler Market leader Others

Two Wheelers2 38.6% 26.7% 13.4% 11.8%

Two Wheelers2 38.6% 26.7% 13.4% 11.8%

Auto Clusters in India

In India, the automobile industry occupies a prominent place Source:
due to its deep forward and
SIAM, Company annual report, TechSci Research
backward linkages with several key segments of the economy. The automobileNotes: 1 Dataindustry has– aNovember 2015
is for April 2015
Source:
2 Two Wheelers include Scooter, Motorcycle and Moped
SIAM, Company
strong multiplier effect and is capable of being the driver of economic1 growth. A sound annual report, TechSci Research
DECEMBER 2016 system, to which the automobile industryForisupdated
transportation linked, information,
2 Two
Notes:
plays pleaserole
Data
a pivotal
is for visit in
April 2015 – November 201522
www.ibef.org
the and Moped
Wheelers include Scooter, Motorcycle
DECEMBER 2016 For updated information, please visit www.ibef.org 22
8
country's rapid economic and industrial development. Initially in India, the development of
automobile industry was sporadic and localized. However, gradually the industry took a very
organized form due to its importance as well as due to technology induction.

Auto industry in India is primarily distributed in four major auto clusters distributed across
India. The pictorial representation of the same has been provided here. The major clusters are

 North: Delhi-Gurgaon-Faridabad 


 West: Mumbai-Pune-Nashik-Aurangabad 

 East: Kolkata-Jamshedpur 


AUTOMOBILES
 South: Chennai-Bengaluru 


EMERGENCE OF LARGE AUTOMOTIVE CLUSTERS IN THE COUNTRY

List of companies

• Ashok Mazda • Tata Motors • Yamaha

Leyland • Amtek Auto • Bajaj Auto • Mahindra
Delhi–Gurgaon– North • Force • Eicher • Hero Group • Suzuki
Faridabad Motors • Honda SIEL • Escorts Motorcycles
• Piaggio • Maruti • ICML
• Swaraj Suzuki • JCB

• Ashok • Eicher • Renault- • Volvo

Leyland • Skoda Nissan Eicher
Mumbai–Pune– West • Bajaj Auto • Bharat • John Deere
Nashik– • FIAT Forge • Mercedes
Aurangabad • GM • Tata Motors Benz
Kolkata– • M&M • Volkswagen • Tata Hitachi
Jamshedpur
• Tata Motors • International
• Hindustan Auto
East Motors Forgings
• Simpson & • JMT
Co • Exide

• Ashok • Volvo • Bosch • Daimler

Leyland • Sundaram • TVS Motor • Caterpillar
Chennai– Bengaluru–
South • Ford Fasteners Company • Hindustan
Hosur
• M&M • Enfield • Renault- Motors
• Toyota • Hyundai Nissan
Kirloskar • BMW • TAFE

Source: ACMA, TechSci Research

DECEMBER 2016 For updated information, please visit www.ibef.org 37

Porter 5 Force Analysis

Competitive Rivalry
 Competitive rivalry has increased post liberalisation to a great extent with the entry of
foreign players like Volkswagen, Nissan, Toyota and Ford in almost all segments and
easy access to better technology


9
  Foreign firms are further aggravating competition by changing their traditional designs
and substituting it to cater Indian needs at competitive prices


Threat of New Entrants

 The threat of new entrants is generally low across the mid end passenger vehicle,
commercial vehicle and two wheeler segment as almost all major players across the
world have already established operations in India and
 Any new entrant faces massive brand equity challenge as well as capital intensive
nature of the business 


Substitute Products
 The threat from substitute products continues to be low, with public transportation
being under developed even in cities, however taxi ride hailing apps can pose challenge,
but the possibility remains far fetched 

Bargaining Power of Suppliers
 Bargaining power of suppliers is generally low as most of the auto component
manufacturers specialize in particular automobile parts only which therefore reduces
their ability to leverage

Bargaining Power of Customers

 In a market like India which has almost all global players present, customers enjoy high
bargaining power as there are variety of products by different manufacturers
available
in the same range with small differentiation

Production Analysis
Two wheelers dominate production volumes; in FY16, the segment accounted for about 78.6
per cent of the total automotive production in the country. India is world’s sixth largest vehicles
manufacturer globally. Further, India is second largest two wheeler manufacturer in Asia and
fifth largest producer of commercial vehicles, fourth largest manufacturer of passenger car and
the largest manufacturer of tractors.

Negatives Positives

10
Automobile Production Trends

Category 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Passenger 29,82,772 31,46,069 32,31,058 30,87,973 32,21,419 34,13,859

Vehicles

Commercial 7,60,735 9,29,136 8,32,649 6,99,035 6,98,298 7,82,814

Vehicles

Three 7,99,553 8,79,289 8,39,748 8,30,108 9,49,019 9,33,950

Wheelers

Two 1,33,49,349 1,54,27,532 1,57,44,156 1,68,83,049 1,84,89,311 1,88,29,786

Wheelers

Grand Total 1,78,92,409 2,03,82,026 2,06,47,611 2,15,00,165 2,33,58,047 2,39,60,409

 Total Production volume has witnessed a CAGR of 6.01 percent over past 5 years
 Production Volume growth in Commercial Vehicles have been sluggish in past 5 years
 Production Volume growth in Two Wheelers has been the highest at CARG of 7.10%
over past 5 years
 Two Wheelers dominate the total production (in units) and account for almost 80% of
the total production

Revenues & Sales Volume Analysis

The gross turnover of Indian automobile manufacturers in India expanded at a CAGR of
11.72% over FY 07-15.
The domestic Two Wheelers segment accounted for 80.4 per cent of
the total domestic market share for the year 2015-16.

11
The industry was growing at the right pace until financial year 2012 to achieve the targets set
in AMP 2016. However, the industry witnessed two difficult years, FY13 and FY14, in which
the segments across the industry witnessed de-growth, carrying nearly 60% surplus production
capacity.

