Government Policies on Indian Automobile Industry

The Indian Automobile Industry plays a major role in the economic scenario of the
country. The automobile sector in India, record sales of more than one million
passenger cars per year. The percentage of automobile exports has risen significantly
during the last few years. The government policies on Indian automobile industry have
been framed in order to aid in the expansion of the automobiles sector in India.

During the early stages, the automobile industry was not accorded much importance by
the Indian Government. However, the attitude changed during the 1990's. A number of
reforms were initiated in 1991. Liberal policies affected during this period, proved to be
beneficial to the automobile industry. The fiscal measures, tax reliefs and reforms in
equity regulations and foreign exchange led to significant growth in the automobile
sector. A reduction in the percentage of tariffs imposed on exports and a change in the
banking policies was instrumental in the expansion and growth of the banking sector.

Prior to the mid 1990's, the Indian automobile sector comprised of indigenous
companies. The automobile market in India was however, opened up to foreign
investors in 1996. International names like Ford, Hyundai, Toyota,
Volvo, Daimler Chrysler and GM Honda were thus, able to make their foray into the
Indian automobile sector. Furthermore, the auto emission rules issued by the
government in recent years ensured that the vehicles manufactured in India, catered to
international standards. At present, the automobiles sector contributes 4 % to the GDP.
About 9.7 million automobiles were manufactured in 2005-2006. Export figures had
crossed the magic figure of one billion during 2003-2004.

A reduction in the tariff imposed on car exports has been effected by the Indian
government. There has also been a removal of the minimum capital investment required
from new investors. The new policy is also in favor of reduction in excise duty for small
automobiles and low emission and multi utility cars. The tariff policy is also to be
reviewed on a regular basis in order to affect a balance between domestic industry and
international trade. There has also been a proposal for tax relaxation on investment of
more than Rs. 500 Crore.

The government has recently proposed for an infrastructure that will provide one stop
clearance for any kind of proposal for foreign direct investment in the automotive sector.
This will include the local clearance system also for the same purpose. There are also
plans for imposing a 100 % tax deduction on export profits. The government has also
proposed for a concession in import duty for the establishment of new manufacturing
units and industrial holdings.
The Indian government is also urging the state governments to ensure continuous
power supply to the automotive manufacturing units as well as granting them with the
preferred plots of land. Captive Generation for the automobile sector has also been
proposed. The auto policy of the Indian government also includes the promotion of
vehicles which are run on alternative energy resources. Talks are also on for extensive
research, development and designing facilities that would effect modernization in the
automotive sector.

The policies adopted by the Indian government for the growth and development of the
automobile sector, has led to a large number of foreign investments. It has also given
rise to an increased sales rate for two wheelers and other automobiles. India is also
becoming the ultimate outsourcing destination for global automobile companies like
Ford, Mitsubishi, Toyota, Hyundai etc.