Don't Scare Away the Golden Goose

Context: There is a need for short and medium term policy correction in the automobile sector, which is going through structural technological shifts (Electric Vehicle (EV) technology).

Stats related to Automobile Sector in India

• Largest manufacturer: India is now the largest manufacturer of two- and three-wheelers, and the fourth-largest maker of passenger cars in the world.

• Contribution to GDP: 

• 7.1% of the  gross domestic product (GDP)
• 27% of  industrial GDP
• 49 % of manufacturing GDP

• Employment opportunities: In 2018-19, it provided jobs to 37 million people, directly and indirectly.
• Rising EV Market: According to the Automobile Components Manufacturers Association of India, in FY18-19, the industry accounted for 2.3% of India’s GDP and 4% of the country’s exports and employed over five million people. 

Challenges to the Automobile Sector:

• Technological Shifts:  Over the next decade and a half, electric vehicle (EV) technology will evolve enough to take over half or more of both the passenger as well as the commercial vehicles markets. 
• This has implications not only for the existing players and the internal combustion (IC) eco-system but also for the government’s plans for manufacturing. 
• EVs also present a challenge for the country’s overall manufacturing goals 

• The auto components ecosystem will consist of fewer but bigger players which employ fewer people since EVs have smaller number of parts.
• Loss to small players: as the EVs market grows, quite a few smaller players are expected to go out of business
• In many areas like microprocessors, controllers and even in battery production, India at a disadvantage.
• India will remain vulnerable because it has discovered very small Li reserves. The major reserves are in Chile, Bolivia, Argentina, China, and Australia, or Congo. 

• Discouraged foreign investors: 

• Recently, after a decade of operations, Harley Davidson has closed down its plant and is quitting the country.
• Toyota motors has also shied away from making any fresh investments.
• Chinese automakers are still interested in investing in the country but the government is understandably chary of them. 
• Constant fiddling of taxes and policies by the Centre: The government has not been able to shed its socialist mindset that automobiles are a luxury. 
• Cars attract the highest goods and services tax rate —28%  — as well as a rate of cess that depends on the size of the vehicle and also engine capacity.
• Long-term planning is difficult because of rapid changes in government plans, whether they have to do with deadlines for phasing out IC engines or import duties and curbs on components. 

Conclusion:  Scaring off global investors who have spent millions of dollars and several decades in the Indian automobile market is not the best way to attract future investment in the sector — or any other sector for that matter.