Automobile Domestic Sales Volume Trends

G ROW T H T RE ND I N SA LES VO LUME

25%
20%
15%
10%
5%
0%
2011-12 2012-13 2013-14 2014-15 2015-16
-5%
-10%
-15%
-20%

Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers

28%
27%

12%

7%

4% 4%
2%

FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16

Growth of Volume Sale (Annual %)

12
 Category 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Passenger 25,01,542 26,29,839 26,65,015 25,03,509 26,01,236 27,89,678

Vehicles

Commercial 6,84,905 8,09,499 7,93,211 6,32,851 6,14,948 6,85,704

Vehicles

Three 5,26,024 5,13,281 5,38,290 4,80,085 5,32,626 5,38,092

Wheelers

Two 1,17,68,910 1,34,09,150 1,37,97,185 1,48,06,778 1,59,75,561 1,64,55,911

Wheelers

Grand Total 1,54,81,381 1,73,61,769 1,77,93,701 1,84,23,223 1,97,24,371 2,04,69,385

 Total Sales volume has witnessed a CAGR of 5.74 percent over past 5 years
 Sales Volume growth in Commercial Vehicles has been sluggish in past 5 years
 Sales Volume growth in Two Wheelers has been the highest at CARG of 6.89% over
past 5 years
 Two Wheelers dominate the total sales (in units) and account for almost 80% of the
total production

Exports growth Analysis

During FY06-16, automobile exports from the country increased at a CAGR of 16.23 per cent.
Further, during FY06-16, two wheeler segment reported fastest growth of around 17.5 per cent,
followed by three wheelers, which grew at a rate of 14.8 per cent. The country's largest
carmaker Maruti Suzuki India recorded cumulative exports of 1500 thousand vehicles in
September, 2016.

13
 Export Share by Volume (FY 16)

3%
11%

18%

68%

Two Wheelers Passenger Vehicle Three Wheeler Commercial Vehicle

Automobile Exports Trends

Category 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Passenger 4,44,326 5,08,783 5,59,414 5,96,142 6,21,341 6,53,889

Vehicles

Commercial 74,043 92,258 80,027 77,050 86,939 1,01,689

Vehicles

Three 2,69,968 3,61,753 3,03,088 3,53,392 4,07,600 4,04,441

Wheelers

Two 15,31,619 19,75,111 19,56,378 20,84,000 24,57,466 24,81,193

Wheelers

Grand Total 23,19,956 29,37,905 28,98,907 31,10,584 35,73,346 36,41,212

 With a volume share of 68.14 per cent, two wheeler segment accounted for the largest
share in overall automobile exports in FY16.
 Passenger vehicle segment accounted for a sizeable share of 17.96 per cent in the
overall automobile exports in FY16.
 Exports of three wheeler vehicles registered a volume share of around 11.11 per cent
in exports in FY16

14
Trends in Indian Automobile Sector
Auto sector has seen variety of changes over the past few decades, few of the trends which
are seen in this sector are:

New product launches

Product launch has gathered pace with the entry of a number of foreign players and reduced
overall product lifecycle forcing existing big players to employ quick product launches.
Many
companies have announced to launch upgraded versions of the same cars in different variants
in late 2016 or early 2017 in Indian market

Improving Product Development capabilities

Increasing R&D investments has increased manifold as manufacturers come up with new
designs for new market segments and meeting new government regulations on emission.
Private sector innovation has been a key determinant of growth in the sector with two recent
examples being Tata Nano and Tata Pixel; while the former has been a success in India, the
latter is intended for foreign markets. 


Alternate Fuels
The CNG distribution network in India is expected to increase due to the new geographical
areas allocated through 5th and 6th round of CGD bidding by Petroleum and Natural Gas
Regulatory Board (PNGRB).
Number of CNG stations in India increased from 142 stations in
2005 to 1,081 stations in FY16, across 12 major states of the country with government
promising more alternate and cleaner energy push. This has renewed the focus of automobile
manufacturers to come up with multiple variants of existing models and also invest in
capabilities and capacity addition

New Financing Options

Carmakers such as BMW, Audi, Toyota, Skoda, Volkswagen and Mercedes-Benz have started
providing customized finance to customers through NBFCs whereas major MNC’s and Indian
corporate houses are moving towards taking cars on operating lease instead of buying them

Luxury Cars Gaining traction in India

India has the world’s 12th-largest HNI population, with a growth of 20.8 per cent (highest
among the top 12 countries). With expansion in the education and realty sectors, and increasing
wealth of IT professionals, more consumers aspire to own luxury cars. This affluent class of
the country is driving the demand of the luxury cars with the Indian luxury car market estimated
to expand at a CAGR of 25 per cent during 2012–20 and reach 150,000 units by 2020
(accounting for 4 per cent of the estimated 6.8-million-unit domestic car market). The luxury
SUV segment is growing at about 50 per cent, while luxury sedans are increasing 25–30 per
cent

Investments
 Between April 2000 to March 2016, Indian automobile industry attracted foreign

15
 direct investment (FDI) of around USD15.06 billion.
 Japan based Suzuki Motor Corporation plans to invest USD 970.70 million in second
vehicle production line at its new plant in Gujarat.
 Honda Cars India Limited is planning to invest around USD59.24 million to increase
its production capacity by 50 per cent (to 180,000 units). Also, Honda Motorcycle &
Scooter India is planning to invest around USD91.2 million to expand production at
the Karnataka plant, by the end of 2016.
 In October 2016, under an initiative to promote sustainable manufacturing through
green facilities, Hero MotoCorp Ltd., approved an investment of USD 30.62 million
for acquiring a 26-30 per cent stake in Bengaluru based electric vehicle (EV) start-up,
Ather Energy Pvt. Ltd.
 General Motors announced plans to invest about USD1 billion for capacity expansion
of Pune plant, with the production expected to increase from 130,000 units to 220,000
units annually, by the end of 2025

FDI Trends
 FDI equity inflows in the automobile industry aggregated to USD11.8 billion over
AUTOMOBILES
FY2010-16. Whereas, in FY16, FDI inflow automobile industry accounted for 6.3 per
cent of total FDI equity inflow in country
 Government of India is heavily promoting foreign investment in the automobile
STRONG FDI EQUITY INFLOW IN THE AUTOMOTIVES SECTOR
industry by allowing 100 per cent FDI, under automatic route. The industry is
delicensed and allows free import of automotive components. Also, the Indian
FDI equity inflows in the automobile industry aggregated to USD11.8 billion over FY2010-16. Whereas, in FY16, FDI inflow
government
automobile industry does not
accounted for lay
6.3 perdown anyFDIminimum
cent of total equity inflow ininvestment
country. criteria for this industry

