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Industry Report

Automotive

India

1st Quarter 2019


The Economist Intelligence Unit
20 Cabot Square
London E14 4QW
United Kingdom

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India 1

Contents
2 Automotive report

2 Overview

3 Passenger cars

5 Commercial and other vehicles

7 Production

8 Fuel sources

11 Industry publishing schedule

Industry Reports from The Economist Intelligence Unit

Industry Reports provide The Economist Intelligence Unit's forecasts for six key
industries along with relevant market analysis. They focus on sectoral and
subsectoral demand in the world's major economies, and are updated quarterly,
semi-annually or annually depending on the country (see schedule at the end of
this report).
The Industry Reports are driven by the country-based macroeconomic forecasts for
which The Economist Intelligence Unit is renowned. An Economist Intelligence Unit
expert examines our forecasts for the key indicators in each industry, taking into
account economic and political developments, global and regional trends, and
market- or competitor-specific factors that are likely to have an impact on the sector
in the future. The analyst then provides commentary to outline the implications of
these trends for companies in the industry.
The Economist Intelligence Unit's country and industry analysis draws on the
expertise of 100 in-house editors and economists, including industry specialists, and
a global network of more than 600 contributors. The historical industry data on
which our forecasts are based come from a variety of sources. As with all The
Economist Intelligence Unit's analysis, we select the most dependable and up-to-date
sources available.
Editor: Ana Nicholls
Forecast closing date: March 20th 2019
All queries: Tel: (44.20) 7576 8000 Email: london@eiu.com
Next report: To request the latest schedule, email schedule@eiu.com

Industry Report: Automotive 1st Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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2 India

Automotive report
Overview • India is Asia’s third-largest passenger-car market, behind China and Japan,
and the world's fifth-largest commercial-vehicle (CV) market. Annual vehicle
sales are currently at record levels. New car sales rose by 7.9% year on year in
fiscal year 2017/18 (April-March) but have slowed substantially since. This
reflects changes in car taxes, insurance requirements and fuel prices, as well
as traffic restrictions within some cities.
• The CV market grew by 19.9% in 2017/18 and has continued to expand rapidly
in the current year, even though sales in this segment have also slowed in
recent months. Sales benefited from reduced transit times for freight traffic
and the nationwide harmonisation of taxes, following the introduction of the
goods and services tax (GST) in mid-2017. Sales are also being driven by
growth in e-commerce deliveries and measures to support business
investment.

Income and demographics


2014 a 2015 a 2016 a 2017 a 2018 a 2019 b 2020 b 2021 b 2022 b 2023 b
Nominal GDP (US$ bn)c 2,040 d 2,102 d 2,273 d 2,600 d 2,611 2,872 3,219 3,418 3,686 4,098
Population (m) 1,294 d 1,309 d 1,324 d 1,339 d 1,354 1,369 1,383 1,397 1,411 1,425
GDP per head (US$ at PPP)e 5,675 d 6,130 d 6,571 d 7,059 d 7,584 8,194 8,909 9,633 10,325 11,063
Private consumption per head (US$)e 916 d 943 d 1,013 d 1,147 d 1,157 1,263 1,383 1,468 1,588 1,756
No. of households (m) 239 243 247 250 254 258 261 265 269 272
No. of households with annual earnings
above US$5,000 (m) 91 100 110 132 137 148 167 177 191 207
No. of households with annual earnings
above US$10,000 (m) 19 22 25 33 35 40 50 56 66 80
No. of households with annual earnings
above US$50,000 (m) 0 0 0 0 0 1 1 1 1 1
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Fiscal years (beginning April 1st of year indicated). Includes
statistical discrepancy. Sum of quarterly data. d Actual. e Fiscal years (beginning April 1st of year indicated).
Source: The Economist Intelligence Unit.

