“Automobile Industries- Contribution of Automobile Sector in India’s Economy”

The automobile sector, India’s most prosperous sector, Contribution to India’s GDP is around 7.1%. It will increase to 12% by 2026. In 2019 India became the 5th largest automobile industry in the world. But for tractors and 2 wheelers India is the 2nd largest manufacturer. Over a 35million people are earning money from this sector. India placed 30th rank in the global manufacturing index of WEF (World Economic Forum). It believes still, few factors are there to improve, and India can overcome those challenges then by 2026 it can reach a $51 to 282 billion industry.

This article will discuss two prospects, how the Automobile sector developed this much and the challenges ahead for India.



During that period a maximum number of cars India used to import. Although in 1940, the first passenger car was produced in India. Hindustan Motors and Premier were among the first ones to start off the market. To boost production India introduced a ‘Tariff Commission’ in 1952.

According to the manufacturer infrastructure, Indian companies were being categorized. Through this local component, manufacturing got a boost. And the import duty of fully built cars was increasing. This became a beneficial point for Ambassador (built by Hindustan Motors) in Calcutta & Fiat Model (built by Premier) in Bombay.

Later Tata motors collaborated with Mercedes Benz and Madras-based Ashok Industries collaborated with Ashok Leyland.

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During this time Import duties were being more restricted and price controls were removed. It helps to build a competitive automobile sector in India. India sees an increasing demand for farm tractors due to the expanding agriculture sector and green revolution. But there were still issues left. High road tax was made to feel luxury about owning a car. Not many people could afford cars at that time. There was a mismatch in the demand and supply of imports.

Soon India realizes that it needs to introduce low-cost vehicles with fuel economy and modern looks with the increasing support of technology. The government started to liberalize FDI norms. With this initiative, Japanese firm Suzuki invested around $260 million dollars in Maruti Udyog Limited. Soon with the collaboration, the firm launched Maruti 800 (the 1st complete domestically produced car in India). Toyota, Mitsubishi, Mazda, Nissan also collaborated with Indian firms and started to manufacture cars in India.

Story of India's Automobile Sector, Maruti 800.
Maruti 800

After 1990

The government allowed foreign firms to acquire maximum shareholding (51%) of Indian companies. This was a huge initiative which we saw in the result. After these, the Automobile sectors in India boost exponentially. With the increasing population. Foreign firms saw a huge opportunity for them as well.

India is the 2nd largest road network in the world. Which helped to increase the domestic demand for cars well. Indians have always been so fascinating by cars. Soon or later Tata motors also participated in the rally of fully produced cars in India. Tata motors also provide some budget-friendly cars like Tata Indica & Nano.

Challenges ahead for India’s Automobile sector

Lack of skilled labor

This is the biggest challenge for India which needs to conqueror ASAP. Skill is one of the significant factors which is required by any firm, sector, economy to achieve its ultimate goals. China has developed to this level within 2 decades, where skills have played a major role. In every few years, there is some new technology which is coming in every aspect as well as in cars. To match with this tech India needs more skilled labor.

Govt. Regulations

Recently India has introduced new laws, where vehicles must be sold and register with only BS-VI. Due to this firms has to invest more, where the old stocks are still there due to less demand created by the Coronavirus pandemic.  And the GST rate fluctuations are making more difficult the profit margin calculations.

Steps were taken by Government

To boost the automobile sector Govt. has planned a few steps. Like, Automotive Mission Plan (2016-2026) the main aim of this is to make India a global hub for the Automobile sector. Additionally, it will create 65 million jobs. Let’s talk about another one, National Electric Mobility Mission Plan 2020. This is helping the nation with faster adoption of hybrid and EV’s (Electric Vehicles). This can create the assurance of the future automobile industry. The key thing to notice for this is – Technology Development, Demand Creation, Pilot Projects, and mostly Infrastructure like charging stations. These will help to boost the EV market quickly.

India also introduced the National Automotive Testing and R&D Infrastructure Project (NATRiP). It will help Automobile companies to test & establish their products. Few centers will be developed for this like, Manesar Haryana, Oragadam, Pune, etc. And with the help of ‘Production Linked Incentives’ schemes firms will get the boost for productions.

Electric Vehicles

Overall world is concerned about the pollution that this industry causes. Slowly every nation is shifting its focus to EV’s.  India also took an initiative name ‘Vehicle Scrappage Policy’. It will help to exchange consumer’s old vehicles with new ones. If commercial vehicles are above 15 years and private vehicles above 20 years don’t pass that fitness test, then those vehicles will be scrapped mandatorily. Scrapped materials like steel, plastic, Rubber, Aluminum, etc. can be helpful for the industry and it will reduce the cost of production.

Although for electric Vehicles India needs to look out for infrastructure as it will be a major role in EV’s market. India needs to create a numerous number of charging stations, it will be an advantage for the automobile sector to create more Ev’s. Tata Motors is already started launching a few of its EVs like Tata Nexon EV, Tigor EV.

Story of India's Automobile Sector, TATA Nexon EV. Electric Vehicle future prospects.


India needs to spend more on Research and Development. Automobile giants like Germany, Japan spend 10% of their GDP, India spends 1% only. It will help to increase green mobility. Automate driving is another thing, where most companies are researching. We already heard about it in TESLA. India needs more skilled brains on IoT, vehicle connectivity, Data analytics, Machine Learning, AI, etc.