FDI trends over the past few years

(USD billion)

40.00
35.12

Delhi–Gurgaon–
30.93

Faridabad
25.83

24.30
22.42
19.43

Ahmedabad

Mumbai–Pune–
Nashik–
Aurangabad
2.73

2.53
1.54

1.52
1.30
1.24

Kolkata–
0.92

Jamshedpur

FY10 FY11 FY12 FY13 FY14 FY15 FY16

Automobile Industry Total FDI Equity Inflow

Source: Department of Industrial Policy & Promotion (India),

Chennai– Bengaluru– TechSci Research
Hosur

DECEMBER 2016 For updated information, please visit www.ibef.org 38

Increasing Investment by Global Car Manufacturers

Global car majors have been ramping up investments in India to cater to the growing domestic

16
demand. Also, these manufacturers plan to leverage India’s competitive advantage to set up
export-oriented production hubs

Nissan

 Planning to double its current investment level of about USD2.5 billion over the next
five years 

 Aims to raise its market share from 1.5 per cent in FY13 to 10 per cent by FY19 

 To increase the Chennai Plant capacity to 400,000 units a year in a few years’ time

 The company plans to launch 8 new car models in India by 2021 


Ford Motors

 On 10th September 2015, Ford has signed an MoU with the Tamil Nadu government
for increasing the manufacturing capacity of its plant and for establishing new
engineering and technology center at Chennai. 

 The company has envisioned Long term strategy to export 25 per cent of vehicles and
to make India compact car global production base

Volkswagen

 Volkswagen announced launch of its first Made-in-India & Made-for-India compact

sedan, Ameo in June 2016 

 The company plans to increase its production volume by 15 per cent in 2016 over
123,000 units in 2015 at Pune plant

Honda

 Honda is planning to invest USD160 million in India to expand its capacity for cars and
bike by the end of 2016. This will include a new diesel engine component production

Toyota

 Expects to invest another USD163 million at Bidadi plant near Bengaluru on its new
engine plants and projects

Mercedes

 Increased the plant capacity of 20,000 units per year in Chakan Plant, which is the
largest for any luxury car manufacturer in India. 

 Expansion of MIDC and MoU, and to invest USD244 million for capacity expansion
in Chakan, Pune 

 Mercedes-Benz will introduce 15 products in 2015, including products without any
predecessors in India. These 15 new products are Mercedes-Benz India's biggest

17
 product initiative till date

Current Taxes and GST

Industry is subject to a multiple indirect taxes. These have a cascading effect and end up
constituting a substantial part of the overall cost structure of a vehicle. Various types of taxes
are charged on manufacturing and sale of Automobiles in India like Excise Duty, Custom duty
etc. Soon the GST will replace all the indirect taxes.

Current Excise duty charged on various categories is shown in the table:

Vehicle Category Excise Duty

Small cars 12.5%
Length >4m but engine capacity less than 1500cc 24%
Length >4m and engine capacity more than 1500cc 27%
SUVs/MUVs (length >4m, engine capacity >1500cc and Ground 30%
clearance >170mm)
Hybrid cars 12.5%
Specified components of Hybrid vehicles 6%
Electric cars, Buses, 2W & 3W 6%
Specified components of Electric vehicles 6%
Buses 12.5%
Trucks 12.5%
Three wheelers 12.5%
Two wheelers 12.5%

Current Import duty charged on various categories is shown in the table

Criteria / Applicability Import Duty in %

Used car import 125

Cars CBUs whose CIF value is more than $ 40,000 100

or Petrol Engine > 3000 CC
or Diesel engine > 2500 CC

18
 Cars CBUs whose CIF value is less than $ 40,000 60
and Petrol Engine < 3000 CC
and Diesel engine < 2500 CC

Two-wheeler CBUs with engine capacity <800 cc 60

Two-wheeler CBUs with engine capacity >=800 cc 75

Commercial Vehicle CBUs (Trucks & Buses) 20

CKD containing engine or gearbox or transmission mechanism in 30

pre-assembled form but not mounted on a chassis or a body
assembly

CKD containing engine, gearbox and transmission mechanism not in 10

a pre-assembled condition

The auto industry is expected to benefit from the introduction of GST. However there are
several concerns of the industry which have been mentioned below:

 Nature of Taxes to be covered/ subsumed. The industry expects that all kind of domestic
indirect taxes be subsumed in the proposed GST, as suggested by Kelkar Committee.
This should include Road Tax/Motor Vehicle Tax also
 After introduction of GST, no additional tax should be introduced/ levied. A provision
be made in the law that no new levy or tax be introduced
 Any change, if required, in future (for specific needs like calamity, education,
infrastructure, etc.) should be done through modifying the rate of taxation under the
GST regime and not through any additional levy/tax/cess, etc
 Bring in used vehicle trade under GST framework with a token levy to make used
vehicle trade more organized
 1% GST rate will provide substantial annual revenue to the exchequer.

At present, the excise duty for vehicles is divided into four slabs, in which the smallest tax rate
is applicable to small cars. With the GST in place taxes levied by the center like excise duty
and state levels taxes like sales tax, road and registration tax would all be subsumed into one.

The trend among the auto industry is to pass the benefits to the customers. This is largely due
to the absence of any cartels and the high cost associated with holding the inventory. For this
reason, it’s believed that the proposed GST rate of even 18-20% would reduce small car prices
by about 8-10%. This is an assumption made considering that cost factor i.e. price of input
materials like steel, plastic parts, batteries etc. would not change much.

19
Emission Norms
The automobile industry has to address the following issues at all stages of vehicle
manufacturing:

 Environmental Imperatives
 Safety Requirements
 Competitive Pressures
 Customer Expectations

There is a strong interlinkage amongst all these forces of change influencing the automobile
industry. These have to be addressed consistently and strategically to ensure competitiveness.

Since pollution is caused by various sources, it requires an integrated and multidisciplinary

approach. The different sources of pollution have to be addressed in an integrated approach to
achieve the objective of cleaner environment and meet National Air Quality standards.

The parameters determining emission from vehicles are:

 Vehicular Technology
 Fuel Quality
 Inspection & Maintenance of In-Use Vehicles
 Road and Traffic Management

While each one of the four factors mentioned above have direct environmental implications,
the vehicle and fuel systems have to be addressed as a whole as requisite fuel quality is required
to meet the emission standards.

