India has firmly established itself as the third-largest automobile industry in the world, following the United States and China. According to Road Transport and Highways Ministry, the size of the Indian automobile industry has reached ₹22 lakh crore, compared to ₹78 lakh crore in the US and ₹49 lakh crore in China. 

This sector is not just a source of mobility—it is a key driver of economic growth, technological advancement, and job creation, having generated around 4.5 crore jobs to date.

The automobile sector in India has historically mirrored the health of the overall economy.

When the economy expands, vehicle demand rises; when the economy slows, auto sales reflect the downturn. Its role in macroeconomic expansion, industrial linkages, and technological innovation makes it a crucial pillar of national development.

Role in the Indian Economy

The automotive sector is one of the fastest-growing industries in India and a vital pillar of the nation’s manufacturing ecosystem. It not only caters to the domestic market but also serves as a significant contributor to global automobile supply chains.

Development Journey

·         The industry entered a transformative phase in 1991, with the de-licensing of the sector and the opening up for 100% Foreign Direct Investment (FDI) through the ‘automatic route’.

·         Since liberalisation, nearly all global automobile majors have set up manufacturing facilities in India, including Hyundai, Toyota, and Mercedes-Benz, which are continuously expanding production capacity.

·         FDI inflow – Over the last four years, the sector has attracted $36 billion in FDI, reflecting investor confidence in India as a manufacturing hub.

Economic and Employment Impact

·         As per the Annual Report 2024–25 of the Ministry of Heavy Industries, the sector supports around 30 million jobs directly and indirectly.

·         It contributes 6% to India’s GDP and accounts for over 35% of the manufacturing GDP.

·         Production Growth – Vehicle production surged from 2 million units in 1991–92 to 28 million units in 2023–24.

·         The annual industry turnover is approximately USD 240 billion.

·         Exports reached 4.5 million units in FY24, while the combined export value of vehicles and auto components stood at USD 35 billion.

Market Structure and Dominant Segments

India’s automobile market is broad and diverse, covering passenger vehicles, commercial vehicles, two-wheelers, three-wheelers, and quadricycles.

·         Two-wheelers dominate in terms of sales volume. This is due to India’s large young population, a growing middle class, and improved rural connectivity.

·         Commercial vehicles—including trucks, buses, and vans—are benefiting from the rising demand in logistics and passenger transportation.

·         Emerging trends such as the electrification of vehicles—especially three-wheelers and small passenger cars—are shaping the sector’s future.

Globally, India holds a strong competitive position:

·         The largest tractor producer in the world.

·         The second-largest bus manufacturer.

·         The third-largest heavy truck manufacturer.

Role of the ‘Make in India’ Initiative

Launched in 2014 under Atmanirbhar Bharat Abhiyan, the Make in India programme has been a major driver of domestic manufacturing and localization in the automotive sector. Built on four pillars — new processes, new infrastructure, new sectors, and new mindset — it promotes:

·         Localization & Self-reliance — Encouraging production of Advanced Automotive Technology (AAT) products within India.

·         Manufacturing Hub Development — Attracting global majors to set up plants, such as Hyundai, Toyota, and Mercedes-Benz.

·         Infrastructure Expansion — Boosting highways, EV charging networks, and vehicle testing facilities.

·         Innovation & R&D — Supporting EV technology, battery manufacturing, and charging infrastructure.

·         Export Growth — Leveraging the China Plus One strategy to diversify global supply chains away from China.

·         EV Industry Boost — Building domestic lithium-ion battery production capacity, tapping into lithium reserves in Jammu & Kashmir.

Government Initiatives for Electric Mobility

India is advancing rapidly in the EV space, with 4.4 million electric vehicles registered by August 2024. The EV sector represents a US$ 206 billion market opportunity by 2030, requiring US$ 180 billion in manufacturing and charging infrastructure investment.

Key government schemes promoting EVs include:

·         FAME India Scheme Phase-II — Incentives for e-2Ws, e-3Ws, e-4Ws, e-buses, and public charging stations.

·         PLI Scheme for Automobile & Auto Components — Boosts manufacturing of AAT products.

·         PLI Scheme for Advanced Chemistry Cells (ACC) — Targets 50 GWh domestic battery manufacturing.

·         PM E-DRIVE Scheme (2024) — Two-year scheme supporting EV adoption across multiple vehicle types, charging infrastructure, and testing agency upgrades.

·         PM e-Bus Sewa – Payment Security Mechanism (2024) — Supports deployment of over 38,000 electric buses.

·         SMEC (2024) — Promotes manufacturing of electric passenger cars in India.

Additional ministry initiatives:

·         Ministry of Power — EV charging guidelines and interoperability standards.

·         Ministry of Finance — GST on EVs reduced from 12% to 5%.

·         MoRTH — Green plates for EVs and exemption from permit requirements.

·         Ministry of Housing & Urban Affairs — Mandates EV charging points in new buildings.

Challenges and the Road Ahead

While the sector is poised for sustained growth, certain priorities need focused attention:

·         Hydrogen fuel cell & biofuels — Diversify clean mobility solutions.

·         Attracting FDI — Encourage global OEMs to expand R&D and manufacturing.

·         Strengthening supply chains — Boost domestic battery production and critical auto component manufacturing.

·         Technology advancement — Scale production of automatic transmissions and high-tech components.

·         Infrastructure expansion — Extend EV charging to rural and semi-urban areas.

Given its skilled workforce, competitive manufacturing base, and large domestic demand, India is positioned to not only sustain its growth but also emerge as a global leader in next-generation mobility

Conclusion

India’s automobile industry is at a transformational moment. From being a major manufacturer of traditional vehicles to becoming a hub for electric mobility, the sector is evolving rapidly. The combination of strong domestic demand, global competitiveness, supportive government policies, and a shift towards sustainable transportation places India in a strong position to lead the next wave of global automotive growth.