• While pent-up demand will wane, the government plans to implement a


voluntary vehicle scrappage scheme from April 2020 for CVs older than
20 years, to reduce pollution. The Economist Intelligence Unit expects new CV
sales to rise at a compound annual growth rate (CAGR) of 7.8% during
2019-23, compared with 5.8% for cars. Clashes with Pakistan in early March
are unlikely to lead to a major military conflict, but represent a risk factor for
business and consumer sentiment.
• India’s vehicle output in 2017, at 4m units, overtook that of Germany as the
fourth-highest in the world. An Automotive Mission Plan envisages that the
automotive industry will grow fourfold in value in 2016-26. The plan includes
the adoption of Bharat Stage VI emission standards (equivalent to Euro 6
standards) for all new vehicles by 2020.
• The government is also encouraging the expansion of the electric-vehicle (EV)
market. From April 2019 it will implement an expanded version of its Faster
Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME)
programme. FAME II will allocate Rs100bn (US1.4bn) in incentives and
infrastructure support over three years to promote the adoption of EVs.

Industry Report: Automotive 1st Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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India 3

Passenger cars International comparison


• Low personal disposable income per head, at an estimated US$1,246 in 2018,
means that only around 23 out of every 1,000 Indians own a car. An
expanding car market, counterbalanced by rapid population growth, will raise
this ratio to nearly 32 cars per 1,000 people by 2023.

Passenger car registrations


('000)
5,000

4,000

3,000

2,000

1,000

0
2014 15 16 17 18 19 20 21 22 23
Source: The Economist Intelligence Unit.

Five-year forecast
• Domestic passenger vehicle sales reached a record high of 3.29m units in
2017/18, according to the Society of Indian Automobile Manufacturers (SIAM),
rising strongly despite volatility resulting from the 2016 demonetisation and
the introduction of the GST in 2017.
• Sales accelerated in the first half of the current fiscal year, despite higher fuel
prices, but have been weak in recent months and fell back in February 2019.
In the first 11 months of the fiscal year passenger vehicle sales were up by just
3.3%, and we expect growth of just 3% for the year as a whole.
• This weakness stems from a number of factors. The tax on mid-sized and
large cars was raised in September 2017. Interest rates went up, starting in mid-
2018, contributing to a liquidity crunch at non-bank lenders. Higher fuel prices
also affected car sales, although global oil prices moderated in the second half
of 2018/19. In addition, since September 2018 all buyers of new cars have had
to purchase three-year insurance coverage, up from one year, raising
purchasing costs.
• These factors led to a weaker festive season in October-November, which is
the year’s biggest vehicle sales period. The market lost further momentum in
January and February, when sales are traditionally soft. More recently,
tensions with Pakistan have had a negative impact on consumer confidence,
along with uncertainty ahead of the general election starting in April.
• Sales have also been held back by environmental regulations, particularly in
cities. In November 2017, owing to unprecedented pollution levels, the
National Green Tribunal barred diesel vehicles older than ten years and petrol
cars older than 15 years from entering the capital, New Delhi. Some cities,
including the capital, have also proposed further restrictions on car usage. As

Industry Report: Automotive 1st Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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4 India

a result, recent growth in car sales has been concentrated in rural areas, while
sales grew much more slowly in small cities and contracted in major
metropolitan areas.
• Many of these factors will persist into 2019/20. Nevertheless, we expect
market growth to accelerate to 7%, benefiting from an easing in interest rates
as well as a post-election bounce. The Reserve Bank of India (RBI, the central
bank) tightened its monetary policy twice in 2018, raising its benchmark
interest rates from 6% to 6.5%. However, the most recent rate move, effected in
early 2019, was downward, to 6.25%.
• Regulations to reduce pollution and congestion, including new emissions
standards in 2020, will continue to cause some sales volatility. Moreover, the
2018/19 budget raised import duties on completely built-up vehicles (CBUs)
and on components for higher-end vehicles. This may result in a dip in new
car sales in 2020. Over the 2019-23 forecast period as whole, however, we
expect the market to expand at a CAGR of 5.8%.

