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.
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 21st 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.
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.
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.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
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