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Approach:

  1. Introduction – overview of auto sector.
  2. Pointwise mention the challenges of this industry.
  3. Conclusion – ref. to some government initiatives.

The Indian automobile industry is the fifth largest in the world, after China, Japan, Germany, and South Korea, and is expected to become the third largest by 2030. Annual automobiles production in FY21 was 22.65 million, and 13 million vehicles were produced between April-October 2021. In 2021, total sales increased by 5.8% to 18.49 million units, compared to 17.47 million units in January-December 2020.

Challenges faced by Auto Industry:

  • Short term challenges : Pandemic-related uncertainties, global shortage of semi-conductors, rising commodity prices, upcoming fuel-efficiency and BSVI Phase-2 regulations, shortage of shipping containers, and import restrictions.
  • Medium term challenges : Ensuring a sustained demand, affordability for customers, localization, preparing for long-term regulations, and new powertrain technologies.
  • Pandemic induced disruptions : Prolonged lockdown affected the supply chains. It had also resulted in few job cuts. The extended truncation of customer demand has distressed manufacturers. Sales got a very bad hit post-lockdown. Majority companies were starving the support of R&D to maintain core functions & potentially getting back the growth made on mobility technologies. Auto suppliers have a high reliance on immigrant labors, whose absence caused additional delay in restoration post lockdown.
  • Global shortage of Semiconductors : Semiconductors are crucial auto-components. India’s demand for semiconductors stands at USD 24 billion, expected to reach USD 100 billion by 2025. Due to global supply shortage, auto parts production reduced by 11-13%.
  • Rising Commodity prices : Rising input costs have affected the sector. E.g., Copper prices are 66% higher than usual. High steel prices have affected production lines. Higher input costs have resulted in higher car prices, which in turn is skewing demand.
  • BSVI Phase II regulations : It envisages that petrol vehicles must have 25% reduction in Nitrogen Oxide Also, diesel engines have to reduce hydrocarbon and nitrogen oxide emission by 43%. Average permissible CO2 level for any car is reduced to 113 g/km. The auto-sector is technologically lagging behind to catch up with such stringent norms. Good new emission standards, good fuel efficiency along with lower costs are contradictory – electrification or programmed fuel injection is bound to increase costs, affecting demand.
  • Challenges to Electric Vehicles : High cost of batteries (Nickel metal hydride & Li-ion) due to demand supply gaps, is increasing costs of EVs. Increasing electricity demand needed for charging EVs may constrain the grids supply. Inadequate number of charging stations and servicing outlets are making the buyers skeptical about post-buying services. Also, the costs of private charging stations is a concern for EV buyers. Lack of subsidy/incentive for EV retrofitting from the government.
  • Vehicle recycling : No effective framework is in place for scientific recycling of end-of-life vehicles.

The government has initiated various steps like 100% FDI under automatic route, reduction of GST on EV components from 12% to 5%, introducing the PLI scheme expected to bring investments of over Rs. 42,500 (US$ 5.74 billion) by 2026, to leverage the potential of this sector.

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