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Automobile Sector

Automobile Sector

Automobile Sector


  • The Automobile Industry contributes around 7.1% to India’s GDP by volume.
  • India poised to be the third largest automotive market in the world by 2020.
  • India is also the fourth largest producer in the world with an annual production of 25 million vehicles in 2016-17 and is the largest manufacturer of two-wheelers, three-wheelers and tractors in the world.
  • India is home to four large auto manufacturing hubs: Delhi-Gurgaon-Faridabad in the north, Mumbai-Pune-Nashik-Aurangabad in the west, Chennai- Bengaluru-Hosur in the south and Jamshedpur-Kolkata in the east.
  • Six million-plus hybrid and electric vehicles to be sold annually, by 2020.
  • FDI received by the sector between April 2000 and December 2017- USD 18.43 Billion.


  • By 2020, India is expected to be the third largest automotive market by volume in the world, after China and USA.
  • The presence of large automotive clusters in the country: Delhi-Gurgaon-Faridabad in the north, Mumbai-Pune-Nashik-Aurangabad in the west, Chennai- Bengaluru-Hosur in the south and Jamshedpur-Kolkata in the east.
  • Global car majors have been ramping up investments in India to cater to growing domestic demand. These manufacturers plan to leverage India's competitive advantage to set up export-oriented production hubs.
  • India offers a comparative cost advantage of roughly 10-25 percent in comparison to that in Europe and Latin America.
  • Increasing disposable incomes in the rural agri-sector.
  • Successful government policies such as Automotive Mission Plan (2006-16) and further rollout of Automotive Mission Plan (2016-26) providing the much required thrust to the sector.
  • A greater push has been given by government schemes such as FAME and NEMMP 2020 to promote Electric cars.
  • Charging of a uniform tax rate on complete vehicles and inputs to further boost domestic production using local supplies.
  • Research & Development (R&D) hub: strong support from the government in the setting up of National Automotive Testing and R&D Infrastructure Project (NATRiP) centres. Private players such as Hyundai, Suzuki, GM are keen to set up an R&D base in India.
  • The interest of foreign manufacturers setting up their facilities is further supported by the presence of a large pool of skilled and semi-skilled workers and a strong educational system.


  • 100% Foreign Direct investment (FDI) is allowed under the automatic route in the auto sector, subject to all the applicable regulations and laws.
  • The sector attracted US$ 18.43 Billion in foreign direct investment between April 2000 and December 2017. This stupendous growth is expected to continue as it is estimated that sector would attract additional USD 8-10 billion in local and foreign investment by 2023.


Automobile Policy:

  • Automatic approval for foreign equity investment up to 100% with no minimum investment criteria.
  • Manufacturing and imports in this sector are exempt from licensing and approvals.
  • The encouragement of R&D by offering rebates on R&D expenditure.

Automotive Mission Plan 2016-26; Salient Points:

  • The automobile industry is poised to be the third largest in the world, contributing 12% to GDP.
  • The sector has the potential to generate USD 300 billion revenue.
  • The Indian Automotive industry to be a top job creator – 65 million additional jobs
  • The Indian Automotive industry to be one of the prime movers of Manufacturing sector and “Make in India” initiative
  • The Indian Automotive industry aims to increase exports of vehicles by 5 times.
  • The growth of vehicles particularly the passenger vehicles is expected to triple to 9.4 million units per annum by 2026.
  • The plan also envisions India to be the first in the world in production/sale of small cars, two-wheelers, three- wheelers, tractors and buses; and third in passenger vehicles and heavy trucks.
  • Specific interventions are envisaged to sustain and improve manufacturing competitiveness and to address challenges of environment and safety.

Draft National Automotive Policy 2018:

  • Department of Heavy Industries formulated a draft National Automotive Policy, for holistic development of automobile sector in India. Apart from propelling the sector to be among the top three in nations in the world in engineering, manufacturing and export of automotive vehicles and components, the policy also envisages to scale-up exports to 35-40% of the overall output and make India one of the major automotive export hubs in the world. Thus the following propositions are made in the policy:
    • Adopt a long-term roadmap for emission standards beyond BSVI and harmonize the same with the global standards by 2028.
    • Rollout CAFÉ (Corporate Average Fuel Efficiency) norms till 2025.
    • Adoption of a differential taxation method based on a composite criterion, including parameters such as CO2 emissions and length.
    • Harmonize AIS and BIS standards on safety critical parts over next 3 years.
    • Fast track adoption of Bharat New Vehicle Safety Assessment Program.

National Automotive Testing and R&D Infrastructure Project (NATRIP):

  • The project has been set up at a total cost of USD 573 million to enable the industry to adopt and implement global performance standards.
  • Focus on providing low-cost manufacturing and product development solutions.
  • As a part of the program, 7 test centers finalized to set up the test facilities.