Vehicular Technology
In India, vehicle technology has evolved to meet the emission and safety regulations notified
as per the Auto Fuel Policy specifying the emission road map and safety regulations as per the
Safety Road map adopted by the CMVR-TSC, respectively. Today the vehicle technology in
India is at par with the international bench marks as Indian safety standards are being aligned
with Global Technical Regulations (GTR) and UN Regulations. India is a signatory to UN WP
29 1998 agreement which develops GTRs. India actively patriciates in the UN WP 29 body
and contributes significantly so that the GTR reflect the driving conditions and requirements
of the developing countries.

History of Emission Norms in India

Vehicles are one of the contributors to air pollution and there is need to reduce vehicular
emissions on a continous basis. Indian Automotive Industry recognises this fact and is
continuously working towards controlling emissions as per the roadmap suggested by the Auto
Fuel Policy and proactively developing environment-friendly technologies. India today has
some of the most fuel efficient vehicles in the world.
The first stage of mass emission norms came into force for petrol vehicles in 1991 and in 1992
for diesel vehicles.

20
From April 1995, mandatory fitment of catalytic converters in new petrol passenger cars sold
in the four metros, Delhi, Calcutta, Mumbai and Chennai along with supply of Unleaded Petrol
(ULP) was affected. Availability of ULP was further extended to 42 major cities; and it is now
available throughout the country.

In the year 2000, passenger cars and commercial vehicles met Euro I equivalent India 2000
norms, while two wheelers were meeting one of the tightest emission norms in the world. Euro
II equivalent Bharat Stage II norms were implemented 2001 onwards in Delhi, Mumbai,
Chennai and Kolkata.

The first Auto Fuel Policy was announced in August 2002 which laid down the Emission and
Fuel Roadmap upto 2010. As was given in the roadmap, four-wheeled vehicles moved to
Bharat Stage III emission norms in 13 metro cities from April 2005 and rest of the country
moved to Bharat Stage II norms. Bharat Stage IV for 13 Metro cities was implemented April
2010 onwards and the rest of the country moved to Bharat Stage III. Bharat stage IV norms
were extended to additional 20 cities October 2014 onwards.

The Auto Fuel Policy 2025 was submitted to the Ministry of Petroleum & Natural Gas
(MoP&NG) which had constituted an expert committe for the formulation of the same in
December 2013. The document is currently hosted at the MoP&NG's website. This policy
document laid down the emission and fuel road map upto 2025.

The proposed road map envisaged implementation of BS IV norms across the country by April
2017 in a phased manner and BS V emission norms in 2020/2021 and BS VI from 2024.

However, the Delhi, NCR region of North India became notorious for its drastic rise in air
pollution levels. This attracted attention and subsequently led to the government making a
conscious decision of leapfrogging Bharat Stage V emission norms that were subject to
implementation in 2020, as well as advancing introduction of Bharat Stage VI emission norms
from 2024 to 2020.

Since India embarked on a formal emission control regime only in 1991, a gap in
implementation of these norms in comparison to Europe can be noticed. However, this gap has
helped in the technologies to mature which in turn facilitated the Indian Auto sector in meeting
the regulations at an affordable cost for the Indian consumers.

Fuel Technology
India is yet to address the vehicle and fuel system as a whole. It was in 1996 that the Ministry
of Environment and Forests formally notified fuel specifications. Maximum limit for critical
ingredients such as benzene level in petrol has been reduced continuously, from time to time,
and was specified as 5% m/m and 3% m/m pa India and metros, respectively. This limit now
stands at 1%, which in line with international practices.

To address the high pollution in metro cities, 0.05% sulphur for petrol and diesel has been
introduced since 2000-2001. The same has been reduced to 0.005% in April 2010 in 13 metro
cities for both petrol and diesel. 350 and 150 ppm for diesel and petrol, respectively, in rest of

21
the country, the limit on sulphur content for petrol and diesel is 150ppm and 350ppm,
respectively. This content would be reduced further to 10 ppm in BS V and BS VI fuels in line
with Auto Fuel Policy 2025. There is a need completely align the fuel properties with European
fuel quality so that vehicles can meet BS VI emission norms and also the durability
requirement.

Inspection & Maintenance (I&M) of In-use Vehicles

It has been estimated that at any point of time, new vehicles comprise only 8% of the total
vehicle population. In India, currently only transport vehicles, that is, vehicles used for hire or
reward are required to undergo periodic fitness certification. The large population of
personalised vehicles is not yet covered by any such mandatory requirement.

In most countries that have been able to control vehicular pollution to a substantial extent,
Inspection & Maintenance (I&M) of all categories of vehicles has been one of the chief tools
used. Developing countries in the South-East Asian region, which till a few years back had
severe air pollution problems, have introduced an I&M system and an effective traffic
management plan.

Road & Traffic Management

Inadequate and poor quality of road surface leads to increased vehicle operation costs, thereby
increased pollution. It has been estimated that improvements in roads will result in savings of
about 15% of vehicle operation costs.

Key Growth Drivers of Auto Industry

Growing Demand
Strong growth in demand due to rising income, middle class and a young population is likely
to propel India among the world’s top five auto manufacturers by 2025 and is expected to be
buoyed by growth in export demand & Government Initiatives to set up manufacturing plants
through Make in India

Rising Income and Middle Class Population

 GDP per capita has grown from USD1,430.19 in 2010 to USD1,595.7 in 2014, and is
expected to reach USD2,128.78 by 2018(E)
 Apart from the impact of rising incomes, widening of the consumer base will also be
aided by expansion of the middle class, increasing urbanization and changing lifestyles
 A young population is boosting demand for cars
 Demand for commercial vehicles increased due to the development of roadways and
greater market access

Policy Support2
 The government aims to develop India as a global manufacturing as well as R&D hub

2
Automotive Mission Plan (2006-2026)

22
  There has been a wide array of policy support in the form of sops, taxes and FDI
encouragement
 The Automotive Mission Plan 2016-26 (AMP 2026) targets a fourfold growth in the
automotive industry
Innovation
 Tata Nano and the upcoming Pixel have opened up the potentially large ultra low-
cost car segment 

 Innovation is likely to intensify among engine technology and alternative fuels 


Rising Investments
India has significant cost advantages; auto firms save 10-25 per cent on operations vis-a-vis
Europe and Latin America. A large pool of skilled manpower and a growing technology base
would induce greater investments also with increasing share of Globals and Strivers in India’s
Income, demand for Auto sector is likely to pick up.

