Why India's Automobile Industry is a Smart Choice for Foreign Investors

Nitin Gadkari, the Minister of Road Transport and Highways, stated that India will become the top automobile manufacturing hub by 2029. In addition to this, the country is expected to become the third largest economy within the next five years, he added.

He observed that the Centre's main priorities in this area include the construction of a world-class road infrastructure, the transition to alternative energy sources, and reduction in the expenses associated with transportation and distribution. Gadkari highlighted the significance of well-developed infrastructure, access to water and power, efficient transport systems, and effective communication networks for the advancement of capital investment, industry, and agriculture.

"We have all products and all major players present in the country. The automobile industry will give strength to the Indian economy and we will be Atmanirbhar Bharat and we will be the third largest economy in the world in the next five years," stated Gadkari.

The automobile industry in India has experienced consistent growth in recent years and is set to witness further substantial expansion. At present, India stands as the third-largest manufacturer in terms of automobile industry capacity. However, it is anticipated that it will emerge as a significant participant in global automobile supply chains in the coming years. Between April 2000 and June 2022, approximately US$ 33.53 billion in foreign direct investment (FDI) was invested in the automobile industry.

A major factor driving the growth of this industry includes the favourable policies of the Government of India. The Indian government has extended the waiver of transmission fee for plants that are into hydrogen manufacturing for twenty five years and is aiming to have all vehicles run using electricity by 2030. Therefore, these policies are anticipated to incentivize the manufacturing of electric vehicles & green hydrogen fuel & create business opportunities for investors. In this article, let us look at why investing in India's automobile industry is a smart choice for foreign investors.

Growing demand for electric vehicle

India is committed to decreasing its carbon footprint and has set ambitious goals for EV adoption. The Government of India has launched numerous initiatives that include the FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) scheme which is aimed at promoting EV adoption. As per Net Zero Emissions by 2050 Scenario, by 2030, the number of electric cars on the road is anticipated to exceed 300 million where electric cars would account for sixty percent of the new car sales.

On Saturday, the JSW group signed a memorandum of understanding (MoU) for the creation of a comprehensive project. This project will focus on manufacturing electric vehicles (EVs) and EV batteries and will be established in Cuttack and Paradip with an investment of ₹40,000 crore.

“By integrating our operations within Odisha's vibrant ecosystem, we aim to create a symbiotic relationship that benefits all stakeholders, fostering growth and innovation, and generating numerous high-skilled job opportunities. It's a testament to our belief in Odisha's potential and our dedication to contributing positively to its economic landscape," said Sajjan Jindal, chairman of JSW Group.

The project, which utilizes cutting-edge technology, is composed of a highly advanced plant that produces EV batteries with a capacity of 50 GWH. These batteries can be used for both mobility purposes and energy storage systems. Additionally, the project includes the production of commercial e-vehicles, passenger electric cars, and various auto components such as e-powertrains. Overall, this world-class project integrates multiple aspects of the electric vehicle industry and associated technologies.

Increasing demand for passenger vehicles

Mordor Intelligence's report states that the automotive market in India was worth $100 billion in 2021 and is projected to reach $160 billion by 2027. The increasing economy of India, along with a growing middle class, urban lifestyles, and a rise in disposable income, are contributing to the increasing demand for passenger vehicles. As a result, investment opportunities have arisen in the production of SUVs and cars. In addition, the availability of convenient financing choices from financial institutions enables a wider range of consumers to easily afford passenger cars, thereby contributing to increased sales nationwide.

Improved road networks and infrastructure development in different parts of India contribute to the expansion and convenience of using passenger cars. The passenger car segment greatly benefits from favorable measures like the Automotive Mission Plan 2016-2026 and the Make in India initiative, which provide substantial support to the automotive industry.

"Through 5G, transportation networks and smart cities can achieve massive device connectivity, higher data rates, ultra-low latencies, and higher system capacities that have the potential to transform connected mobility," says Dhanaji Khade - VP, Ready Connect Business for SBU Connectivity, HARMAN India.

Some of the automobile industry companies specializing in the passenger car landscape include Tata Motors Passenger Vehicle, Toyota Kirloskar Motor, Mahindra & Mahindra, Skoda Auto Volkswagen India, Hyundai Motor India, Maruti Suzuki India and others.

Attractive Labour market

India has a large pool of both skilled as well as unskilled labor, which makes it an attractive destination for automotive manufacturers who are looking to set up operations. As per a report by IBEF, India’s EV sector is likely to create job opportunities for five crore people by 2030, rendering a significant boost to the Indian economy.

"A few of the primary responsibilities of the automotive industry are to play its part in the growth of our country’s economy, create employment opportunities for the people and also contribute towards ESG," says Rajesh Vadivelu, Chief Financial Officer, KOSTAL India (KOSTAL Group).

 This industry's expansion provides foreign companies with prospects, as their expertise in innovation and other supportive activities is in great demand. Furthermore, companies operating internationally in India have the advantage of accessing a vast pool of affordable and highly skilled workforce, presenting compelling prospects for businesses seeking entry into the Indian market.

Investors have the opportunity to access India's automobile industry and harness the immense potential of this expanding sector. There are numerous investment prospects accessible within India's automotive industry, whether your interest lies in financing electric vehicles, embracing emerging technologies, or capitalizing on the increasing demand for passenger vehicles.