The National Electric Mobility Mission Plan 2020 (NEMMP):

  • This initiative has been taken up to encourage reliable, affordable and efficient xEVs (hybrid and electric vehicles) that meet consumer performance and price expectations through government-industry collaboration.
  • Promotion and development of indigenous manufacturing capabilities, required infrastructure, consumer awareness and technology are additional objectives of NEMMP 2020.
  • India to emerge as a leader in the two-wheeler and four-wheeler xEV market in the world by 2020, with total xEV sales of 6-7 million units thus enabling the Indian automotive industry to achieve global xEV manufacturing leadership and contributing towards national fuel security.
  • Target of putting 6 million electric & hybrid vehicles per year on the road by 2020 under NEMMP 2020.
  • Including industry collaboration, a cumulative outlay of USD 2.15 billion is estimated for this paradigm initiative.

Faster Adoption and Manufacturing Of Hybrid & Electric Vehicles In India:

  • It aims at incentivizing the use of E- Vehicles across all vehicle segments ranging from 2 wheelers to light commercial vehicles and buses.
  • Technology development, demand development, pilot projects and charging infrastructure are the four focus areas of the scheme.
  • Following this, Energy Efficiency Services Ltd. (EESL) has invited global bids for 10,000 electric sedans as a part of its phase one of the scheme.
  • In addition, it has also floated tenders for 3000 alternating current (AC) charging points and 1000 direct current (DC) ones.

New Green Urban Transport Scheme (GUTS), 2017:

  • To promote low carbon sustainable public transport system in urban areas, the scheme will be executed with the help of private sector including assistance from the central and state governments under a seven-year mission with a total cost of USD10.76 billion. For first phase, 103 cities have been identified. These cities are either capital cities or have a population of 5 lakh and above.
  • The scheme will push for promotion of Non-Motorized Transport (NMT), public bike sharing, Bus Rapid Transit (BRT) systems, Intelligent Transport Systems (ITS), urban freight management etc. The scheme is presently at the stage of approval from the Cabinet.


R&D Incentives for Industry and Private Sponsored Research:

  • A weighted tax deduction is given under section 35 (2AA) of the Income Tax Act.
  • Weighted deduction of 200% is granted to assess for any sums paid to a national laboratory, university or institute of technology, or specified people with a specific direction and that the said sum is used for scientific research within a program approved by the prescribed authority.

Manufacturers with an IN-HOUSE R&D Centre:

  • Section 35 (2AB) of the Income Tax Act, 1961 provides weighted tax deduction of 150% of expenditure incurred by a specified company, on scientific research in the in-house R&D centers as approved by the prescribed authority. This does not includes expenditure on the cost of any land or building.
  • The weighted tax deductions of 150% are effective till 31st March’2020. Consequent upon that, the weighted tax deductions will be 100%.

State Incentives:

Apart from the mentioned incentives, each state in India offers additional incentives for industrial projects. Incentives are in areas like rebates in land cost, relaxation in stamp duty exemption on sale or lease of land, power tariff incentives, a concessional rate of interest on loans, investment subsidies/tax incentives, backward areas subsidies, and special incentive packages for mega projects. Few examples are:

  • Andhra Pradesh:
    • Government of Andhra Pradesh is committed to providing land at concessional rates, along with 24 hours uninterrupted power supply.
    • Capital subsidy of 50% for common infrastructure in auto clusters and ASMC developers, up to a maximum of USD 3.07 million.
    • Financial assistance limited to 75% of the cost, subject to a maximum of USD 38,461 for obtaining patent registration and 50% of all charges, subject to a maximum of USD 7,692 paid for obtaining quality certification. This is applicable to only MSME units.
    • Under Marketing Incentives, 50% of cost of participation with a maximum amount of USD 7,692 to be reimbursed to maximum of 10 MSME units per year for participating in international trade fairs.
  • Gujarat:
    • Auto component manufacturers can either avail general incentives under the Gujarat Industrial Policy 2015, or under the scheme for Mega/ Innovative Projects.
  • Jharkhand:
    • Jharkhand introduced Automobile and Auto Component Policy 2016 with an aim to make Jharkhand, a preferred destination for automobile and auto-component manufacturing units.
    • Provision of financial assistance of 50% for fixed capital investments in building and common infrastructure up to a maximum of USD 3.07 million.
    • 100 % electricity duty exemption shall be provided for 10 years from the date of production.

Export Incentives:

  • Under the Merchandise Export Incentive Scheme (MEIS), automobile manufacturers get benefit of 2% on vehicle exports.
  • 20 tariff headings have been considered as “Sensitive items” to be maintained in the negative list of India in most of the trade agreements.

Area-Based Incentives:

  • Incentives for units in SEZ/NIMZ as specified in respective Acts or the setting up of projects in special areas like the North-east, Jammu & Kashmir, Himachal Pradesh and Uttarakhand.


  • Passenger vehicles: passenger cars, utility vehicles, multi-purpose vehicles.
  • Two-wheelers: mopeds, scooters, and motorcycles
  • Three-wheelers: passenger carriers, goods carriers.
  • Commercial vehicles: light commercial vehicles, medium and heavy commercial vehicles.
  • Huge demands for low-cost electric vehicles that are suited for safe short-distance urban commutes (averaging 50-100 km/trip) that are rugged enough to perform reliably through India's summers and monsoon. It is estimated that total electric vehicles sales would amount to 6-7 million units by 2020.