Passenger car registrations


2014 a 2015 a 2016 a 2017 a 2018 b 2019 c 2020 c 2021 c 2022 c 2023 C
Passenger cars (stock per 1,000 people) 15.8 17.2 19.1 b 20.9 b 22.6 24.5 26.1 27.9 29.7 31.7
Passenger car registrations ('000)d 2,601.2 2,789.2 3,047.6 3,288.0 3,387.2 3,625.0 3,566.7 3,867.9 4,133.8 4,481.3
Passenger car registration growth (%)d 3.9 7.2 9.3 7.9 3.0 7.0 -1.6 8.4 6.9 8.4
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d Fiscal years beginning April 1st.
Sources: Society of Indian Automobile Manufactures (SIAM); The Economist Intelligence Unit.

Market share
• Maruti Suzuki Motors (a subsidiary of Japan's Suzuki) retains its lead in India's
car market, despite a steady decline in market share. It accounted for 50% of
new car sales in the first 11 months of 2018/19. Hyundai Motor India (owned
by South Korea's Hyundai) was a distant second, with a 16% share.
• India's Mahindra & Mahindra (M&M) and Tata Motors had 8.5% and 6.5% of
the market respectively. Tata, which dominates the CV market, has been
gaining ground in the passenger car segment. Honda (Japan) held fifth place,
followed by Toyota (Japan), Ford (US) and Renault (France). Some 15 other
brands, including Volkswagen (Germany), each take less than 1% of the
market.
Segmentation
• Based on the revised SIAM vehicle classification, compact cars (with engine
size of 1,300cc to 1,799cc) represent the largest single car segment. Combined
with the two smaller categories of micros and minis, they account for more
than half of all passenger cars sold. Maruti controls over half of this segment’s
sales and also dominates the mid-size segment, albeit with a smaller lead.
• Hatchbacks have a 50% market share, while utility vehicles (UVs) are gaining
ground with a share of 25% and sedans hold an 18% share. Poor road
conditions have been pushing Indian motorists toward larger vehicles, but as
growth in the market has slowed over the past six months, this trend has
flattened.

Industry Report: Automotive 1st Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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India 5

• The premium segment in India remains tiny. Three German premium


brands—Mercedes-Benz, BMW and Audi—account for less than 1% of the
overall market. Jaguar Land Rover (UK), which is owned by Tata Motors, has
only 0.1%.
Pricing
• While manufacturers offer a range of competitively priced vehicles, India fares
poorly in affordability rankings, reflecting low disposable income and high
car taxes. From July 2017 the GST imposed a flat rate of 28%, replacing
effective rates of 29-31% for small cars and 47-55% for medium-sized and large
cars.
• Small cars also attract an additional cess (a tax on tax) of 1%, while medium-
sized and large cars valued over Rs1m (US$14,280) incur cess of 17-22%. Total
taxes on a vehicle can be as high as 50% since the introduction of GST.
• Over the forecast period prices for high-end vehicles are likely to rise, in the
wake of the decision to raise import tariffs on components and CBUs in the
2018/19 budget.
% of monthly personal Affordability
Item Price (US$) disposable income rank
Low-priced car, 900-1,299cc (low) 13,495 13,012 59 out of 60
Low-priced car, 900-1,299cc (high) 14,780 14,251 59 out of 60
Compact car, 1,300-1,799cc (low) 22,853 22,035 59 out of 60
Compact car, 1,300-1,799cc (high) 32,895 31,718 60 out of 60
Family car, 1,800-2,499cc (low) 76,220 73,491 60 out of 60
Family car, 1,800-2,499cc (high) 78,175 75,376 60 out of 60
Deluxe car, 2,500cc upwards (low) 208,642 201,171 60 out of 60
Deluxe car, 2,500cc upwards (high) 247,045 238,199 60 out of 60
Yearly road tax or registration fee (low) 105 100.9 53 out of 56
Yearly road tax or registration fee (high) 412 396.8 59 out of 60
Cost of a tune-up but no major repairs
(low) 209 201.8 57 out of 60
Cost of a tune-up but no major repairs
(high) 258 248.8 56 out of 60
Annual premium for car insurance (low) 604 582.5 59 out of 60
Annual premium for car insurance (high) 2,691 2,595 60 out of 60
Note. Affordability rank: for each country the price of an item as a percentage of monthly personal
disposable income is calculated. Countries are ranked according to these percentages. The most
affordable country will have the lowest percentage and be ranked first.