Changing Income Dynamics of India’s Population3:

Income Dynamics (Million household, 100%)

15%
30% 26%
17%

29%
40%
43%

32%
25%
23%
6% 15%
2% 1% 3%
2015 2020 2030
Globals Strivers Seekers Aspirers Deprived

Easy availability of credit4

 Greater access to credit eases the purchase of passenger and commercial vehicles
 The Indian car finance market is growing at a CAGR of 13.20 per cent from the year

3
IMF, World Bank Report:
4
Source: Kotak Mahindra Prime

23
 2010-15 and it is expected to grow to USD30.43 billion by 2020
 BMW, Audi, Toyota, Skoda, Volkswagen and Mercedes- Benz have started providing
customized finance to customers, dealers and suppliers through dedicated Non-
Banking Finance Companies (NBFCs)

Indian car finance market size

20
17.29
18
16 14.22
14 13.2 12.9
11.7
12
9.3
10
7.7
8
6
4 2.5 2.6 2.7 2.5 2.6
1.5 1.9
2
0
FY09 FY10 FY11 FY12 FY13 FY14 FY15

Car Industry Sales Volume (mn) Car Finance Industry (USD bn)

Under – penetrated Rural Markets

 Though the penetration levels of two-wheelers in the addressable income groups in

urban areas is reaching saturation, the rural markets still holds a good potential.
 Most of the OEMs are trying to drive their sales through the rural markets

Rapid Product Introduction and Shorter Product Life Cycle

 The last few years have witnessed a sharp increase in new product launches in the two-
wheeler industry.
 It is estimated that close to 50 new products have been launched by manufacturers
during this period, filling up all price points and targeted at various consumer segments

Favorable demographic profile

 This factor is relevant in the light of the fact that 70 per cent of India’s population is
below the age of 35 years and 150 million people will be added to the working
population in the next five years.
 The increasing number of women in the urban work force will lead to the growth of
gearless scooters

Under developed public transport system

 The increased migration to urban areas has increased the traffic congestion in Indian
cities and worsened the existing infrastructure bottlenecks.
 Inadequate urban planning has meant that transport systems have not kept pace with
the growing urban population. This increases the dependence on personal modes of

24
 transport thus driving the growth.

Growth Drivers Segment wise

Two Wheelers
Under – penetrated Rural Markets
Though the penetration levels of two-wheelers in the addressable income groups in urban areas
is reaching saturation, the rural markets still hold a good potential. Most of the OEMs are trying
to drive their sales through the rural markets.

Rapid Product Introduction and Shorter Product Life Cycle

The last few years have witnessed a sharp increase in new product launches in the two- wheeler
industry. It is estimated that close to 50 new products have been launched by manufacturers
during this period, filling up all price points and targeted at various consumer segments.

Favorable demographic profile

This growth is relevant in the light of the fact that 70 per cent of India’s population is below
the age of 35 years and 150 million people will be added to the working population in the next
five years. The increasing number of women in the urban work force will lead to the growth of
gearless scooters.

Under developed public transport system

The increased migration to urban areas has increased the traffic congestion in Indian cities and
worsened the existing infrastructure bottlenecks. Inadequate urban planning has meant that
transport systems have not kept pace with the growing urban population. This increases the
dependence on personal modes of transport thus driving the growth.

Greater Affordability of Vehicles

The growth in two-wheeler sales in India has been driven by an increase in affordability of
these vehicles. An analysis of the price trends indicates that prices have more or less been the
same in the last few years.

Three Wheelers
Rising demand
The under developed public transport system and increasing need for affordable and convenient
transportation will fuel the market for passenger three wheelers.

Shrinking replacement cycles

Healthy demand due to shortening replacement cycle as well as migration to cleaner and
efficient engines will drive the market.

Demand in export markets

Export sales account for nearly 42% of the sales of three – wheeler industry. Strong growth
potential in emerging markets like Africa, Latin America & South Asia on account of rising
disposable incomes, evolving travel & consumption patterns, etc will lead to growth of the
industry.

25
Low cost & Convenience
Lower capital expenditure / operating expenditure costs minimize risks for First Time Users in
difficult economic conditions. Easy to maneuver in the narrow roads and convenience for ‘On
demand’ deliveries of small consumers are attractive propositions which can aid the growth.

Passenger Vehicles
Growing economy and decreasing inflation
Economic growth and decreasing inflation on the grounds of lower crude prices has increased
the disposable income with customers; which is expected to bring good signs for the industry.
More the income with the customers more will be the demand

Low oil Prices

Low Fuel prices which are expected to stay low in near future are expected to drive the demand
for the overall automobile sector. Low fuel prices reduce the cost of ownership. Also narrowing
gap between petrol and diesel prices after deregulation of diesel have been favorable for the
sales of Petrol cars which was getting hampered in the wake of low diesel prices.

Low penetration levels

India is still one of the lowest penetrated passenger car markets in the world at a mere 17
passenger vehicles per 1000 people in the country. Presence of untapped potential presents a
huge growth opportunity and driver which will contribute to increase in sales in the future.

Low cost of ownership

With the central bank easing the interest rates car loans have become cheaper which has
reduced the finance cost. This has propelled the demand I

Increasing disposable incomes in rural sector

Market leader Maruti Suzuki claimed that rural sales are driving the growth momentum in the
current market; they sell 1 out of every 3 vehicles in the rural market. With increasing
disposable incomes, the rural sector is expected to propel the growth.

Decrease in excise duty

The recent reduction of excise duty across all the segments has led to a price reduction in the
range of Rs 8000 to Rs 135000. The low prices are expected to act as booster for demand.

Commercial Vehicles
Improved industrial activity
Industrial growth is expected to pick up in 2015-16, aided by a rise in spending as food and
fuel inflation declines. Faster implementation of infrastructure projects and a pick-up in mining
activity, key freight generating industries will aid growt.

