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India’s Automotive Revolution Hinges on R&D Investment

02.16.17

Automotive World Special Report: India’s Auto Industry

India’s Automotive Revolution Hinges on R&D Investment

Markus  Pfefferer, Managing Director, Asia Pacific

India’s automotive efforts have come a long way, writes Markus  Pfefferer, Managing Director, Asia Pacific at Ducker Worldwide, but further growth will come from investment in manufacturing and R&D.

There was a common joke in India during the 1970s and 1980s that the automotive sector sent more people to heaven than to all its temples. Cars of this age were uncomfortable and had no safety norms at all – not even a seat belt. Every time a person entered a Hindustan Ambassador or Padmini car, a silent prayer was said.

Now known as Maruti Suzuki, the establishment of Maruti Udyog in a joint venture with Suzuki started to blow the winds of change into India. The JV’s first cars were imported directly from Japan, but gradually manufacturing shifted to India. In January 2016, the company had a market share of 47% in the rapidly growing Indian passenger vehicle sector, with three plants in the country. Today, it even exports the Baleno model out of India to Japan.

With liberalisation of the economy, the automotive sector has grown extremely rapidly; today, it is the sixth largest car market in the world, and is bound to overtake South Korea to climb to fifth position. In 2015, the country registered production of 2.4 million passenger vehicles. The sector accounts for 7.1% of India’s GDP, 4.5 % of manufacturing GDP and employs about 19 million people both directly and indirectly. Furthermore, the sector contributes around 4.3% to India’s total exports.

The automotive industry is clearly one of the most promising sectors in India, with the advantage of being fuelled by internal demand and global exports. India also has the largest population of young people in the world, with around 66% of the population under the age of 35. The country’s low vehicle penetration (32 vehicles per 1,000 people in 2015) also makes it one of the world’s most attractive automotive markets. Due to its unique demographic dividend, India has immense growth potential, with passenger vehicle sales expected to reach more than 4.5 million units annually by 2020.

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