India Becomes World’s Third-Largest Automobile Market

General Studies Paper-3

Context

• The Union Minister for Road Transport and Highways has announced that India has emerged as the third-largest automobile industry globally, with a market size of about ₹22 lakh crore.

About the Automobile Industry

• Global Scenario: The United States has the largest automobile industry in the world, valued at ₹78 lakh crore.
  • China ranks second with an industry size of ₹49 lakh crore.
• Indian Scenario: India’s automotive industry is a cornerstone of the nation’s manufacturing and economic growth, contributing around 7.1% to India’s Gross Domestic Product (GDP) and 49% to manufacturing GDP.
  • Two-wheelers and passenger vehicles dominate the domestic market.
• In FY25, two-wheelers accounted for 76.57% of total market share, while passenger cars accounted for 16.80%.

Government Initiatives Driving Growth

• Production Linked Incentive (PLI) Scheme for Auto and ACC Batteries: With a total allocation of ₹44,038 crore the initiative aims to boost the domestic manufacturing of advanced automotive technologies, including EVs, hydrogen fuel cell vehicles, and advanced battery storage solutions.
• FAME-II Scheme: The scheme provides subsidies for electric and hybrid vehicles and charging infrastructure, supporting the adoption of eco-friendly vehicles and contributing to cleaner transportation.
• Vehicle Scrappage Policy: Targets phasing out vehicles older than 15 years to cut emissions and stimulate replacement demand.
• Make in India and FDI Policy: The policies, particularly the 100% FDI allowance in the auto sector, have attracted significant investments from both global and domestic players, boosting manufacturing and employment.

What are the Challenges?

• Heavy dependence on imports for high-value components such as semiconductors and EV batteries.
• Limited share of only about 3% in the globally traded auto components market, with low penetration in high-precision segments.
• Inadequate infrastructure for EV charging and hydrogen refuelling stations.
• Environmental Challenges: Rising vehicle numbers leading to increased carbon emissions and environmental concerns.

Way Ahead

• Increase localisation in high-technology automotive components to reduce import dependence.
• Expand investments in EV charging networks and hydrogen fuel infrastructure.
• Enhance research and development and provide skill training for advanced manufacturing capabilities.
• Promote recycling, emission control measures, and adoption of green mobility solutions for sustainable growth.