Uptick in agricultural output

Agricultural GDP is expected to grow at 1.5% y-o-y in 2015-16 vis-a-vis 0.2% in 2014- 15.
Agriculture is a key driver for LCV segment. LCVs are used to transport agriculture output.
Thus with pickup in agriculture and improved rural income LCV segment is expected to get
some demand boost.

26
Replacement demand
Replacement demand from LFOs, which has accounted for majority of sales during 2014-15,
is expected to remain strong. Also, with consumption demand expected to increase, prices of
second-hand trucks (which are mostly used to carry intra-state redistribution traffic) are
expected to improve. This would boost replacement demand further as transporters, whohave
postponed truck replacement due to weak resale values, are likely to replace their trucks.

Implementation of Regulations on Overloading

The National Highways Authority of India (NHAI) has been empowered to penalize trucks
carrying cargo in excess of prescribed limits. Overloaded vehicles will be penalized 10 times
predefined toll charges, and transporters or owners of the vehicles will have to ensure the
excess cargo is off-loaded. This will force the transporters to buy more vehicles.

Tractors
Irrigation facility and monsoons
Farmers prefer to invest in assets such as tractors only when they are assured of receiving
essentials for farming such as water supply. With government investing heavily in irrigation
projects in order to boost the agriculture the tractor demand is expected to increase over
medium term. Punjab and Haryana have seen the highest irrigation intensity, and also account
for the highest tractor penetration in India. Thus, as irrigation facilities improve in other parts
of India, tractor penetration will see a corresponding increase.

Stable farm incomes

Disposable incomes in the rural areas have increased due to more or less stable farm incomes.
This will lead to a growth in the tractor sales as more farmers tend to opt for technology over
labour.

Easy availability of credit

Around 75% of the tractors are purchased on credit in India thus lower rates and easy
availability acts as the demand puller

Scarcity of farm labour

The increasing scarcity of farm labour due to migration of people from rural areas to urban
areas in search of better opportunities will lead to an increase in the dependency of farmers on
farm equipment.

Major Cost Drivers

There are four major cost drivers in the production and sale of an automobile

 Raw materials
 Labor
 Advertising
 R&D (research and development)

27
 7%
6%

10%

3% 47%

6%

21%

Raw Material Labour R&D Logistics Administration Depreciation Other

Raw materials contribute about 47% to the cost of a vehicle. On average, an automobile is 47%
steel, 8% iron, 8% plastic, 7% aluminum, and 3% glass. Other materials account for the
remaining 27%.

Approximately 22% of an automaker’s operational costs depend on steel. So, any fluctuation
in global steel prices has a direct impact on profitability. Steel billet prices came down
drastically from 15.2 euros per metric ton in 2008 to 4.8 euros per metric ton in 2013. This
significantly improved manufacturers’ gross margins. During this period, the gross margins
increased by 200 basis points, or bps, from 15.2% to 17.2%.

Traditionally, automakers only used aluminum for wheels, cylinder blocks, and other engine
parts. Aluminum is twice as expensive as steel. However, this trend is changing in response to
stringent fuel economy standards. The US government’s Corporate Average Fuel Economy, or
CAFE, regulations require vehicles to have an average fuel consumption of 34.1 miles per
gallon, or mpg, by 2016. Vehicles are required to have an average fuel consumption of 54.5
mpg by 2025.

Shift towards aluminum

Although it’s more expensive than steel, aluminum is much lighter. It has a similar strength.
Every 10% reduction in weight improves the fuel economy by 5–7%. Currently, due to cost
constraints, only Premium segment cars—like Tata Motors’ (TTM) Jaguar XF and the Audi
(AUDVF) A8—have aluminum bodies.
Government Policies in support of Automobile Sector
Strong Government support is very crucial in developing the sector, over the last few decades
many policies have been adopted, few of them are:

Auto Policy 2002

The auto policy 2002 was primarily framed by the government of India with the following
vision “To establish a globally competitive automotive industry in India and to double its
contribution to the economy by 2010”
The main objectives of the policy were to

28
  Automatic approval for foreign equity investment up to 100 per cent; no minimum
investment criteria
 Encourage R&D by offering rebates on R&D expenditure
 Exalt the sector as a lever of industrial growth and employment and to achieve a high
degree of value addition in the country. 

 Establish an international hub for manufacturing small, affordable passenger cars and
a key center for manufacturing Tractors and Two-wheelers in the world. 

 Conduceincessantmodernizationoftheindustryandfacilitateindigenous design, research
and development. 

 Assist development of vehicles propelled by alternate energy sources. 

 Promote a globally competitive automotive industry and emerge as a global source for
auto components. 


The Auto Policy allows automatic approval for foreign equity investment up to 100% in the
automotive sector and does not lay down any minimum investment criteria. To accelerate and
sustain the growth in the Indian automotive sector, the Automotive Mission Plan (AMP) 2006
– 2016 was prepared by the Ministry of Heavy industries and public enterprises.

NATRiP

National Automotive Testing and R&D Infrastructure Project (NATRiP), the largest and one
of the most significant initiatives in Automotive sector so far, represents a unique joining of
hands between the Government of India, a number of State Governments and Indian
Automotive Industry to create a state of the art Testing, Validation and R&D infrastructure in
the country. 


The Project aims at creating core global competencies in Automotive sector in India and
facilitate seamless integration of Indian Automotive industry with the world as also to position
the country prominently on the global automotive map. Major Goals Include:


 Setting up of R&D centers at a total cost of USD388.5 million to enable the industry to
be on par with global standards
 Nine R&D centers of excellence with focus on low-cost manufacturing and product
development solutions
 The government has extended the timeline of NATRiP from 2014 to 2017

29
AUTOMOBILES
BOOST TO R&D IN THE AUTO COMPONENTS SECTOR - NATRIP CENTRES

Vehicles Research & Development
Establishment (VRDE), Ahmednagar
Indore — National Automotive Test
Tracks (NATRAX)
• Business description
• Research, design, development and testing of vehicles
• Centre of excellence for photometry, Electromagnetic Compatibility (EMC) and
test tracks
• Complete testing facilities for all vehicle categories
• Centre of excellence for vehicle dynamics and tyre development
• In October 2014, Powertrain LAB facility has been inaugurated to support R&D

Automotive Research Association of • Services for all vehicle categories

India (ARAI), Pune • Centre of excellence for power-train development and material

