Auto Industry – UPSC GS1

Recent developments in India’s automotive industry
  • Increase in Demand: In the last 3 decades passenger vehicle volume increased 15 times, the SUV 24 times, and the two-wheeler 12 times.
  • Improvement in Quality and efficiency: The technology features, the safety, the comfort, the emissions, and the energy consumption have improved much better than 3 decades ago.
  • Developments in supply chain ecosystem:
    • India’s Indigenous supplier base has become globally competitive.
    • Quality defects have been reduced by 90 percent.
    • India’s engineering capabilities like their ability to design, engineer, and develop world-class products completely in India, improved a lot.
    • This has contributed to the increase in the global rank of the industry from 16th then to 5th now.
Significance of Automotive Industry to India’s economic growth
  • Contributes to the development of the MSME sector. For example, The MSME share of value-addition to a car is 35 percent. Further the automotive aftermarket provides economic opportunities to thousands of MSMEs engaged in the auto value chain.
  • Boost to the manufacturing sector. The industry contributes 6.4 percent to GDP and around 35 percent to manufacturing GDP.
  • Provides employment: It supports over 8 million jobs directly and as many as 30 million more in the value chain.
  • Attracts significant investments. For instance, it has attracted $35 billion over the last 10 years.
  • Source of foreign capital. For example, it generates export revenue of $27 billion that is nearly 8 percent of the total merchandise exports from India.
Suggestions to support the growth of the Automotive industry
India’s automotive industry contribution to GDP is low compared to countries like Korea, Germany, and Japan. The contribution, there, is more than 10 percent of the country’s GDP. The following measures need to be taken
  • India needs to make a niche for itself in EV tech mobility through rapid localization of EV tech in the production and supply chain.
  • Need to enhance local value addition to invest more in skill development and R&D. It will make it globally competitive in cost, quality, and technology.
  • To improve exports India needs to sign bilateral treaties to get favourable tariff regimes.
  • Also, there is a need to rationalize the extremely high GST rates on automobiles in a phase-wise manner.
  • Automotive Mission Plan 2026 released by the government needs to revise in the current context by taking inputs from the industry.
If the above steps are implemented with a will, India’s automotive industry will become a $200 billion industry with exports of $50 billion by 2026.
Write a note on the locational factors of auto industry and their growth trend in India. (200 Words)
Location factors:
  • Automobile industry is located near to iron and steel producing centres because steel is the basic raw material (Jamshedpur and Jabalpur)
  • Availability of places producing Tire, tubes, window glasses, paint, textiles and other ancillary industries is also considered to be an advantage to the industry.
  • Port cities are also chosen due to availability of import and export facilities (Calcutta, Mumbai, Chennai)
  • But today the automobile industry prefers those locations which offer ready market for manufactured products (Gurgaon and Manesar).
  • Demography of area nearby, depending on youth, middle aged, rich poor etc. Urban and Rural divide also significant locational factor.
  • Local economy: Like in Madhya Pradesh and Haryana major automobile production is focused on agricultural heavy equipment’s like tractors, harvesters, threshers, sorter, loader, bale maker, electric chaff cutter etc. while in urban area major focus on 2 wheeler or 4 wheeler based on income of people
  • Government Assistances like soft loans, lands for SEZs, relaxed labour laws, electricity, tax holidays and setting up ITI and Diploma colleges nearby.
Slowdown in global economy, lack of innovation (R&D), electricity fluctuation, strikes by labour unions due to strict labour laws, rural income linked with monsoon leads to fluctuations in demand, regulatory complexity, Infrastructure problems-land acquisition, poor roads, high interest rates are some challenges which Indian automobile Industry is facing.

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