Is India’s Automotive Industry Ready to Take China’s Place?

By Dezan Shira & Associates
Editor: Kelsey Ryan

Make in India is designed to distinguish India as a top player in global manufacturing. One sector in particular has benefitted – the automotive industry.

KPMG’s 2015 Global Automotive Report notes that India is expected to become the fourth largest automobile producer in the world by 2020. In order to sustain growth in the sector, the Indian government has created incentives, including: tax reductions, customs exceptions, investment allowances, 100 percent FDI investment allowance, automatic approvals for foreign companies, manufacturing/import exemptions from licensing and approvals and technology modernization funds for Small and Medium Sized Enterprises (SMEs). The government has also created auto design centers, special auto parks and virtual Special Economic Zones (SEZs) for auto component manufacturers.

Aside from nationwide regulatory changes, the Indian government is also encouraging sub-national state incentives. This relaxation in ‘red-tape’ provides foreign investors an easy mode of entry into the automotive industry. Meanwhile, the cost competitiveness of steel is a main incentive to foreign investors. India is the fourth largest producer of steel in the world, and Global Tier-1 suppliers are looking to India for steel procurement.

RELATED: Make in India: A Year in Review

Investment Landscape

The automotive investment landscape is improving in India – the industry is estimated to be valued at USD 115 billion by 2020.

Geographically, India is close to the major automotive markets of Europe, ASEAN, Japan and Korea. Major companies like Ford, Delphi, Bosch, Aisin Seiki, Denso, ZF, FAG, Magna, Honda, and TRW have already started investing in India. Most operations are concentrated in the hotspot states of Gujarat and Tamil Nadu. Gujarat is becoming an attractive spot for foreign investment due to its close proximity to ports for exports, while Tamil Nadu also has good ports and has implemented pro-manufacturing schemes to attract jobs and investment.

One notable multinational company to set up in India is Ford. Ford has opened operations in Sanand, Gujarat and Chennai, Tamil Nadu in the hopes of tripling its exports. Ford’s CEO, Mark Fields, is looking to “pitch India as an export hub”. It is Ford’s belief that India has the potential to be one of the world’s key automotive export hubs of the 21^st century, and that this can be achieved with the launch of an ambitious new trade agenda. Ford isn’t the only big name automotive company to take a stake in India, Maruti Suzuki is set to open operations in Sanand in 2017.

RELATED: Pre-Investment and Entry Strategy Advisory

Comparing India and China

There exist many parallels between the automotive sectors in China and India. The industry in each country has been lent a helping hand from their  governments, who hope to create a more highly skilled workforce, tackle unemployment, and boost the economy. The governments in China and India are also both looking to the future of the automotive sector – green vehicles.

However, India is now where China was before it became an automotive power-player and other notable points of difference remain between the two. In China, laborers are more skilled, while India is still attempting to increase their skilled workforce through government initiatives like Skill India. China also maintains better-organized infrastructure. Logistics in India hamper efforts to compete with China, but that is changing as the Indian government continues to invest in infrastructure.

In terms of the density of companies in each country, China remains the heavy weight – especially in regard to multinational companies. But India is catching up, with multinational companies setting up operations and a fast growing start-up industry.

India’s workforce is also a main attraction point. India has a massive young workforce, and Invest India has predicted India to have 27 percent of the world’s workforce by 2030. This looks increasingly attractive when compared to China, where unemployment and an aging workforce remain an issue. China is one step ahead of India, but India is primed to pick up where China left off.

RELATED: India: Your China Plus One?

Looking Ahead

The future is looking bright for India, as China’s economy is transitioning from high growth to a mature economy with a moderate growth rate. With India’s automotive industry potential, and government initiatives like Make in India, India is positioning itself to become the next high growth economy and a major player in the global automotive industry.

An Introduction to Doing Business in India 2015 (Second Edition)
Doing Business in India 2015 introduces the fundamentals of investing in India. This comprehensive guide is ideal for businesses looking to enter the Indian market, and companies who already have a presence and want to keep up-to-date with the most recent and relevant policy changes. We discuss a range of pertinent issues for foreign businesses, including India’s most recent FDI caps and restrictions, the key taxes applicable to foreign companies, how to conduct a successful audit, and the procedures for obtaining an employment visa.

Using India’s Free Trade & Double Tax Agreements
In this issue, we take a look at the bilateral and multilateral trade agreements that India currently has in place and highlight the deals that are still in negotiation. We analyze the country’s double tax agreements, and conclude by discussing how foreign businesses can establish a presence in Singapore to access both the Indian and ASEAN markets.

Passage to India: Selling to India’s Consumer Market In this issue, we outline India’s import policies and procedures, as well as the essentials of engaging in direct and indirect export, acquiring an Indian company, selling to the government and establishing a local presence in the form of a liaison office, branch office, or wholly owned subsidiary. We conclude by taking a closer look at the strategic potential of joint ventures and the advantages they can provide companies at all stages of market entry and expansion.

• Previous Article Make in India: A Year in Review
• Next Article New Payments Banks to Change Indian Consumer Behavior