Investment Opportunity in Automobile Sector in India

by EzyBiz India Tax & Accounting Consulting Firm

India is the fourth largest automobile industry across the world. It is estimated that by the year 2026 it will become the 3rd largest in the automobile sector. It has about 4.5% share in the total exports in India and is contributing 7.1% in the country’s GDP.

Also, the automobile sector provides employment to about 35 Million people. The two wheeler segment has been the major contributor with about 81% share in the revenue generated in the market.

Due to aforesaid reasons, automobile sector is one of the most attractive sectors for foreign direct investment in India. It provides tremendous opportunity for foreign companies to set up business in India and invest in automobile sector.

FDI Status in Automobile Sector in India:

India has liberalized its FDI policy and presently, 100% FDI are allowed in automobile sector under automatic route. According to the government data, during April to June 2020 about 25 Billion USD worth of FDI were received in this sector. The current level of production of vehicles in India is about 26 Million out of which 4.7 Million are exported worldwide.

The automobile sector is expected to provide more opportunities for companies to invest in this sector in the coming future due to the increasing population and demand. Accordingly, we will witness more and more company formation in India by foreign players who are interested in investment in this sector.

Reasons for making investment in Indian Automobile Sector

Some of the reasons for making investment in automobile sector are as under:

1. India is the emerging global hub in auto component sourcing.

2. Currently, India ranks:

a) No.1 in Tractor Manufacturing

b) No.2 in Bus Manufacturing

c) No.3 in Heavy Trucks Manufacturing across the globe

3. The favorable trade policies and import export regulation by the Government makes it much easier to expand the automobile sector.

4. The geographical location of the country has added advantages as it is closer to the key automotive manufacturing countries namely, ASEAN, Europe, Japan and South Korea.

5. The establishment of the following has given the automobile sector a boost:

a) Auto design centers

b) Automotive training institutes

c) Special auto parks

a. Virtual Special Economic Zones (SEZs) for auto components

6. Also, the social distancing norms imposed due to COVID-19 pandemic, an upsurge has been seen in owning vehicles to avoid the public transport among the Indian masses.

Areas where Investment can be made

The areas that provide ample opportunities for investment under the automobile sector are as follow-

1. The Indian Government is aspiring to become a 100% electric mobility country by 2030. Therefore, the electric vehicle segment is great area for investment.

2. Research and Development specifically for the Electric Vehicles.

3. Manufacturing of:

a. Electric Vehicles (EVs) that are low cost

b. Hybrid Electric Vehicles (HEVs)

c. Lithium Ion Batteries

d. Plug-in Hybrid Electric Vehicles (PHEVs)

4. Sub-segments replacement market shares specially in clutches and gears.

5. Ancillary industry due to increase in the demand of the following in the two-wheeler segment:

a. Body and Chassis

b. Fan belts

c. Hydraulic pneumatic instruments

d. Pressure Die Castings

e. Sheet Metal Parts

Future of Automobile Sector in India:

In the year 2021, TESLA a major electric vehicle automobile giant has registered its wholly owned subsidiary company in India. Particularly in the Electric Vehicle Section it is estimated that 50 Million, employment will be generated by the year 2030. The global leaders in the car manufacturing sector are investing in India to fulfill the growing demand of vehicles in the country. By the year 2026 the revenue from this sector is expected to increase to a whopping 300 Billion USD.

Thus, automobile sector has very bright future owing to increase population and demand. The companies which will innovate and came up with new ideas will excel in future. Accordingly, Indian automobile sector provides huge opportunity for companies to make investment by setting up business in India