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The Indian automobile industry, a major contributor to the nation’s GDP (7.1%) and employment, plays a vital role in economic growth and technological innovation. Despite its contribution, the sector is experiencing a slowdown due to a combination of factors including economic challenges, global supply chain disruptions, and policy changes, requiring comprehensive efforts from both the government and manufacturers to revive its growth.

Primary Factors Contributing to the Slowdown in the Indian Automobile Industry

• Weak Consumer Demand: The slowdown in consumer spending has led to a significant drop in vehicle sales, particularly in the middle-income segment.
  For example: According to FADA (2024), 800,000 cars are lying unsold across India, with an inventory value of ₹77,000 crore, indicating sluggish demand even with discounts.
• Liquidity Crunch in Financing: The NBFC crisis has reduced the availability of easy vehicle financing, which has deterred potential buyers, particularly in rural areas.
  For instance: Post-2018 NBFC crisis led to a sharp decline in auto loans, directly affecting sales across both urban and rural markets.
• High Fuel Prices: Constant increases in fuel prices have discouraged the purchase of vehicles, especially in commercial sectors like trucking and public transport.
  For instance: The rise in global oil prices post-Ukraine war has further elevated fuel costs, contributing to lower demand for commercial vehicles.
• Transition to BS-VI Standards: The shift from BS-IV to BS-VI emission norms has increased vehicle prices, burdening consumers with higher costs.
  For example: The price of passenger cars rose by 10-15% due to the introduction of BS-VI norms, impacting sales in the affordable segment.
• Semiconductor Shortages: Global semiconductor shortages, primarily caused by COVID-19 and supply chain disruptions, have significantly affected vehicle production in India.
  For example: Major manufacturers like Maruti Suzuki faced production halts, leading to longer waiting periods and reduced availability of vehicles.
• Shift to Shared Mobility The popularity of ride-sharing services like Ola and Uber, especially in urban areas, has led to a decline in the desire for personal vehicle ownership. 
• Rising Input Costs The cost of essential raw materials like steel, aluminium, and rubber has risen, further inflating vehicle prices. 

How the Indian Government Can Address These Challenges to Revive Growth

• Tax Reforms: Reducing GST rates on automobiles, particularly for two-wheelers and entry-level cars, can make vehicles more affordable for middle-income buyers.
  For example: The current GST rate of 28% could be lowered to 18% to stimulate demand in the automobile sector.
• Incentives for Electric Vehicles (EVs): Expanding the scope of incentives under FAME II to promote electric vehicle adoption can stimulate both demand and investment in green technologies.
  For example: The FAME II scheme provides subsidies for EV buyers, leading to increased demand for electric two-wheelers.
• Boosting Credit Availability: Partnering with public sector banks to enhance access to vehicle financing for rural and middle-class buyers can drive demand.
  For instance: Special low-interest loan schemes through public sector banks could alleviate the credit crunch in the sector.
• Investing in EV Infrastructure: Accelerating the development of EV charging stations and battery manufacturing plants will reduce dependence on fossil fuels and encourage the shift toward cleaner vehicles.
  For instance: The PLI scheme for battery manufacturing is expected to reduce reliance on imported components and promote domestic production.
• Strengthening R&D Initiatives: Increasing government support for research and development in areas like alternative fuels and electric vehicles can foster innovation and reduce manufacturing costs.
  For instance: The government’s focus on green hydrogen could revolutionise the future of vehicle fuels.

How Automobile Manufacturers Can Address These Challenges to Revive Growth

• Develop Affordable EV Models: Manufacturers should focus on producing affordable electric vehicles to cater to budget-conscious buyers and leverage government incentives for EVs.
  For example: Tata Motors has successfully launched budget-friendly EVs like Tata Nexon EV, boosting sales in the segment.
• Enhancing Local Manufacturing of Semiconductors: Collaborating with the government to develop domestic semiconductor manufacturing can help stabilise production and reduce reliance on imports.
  For example: Mahindra has invested in local chip-making partnerships to overcome global supply disruptions.
• Leveraging Public-Private Partnerships (PPP): Collaborating with the government in PPP models for infrastructure development, like EV charging stations, can accelerate growth.
  For example: Hero Electric is working with BPCL to set up charging stations across India.
• Expanding Sales in Tier-2 and Tier-3 Cities: Manufacturers should focus on building strong networks in Tier-2 and Tier-3 cities, where demand for personal vehicles remains high. 
• Cost-Efficient Manufacturing Practices Adopting Lean manufacturing techniques and investing in automation can reduce production costs, making vehicles more affordable for consumers.
  For example: Bajaj Auto has streamlined production processes to maintain affordability in its two-wheeler segment.

Reviving the Indian automobile industry requires a collaborative effort between the government and manufacturers, focusing on consumer incentives, EV adoption, and cost-efficient production. By addressing financial and supply chain challenges, alongside policy interventions, India can steer its automobile sector towards sustained growth, ensuring its role as a global player in both traditional and electric mobility markets.

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