The Indian auto sector shows major improvements in manufacturing capabilities and has great potential for growth in a developing market. However, challenges remain around transportation infrastructure, product quality, skilled labor, regulations, and increasing scale. The Auto Mission Plan aims to double the sector's GDP contribution and jobs by 2016 through $40B in investment and $35-40B in exports. Achieving these targets will require developing suppliers, lowering costs through scale, stimulating domestic demand, and exploiting export opportunities.

1. India auto sector 1

2. Introduction to Indian Auto Sector major improvements in manufacturing capabilities a growing market with great potential a very positive industry/government vision for the industry’s future. But they also see a number of challenges, the need for a better transportation infrastructure improved product quality more skilled workers changes in labor and tax regulations the need to increase the scale of their companies in order to meet the demands of the global automotive industry. Despite these obstacles, India’s executives and experts are optimistic about their ability to overcome these challenges and make India an important destination for automotive production and sales. 2

3. Automobile Export Trends India’s automobile exports have been growing at a CAGR of over 40% per annum for the past five years. These exports grew by a phenomenal 336.7% in unit terms from 184,680 in 2001-02 to 806,495 in 2005-06 India’s domestic auto sales grew 70.50% from 5,225,788 units in 2001-02 to 8,910,224 units in 2005-06. The comparison shows that auto exports grew at 28.1 per cent as compared to domestic sales growth rate of 12.82 per cent in 2005-06 3

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6. Globalizing Indian Auto Industry Indian auto industry has established one of the largest export hubs for most of the global players. Several global automotive players have moved their R&D to India outsourcing research and design elements of the automotive products. R&D expenses as a percentage of net sales was 0.78 per cent in auto components in 2004-05. Also India scores over other countries like China and Thailand and has gained acceptance of global OEMs on account of its quality, design and engineering capabilities and large pool of low cost, technically skilled and English speaking engineers. Over the past five years Indian auto industry has been growing at 15%. It has built a strong foundation for low cost manufacturing and engineering competitiveness thus attracting many global original equipment manufacturers (OEMs) like GM, Toyota, Honda, BMW, Nissan, etc., to leverage the India opportunity across the value chain. 6

7. Auto Mission Plan “By 2016 India will emerge as the destination of choice in Asia for the design and manufacture of automobiles and automotive components. The Indian automotive sector will contribute in a significant manner to India’s Gross Domestic Product and employment opportunities” The AMP was prepared by the Ministry of Heavy Industries and Auto Industry Associations jointly so as to address the challenges and opportunities in the global markets. 7

8. Auto Mission Plan Double the sector’s contribution to GDP to 10% Provide additional employment to 25 million people by 2016 Attract $40 billion investment and sectoral output of $145 billion with estimated exports of automobiles and components accounting for US$35-40 billion. New investment plans announced by auto giants, like the Rs. 3,000 crore projects by Maruti, a $1.5 billion Suzuki-Nissan Plant, adds credibility to the new AMP to raise the industry turnover from the current $34 billion to $1,22,159 billion by 2016, and to boost exports to $35 billion. The plan also seeks one-stop clearance for FDI proposals including local clearances and tax deductions of 100 per cent on export profits. AMP also seeks 50 per cent deduction on foreign exchange earnings by companies and concessions on import duty for machinery used to set up new plants. 8

9. Conclusion The future challenges for the Indian automobiles industry in achieving the targets defined in the AMP would primarily consist of developing a supply base in terms of technical and human capabilities, achieving economics of scale and lowering manufacturing cost. At the same, there is a need to stimulate domestic demand and exploiting export and global business opportunities. Indian automotive industry is in the midst of a major structural transformation in today’s globalised world. “System Supply” of integrated components and sub-systems is becoming the order of the day. Most of the SSI units manufacturing smaller individual components are on their way to become Tier 2 and Tier 3 suppliers, while the larger companies including most MNCs are being transformed into Tier 1 companies, which purchase from Tier 2 & 3, and sell to the auto manufacturers. 9