• Complete homologation services for all vehicle categories

Chennai Centre, Tamil Nadu
• Centre of excellence for infotronics, EMC and passive safety

• Services to agri-tractors, off-road vehicles and a driver training centre

Rae Bareilly Centre
International Centre for Automotive
Technology (iCAT), Manesar
Silchar Centre, Assam
• Centre of excellence for accident data analysis
• Services to all vehicle categories
• Centre of excellence for component development, Noise Vibration and
Harshness (NVH) testing
• Setting up of Vehicle and Engine Test Cells in 2015
• Research, design, development and testing of vehicles
• Centre of excellence for photometry, EMC and test tracks
• First batch of driving training project has been completed in August, 2015

DECEMBER 2016 For updated information, please visit www.ibef.org 36

Automotive Mission Plan 2006-16

The vision of the plan is “To emerge as the destination of choice in the world for design and
manufacture of automobiles and auto components with output reaching a level of USD$ 145
billion accounting for more than 10% of the GDP and providing additional employment to 25
million people by 2016”.

 Manufacture and export of small cars, MUVs, two and three wheelers, tractors and
components to be promoted. 

 Incremental investment of USD $ 35-40 billion in the automotive industry during the
next 10 years to be encouraged. 

 Policy initiatives for competitiveness and development of technology would be taken.


 Implementation of Goods and Services tax (GST) should be time bound. 

 National level automotive institute for training on automobiles at ITIs and ATIs to 
be
setup along with the creation of centers for automotive manufacturing 
excellence. 

 Establishment of Auto Design Centre at NID, Ahmedabad and NATRIP to act as
Centre of excellence for Technical design data. 

 Strive for labour reforms 

 R&D for products, processes and technology to be incentivized. 


30
  Rationalization of motor vehicle regulations to be undertaken 


Dept. of Heavy Industries & Public Enterprises

 Worked towards reduction of excise duty on small cars and increase budgetary
allocation for R&D 

 Weighted increase in R&D expenditure to 200 per cent from 150 per cent (in-house)
and 175 per cent from 125 per cent (outsourced)

FAME (April,2015)

 Planning to implement Faster Adoption & Manufacturing Of Electric Hybrid Vehicles

(FAME) till 2020 which would cover all vehicle segments, all forms of hybrid and pure
electric vehicles 


The Automotive Mission Plan 2016-26

The Automotive Mission Plan 2016-26 (AMP 2026) is the collective vision of Government of
India (Government) and the Indian Automotive Industry on where the Vehicles,
Autocomponents, and Tractor industries should reach over the next ten years in terms of size,
contribution to India’s development, global footprint, technological maturity, competitiveness,
and institutional structure and capabilities.

AMP 2026 also seeks to define the trajectory of evolution of the automotive ecosystem in India
including the glide path of specific regulations and policies that govern research, design,
technology, testing, manufacturing, import/ export, sale, use, repair, and recycling of
automotive vehicles, components and services.

AMP 2026 is a document that is aimed at multiple stakeholders in India and overseas, and
seeks to communicate the Government and industry’s intent and objectives pertaining to the
Indian Automotive industry, comprising the automotive vehicle manufacturers, the auto-
component manufacturers and tractor manufacturers who operate in India.

AMP 2026 targets a fourfold growth in the automobiles sector in India which includes the
manufacturers of automobiles, auto components and tractor industry over the next ten years

Auto Ancillary
Indian auto ancillary/auto component industry is one of the fastest growing industries and is
riding on the success of the auto sector. Indian auto industry is highly competitive with the
presence of a large number of global and Indian auto-companies. Auto sector alone contributes
nearly 84.3% of the total turnover (OEM) and the rest belongs to the replacement market. The
auto component sector clocked a turnover of USD 35.1 bn in FY14, recording a CAGR of 7.8%
during the period of 2008-2014 and is projected to become the fourth largest automobile
producer globally by 2020 with a turnover over USD 150 bn by FY20, according to Automotive

31
Component Manufacturing Association of India (ACMA). Further, the cumulative foreign
direct investment (FDI) inflows into the Indian automobile industry during the period April
2000 – August 2014 was recorded at USD 10,119.9 mn, as per data published by the
Department of Industrial Policy and Promotion (DIPP), Government of India. Currently, India
is ranked 22 among global component exporting countries. China is at the third spot on the list
led by Germany and the US.

Indian auto component industry is one of the fastest growing industries and is riding on the
success of the automobile sector. Coupled with growing demand and technological
advancements, the auto component industry in India has emerged as a key market in Asia as
well as in the world. The country currently supplies auto components to a number of
international automobile makers, such as General Motors, Toyota, Ford and Volkswagen,
amongst others.

The automobile industry (OEM), which contributes around 80% of the total auto components
sales volume, is one of India’s most vibrant and growing industries. This industry accounts for
22% of the country's manufacturing gross domestic product (GDP). The automobile industry
in India is expected to be the world's third largest by 2016, with the country currently the
world's second largest two-wheeler manufacturer. Two-wheeler sales are projected to rise from
15.9 mn in FY13 to 34 million by FY20E. The segment registered a growth of 7.3% in FY14
to 17.1 mn units. India's domestic market and its growth potential have been a big attraction

32
for many global automakers. India is presently the world's third largest exporter of two-
wheelers after China and Japan. According to a report by Standard Chartered Bank, India is
likely to overtake Thailand in global auto-export market share by the year 2020.

The fortunes of the auto ancillary sector are closely linked to those of auto. Demand swings in
any of the segments (cars, two-wheelers, commercial vehicles) have an impact on auto ancillary
demand. Demand is derived from original equipment manufacturers (OEM) as well as the
replacement market.

Margins in the replacement market are higher than the OEM market. The OEM market is very
competitive and component manufacturers have to compromise on margins to bag bulk orders.
Moreover, delivery schedules and quality standards have to be adhered to very strictly.

Indian auto ancillary sector has traditionally suffered from poor quality. While this still holds
true for the unorganized sector, the organized sector has been resorting to increased automation
to reduce the defect levels.

Lower Labour costs give Indian auto ancillary companies an absolute cost advantage. To put
things in perspective, ACMA numbers suggest that wage cost accounts for 3% to 15% of
revenues for Indian manufacturers as compared to 20% to 40% for US players. India's strength
in exports lies in forgings, castings and plastics historically. But this is changing with more
component manufactures investing in up gradation of technology in recent years.

