The first quarter of 2020 has been eventful, to say the least. The central question on everyone’s minds is, what lies ahead? What can one expect from the global economy? It’s almost as if we’re starting on a fresh drawing board in some cases.
The automobile sector is no exception to this. Chronologically speaking, the Indian automobile industry has been flourishing in recent times. More and more foreign carmakers have made their foray into the Indian market, with some big names among them. Some existing players have even decided to expand the ambit of their business in the country, by setting up production units. It’s safe to say that the automobile industry in India has been growing in leaps and bounds.
So is it a feasible time to be investing in the car industry? Will it give profitable returns in the future? Let’s explore the possibilities of a potential investment in the car making sector.
There has been overall growth in the sector. In recent years, the automobile sector has contributed a sizable 7.1% of India’s Gross Domestic Product. This has also been effective in generating employment opportunities in the country, with around thirty million jobs created across the nation. India has also begun exporting at a steady pace, showing a 4.3% growth over the years. As per current projections, India is estimated to be in third place by the year 2026 in terms of the automotive market and production scale and volume. Whether it’s heavy vehicles or two-wheelers, India has been showing great promise on all fronts, leading by example.
The R&D Angle
A major driving factor behind the growth of the sector is the boom in R&D. India has a 40% share in the world’s R&D, at around $31 billion worldwide. 8% of our country’s budget goes towards automobile R&D expenditure. In the coming years, this drive for innovation will see more and more people gaining access to quality vehicles, with penetration reaching 7.2% by the time half the decade is done. Parallelly, the average income of Indian citizens is also increasing, with a threefold increase. Both these parameters go hand-in-glove with each other when it comes to investing in the automobile industry in India. So where do the opportunities lie, exactly?
From a general standpoint, the investment opportunities in the Indian automobile sector are plenty. There’s around $30 million dollars’ worth of projects up for grabs in the market. Notably, there has been an increase in the number of government-funded projects, focused in the areas of Uttarakhand and Uttar Pradesh. The Indian market slowly seems to be shifting towards electric vehicles as well, with millions of dollars of funding being funnelled into this avenue. The core focus has been on creating a self-sufficient base of operations for automobile manufacturing in the country, with an emphasis on sustainable operations.
A key aspect to note here is the FAME scheme. This was initiated in 2012, to further the development of hybrid and electric vehicles by offering demand incentives to buyers. This initiative is spearheaded by the Department of Heavy Industries, with an eight-year timeframe, ending in 2020. In its duration, the scheme has been highly effective, with the second phase of FAME II being requisitioned by the Government of India.
The Key Players
Across the country, many big international names have started to expand their base of operations with production units. Some notable names include Ford, GM, Isuzu, and even big-budget names like Mercedes-Benz have decided to make dedicated efforts to set up their bases in India. In fact, 2020 is the year where most of them either expand on their existing roster of electric vehicles or launch their new electric vehicles in earnest. This has also been mirrored by the government, in supporting the companies to set up charging stations in urban hotspots across the country. Even the two-wheelers are getting a piece of the profit action, with manufacturers like Piaggio, Royal Enfield and Hero MotoCorp going big on their production infrastructure. In the future, if the current growth patterns are an indication, the automobile sector in India is ready to show promising growth.
In conclusion, the time is indeed ripe for investment in the Indian automobile sector. In particular, investing in electric vehicles now can be a very profitable venture for you in the coming years. If you’re thinking of investing in the automobile sector, go ahead and dive in!37