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Indian Automobile Industry

By Saumya Sinha (Sanskriti School, New Delhi)

The Automobile Industry is classified into the following segments as 2/3 wheelers, 4 wheelers (PVs) and commercial vehicles. Each segment has its own unique dynamics and market determiners. The primary determinant for 2-wheeler sales is rural income, while the 4-wheeler sales are dependent upon urban. Commercial vehicles and 3 wheelers depend upon aggregate economic activity and increasing urbanization. 2-wheelers dominate the market in terms of volume due to the growing middle class, young population, and growing interest of companies in expanding rural markets.

India became the 5th largest Auto market in 2019 with sales reaching 3.81 million units. Domestic automobiles production increased at 2.36% CAGR between FY16-20 with 26.36 million vehicles being manufactured in FY16-20. Domestic automobile sales increased at 1.29% CAGR between FY16-20 with 21.55 million vehicles being sold in FY20. The 2-wheelers and passenger vehicles accounted for 80.8% and 12.9% respectively. EV sales including E-rickshaws in India witnessed a growth of 20% and reached 1.56 lakh units in FY20 driven by 2-wheelers. Several automakers invested heavily in the industry. FDI inflow in the automobiles sector was USD 24.21 billion between April 2000 and March 2020.

However, during the corona pandemic, the situation has changed. The automobile industry has suffered around more than 46% losses as the sales of the vehicles have gone down. For the first time in modern history, no car was sold in April due to the COVID-19 pandemic as the whole country was under lockdown. According to SIAM (Society of Indian Automobile Manufacturers), each day of lockdown and closure of the factory caused a loss of Rs.2300 crore.

The Government aims to develop India as a global manufacturing center. Reforms like GST aim to boost the economy. The GST on EVs was reduced from 12% to 5%. Focus is shifting to electric vehicles in order to reduce harmful emissions. Under Union Budget 2019-2020, the government announced to provide additional income tax deduction on interest paid on the loans taken to purchase EVs. However, major reforms were not undertaken for the automobile industry as expected by many companies.


Toyota in India is largely focused on hybrid vehicles, which attract taxes of as much as 43% because they aren’t purely electric.

Shekhar Viswanathan, vice chairman of Toyota’s local unit, Toyota Kirloskar Motors, said that the government keeps taxes on cars and motorbikes so high that the companies find it difficult to expand. Also, such high taxes prevent consumers from owning a car, meaning factories are idled and jobs are low. He even said that after investing money in India, they are treated as if they aren’t invited here, as the taxes are really high. Viswanathan said that the GST level should be reduced to 18% as the automobile sector isn’t making any drug or liquor! Even SIAM is urging that the government should temporarily reduce the GST rate across all the categories of vehicles to 18% to increase demand. Recently, after Viswanathan’s comments, Vikram Kirloskar, vice-chairman said that they will be investing Rs.2000 crore on technologies and electrification both for domestic and export markets. He also said that they continue to be committed to the Indian market. They just want support from the government to sustain the industry through a viable tax structure.