Major Companies in Auto Ancillary

 Motherson Sumi Systems Limited

 Exide Industries
 Bharat Forge Limited

Future Prospects of Auto Ancillary

There has been a conscious effort by manufacturers to improve productivity of the suppliers
in the past few years. Though the number of active vendors has declined significantly for
auto manufacturers, technology transfer and fresh fund infusions have resulted in improved
productivity in the remaining ones. Relaxation of FDI norms for the small-scale sector could
emerge as one of the key growth drivers in the long run. The Indian automotive components
industry has lined up sizeable investment schedules for the next few years.

The automobile sector is cyclical and dependent on the growth of the economy and
improvement in infrastructure. Factors like increased public spending, favorable interest
rates and general improvement in per capita income point towards higher demand for
automobiles in the future. Also, government's initiatives in the infrastructure sector are
likely to give boost to four-wheeler sales especially CVs. Just to put things in perspective,
we expect CV segment to grow by 7% to 8%, 2-wheeler demand to increase by around 12%

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to 14% and passenger car sales growth at 10% to 12% over the medium to long term. This
is a positive for auto ancillary manufacturers.

In the long term, the growth of this sector will depend partly on pace of indigenization levels
across all segments. The prospects look bright as most companies are increasing the
indigenous components, in an effort to reduce their currency losses and remain competitive.
Also, the fact that auto manufacturers like Ford, Hyundai and Maruti are exporting cars,
make the prospects look encouraging.

Margins are likely to come under pressure in the long term because as competition increases,
manufacturers will find it difficult to increase prices and will try to cut costs. The burden
will eventually fall on auto ancillary players. In the near future though, companies will need
to have manufacturing lines that can be adapted for new models, have strong technology
backing, an ability to export to developed markets, market dominance in specific products
and a growth plan driven by volumes and product innovations. Companies will have to
focus on quality and abide by delivery schedules if they want to survive. As manufacturers
sourcing components are keen to get components from fewer sources in future, this will
lead to consolidation in the sector.

The growing number of Free and Preferential trade agreements being signed by India with
countries like Thailand, Singapore and other ASEAN countries will hurt the cost
competitiveness of Indian companies as Indian players play significantly higher duties than
their Asian counterparts. Therefore, Indian companies might lose out on big orders if the
duty structure is not rationalised.

Impact of Budget 2017

Finance Minister did not announce anything that could make a direct impact on the sector. He
cited the upcoming implementation of GST from 1 April, 2017 to be the reason for not making
changes to the excise and duty structures. However, some announcements are bound to have
some sort of an indirect impact on vehicle sales.

Positives
Finance Minister announced a reduction in tax on Liquefied Natural Gas (LNG) from 5 % to
2.5 % considering its future importance for transportation. However, LNG presently accounts
for a small share of the overall fuel consumption by the road transportation sector and hence
won’t have any immediate considerable effects.

The Government showed a major focus on improving infrastructure by announcing Rs 97,000

crore for development of roads. This development is expected to push up the demand for
commercial vehicles (CV). In addition, the announcement to provide affordable housing too
will give a push to CVs and construction machinery.

Personal income tax under the new budget has been lowered in the bracket of Rs 2.5 lakh to
Rs 5 lakh from the earlier 10% to 5%. Using some of the rebates available, the tax liability can

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be reduced by more than half to zero in some cases. Increasing the disposable income will have
a good effect on vehicle sales, especially in rural areas.

The abolishing of Foreign Investment Promotion Board (FIPB) is a step in the right direction
as it’s expected to improve the ease of conducting business. A friendlier environment for
business will lead to more investments from international markets.

The Government has tried to boost skill development by announcing to increase the
establishment of skill centers by ten folds. This should have a significant impact on the issue
of automotive companies struggling to find the required number of employable candidates.

Negatives
There was an announcement on the limitation of accountable cash transaction between two
individuals not exceeding Rs 3 lakh would mean that potential car buyers would have to go
through the 'traceable' channels, which had multiple loopholes earlier. This will have a negative
impact on automobile sales specially for premium category.

Impact of GST on the Automobile Industry:

The two taxes charged to the end consumer on car and bikes currently are excise and VAT,
with an average combined rate of 26.50 to 44% which is higher than the expected rates of 18
and 28% under GST. Therefore, there will be less burden of tax on the end consumer under
GST.
There is good news for the importers/dealers as they would be able to claim the GST paid on
goods imported/sold whereas currently, they are ineligible to claim the excise duty and VAT
paid. Excise paid on stock transfer will be covered by IGST under the GST law. Advance
received for supply of goods will also be taxed under GST. GST would help the manufacturers
in procuring auto parts at a cheaper cost due to an improved supply chain mechanism under
GST.
The final GST rates have been announced for the different kind of automobiles. As expected
the GST on car and bikes are kept under the 28% bracket and a list of cess to be levied on a
different kind of automobile has also been declared by the Indian government. Cess has been
levied on different kind of automobiles ranging from 1 to 15%. We have created an infographic
for an understanding of different cess rates applied on different kind of automobiles.

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GST will be beneficial for the people in the market for small family cars like Alto, Santro,
Nano, Datsun Go as a minimum cess of 1% has been charged over and above the GST rate of
28%. Bikes which have an engine of greater than 350CC like Enfield 500CC or Harley
Davidson etc would be charged GST at the rate of 28% and an additional 3% cess would be
levied. It is difficult to understand the placement of yachts, aircraft, personal jets under the 3%
cess bracket along with the small cars having engine >1200CC and <1500CC instead of the
15% cess.
Currently, there are a lot of free services/warranties offered by the car manufacturers due to the
competitive nature of the industry. These free goods/services are not taxed under current tax
laws. Under GST, the free services/ warranties would also be eligible for taxation.

Implementation of GST would reduce the cost of manufacturing of cars and bikes due to the
subsuming of different taxes levied currently. Under GST, the taxes would be charged on
consumption state rather than the origin state, which would give a boost to the growth rate of
the automobile industry.

Sources
 Euromonitor
 IBEF Report
 Tech Sci Research
 EY Report
 KPMG Report
 Union Budget 2017-18
 Society of Indian Automobile Manufacturers
 World Bank Reports
 IMF Reports

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