Commercial and other Five-year forecast


vehicles
• New CV sales rose by 19.9% in 2017/18, and the market strengthened further in
the early months of the current fiscal year, led by the medium and heavy CV
(truck) segment. However, weaker growth in recent months means that sales
expanded by 19.7% year on year over the 11-month period from April 2018 to
February 2019, slightly slower than in 2017/18.
• Higher taxes and interest rates have taken a toll on the CV market. However,
the RBI has already started to ease its monetary policy. During 2019-23 growth
will be driven by demand from rural areas, as well as business investment in
construction and e-commerce logistics. The economy will continue to expand
at over 7% annually.

Industry Report: Automotive 1st Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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6 India

Commercial vehicle registrations


('000)
Light commercial vehicle registrations Medium and heavy commercial vehicle registrations
1,600
1,400
1,200
1,000
800
600
400
200
0
2014 15 16 17 18 19 20 21 22 23
Source: The Economist Intelligence Unit.

• Restrictions on overloading in northern states will fuel demand for larger


trucks, while replacement demand may be boosted by a government
scrappage scheme intended to take older, more polluting vehicles off the road.
However, the scheme's implementation has been delayed by disagreements
between central and local governments.
• Given considerable pent-up demand and strong economic growth, we expect
the CV market to continue to expand, albeit at slower rates than over the past
two fiscal years. In 2019-23 we expect sales of new light CVs (vans) to achieve
a CAGR of 7.2%, while new truck sales will see annual growth of 8.8%.

Commercial vehicle registrations


2014 a 2015 a 2016 a 2017 a 2018 b 2019 c 2020 c 2021 c 2022 c 2023 c
Light commercial vehicle registrations
('000)d 382.2 383.3 404.1 506.8 612.3 676.1 716.4 776.5 836.6 866.0
Medium & heavy vehicle registrations
('000)d 232.8 302.4 310.2 349.6 409.8 474.5 505.4 551.1 583.2 623.5
Commercial vehicle registrations ('000)d 615.0 685.7 714.2 856.5 1,022.1 1,150.6 1,221.8 1,327.5 1,419.8 1,489.6
Commercial vehicle registration growth (%)d -2.8 11.5 4.2 19.9 19.3 12.6 6.2 8.7 6.9 4.9
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d Fiscal years beginning April 1st.
Sources: SIAM; The Economist Intelligence Unit.

Market share
• Tata Motors has always been a leader in the CV market, and has been clawing
back lost market share. In the van market, its share stood at 41.2% in the first
half of 2018/19—its highest level for four years. Its dominance of the truck
market is even greater: it controlled around 51% of the market in the first half
of this fiscal year.
• At one point M&M surpassed Tata Motors in the van market, but its share
slipped to 37.8% in the early months of the current fiscal year. Ashok Leyland,
another local manufacturer, is second in the truck market with about a third
of sales.
• Other players include the locally owned Force Motors and VE Commercial
Vehicles, a joint venture between Volvo (Sweden; owned by China's Geely)
and Eicher Motors (India). The presence of foreign players such as Daimler
Trucks (the local subsidiary of Germany's Daimler) is small but growing.

Industry Report: Automotive 1st Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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India 7

Trucks: market share, 2015


(% share of total)
SML Isuzu, 1.0
Others. 1.0
Mahindra, 1.9
Eicher, 9.5

Tata, 55.2
Ashok Leyland, 31.4

Sources: Society of Indian Automobile Manufacturers (SIAM); Autobei Consulting Group; company information; Mintel.

Production Major vehicle manufacturers

• India’s vehicle output, at 4m units in 2017, was the fourth-highest in the world,
ahead of Germany. The industry accounts for 7.1% of GDP and employs
around 29m people; the government is promoting it as a flagship of its Make
in India campaign. The Automotive Mission Plan 2016-26, published in
September 2015, envisions a fourfold jump in output in ten years, to around
Rs19trn. It calls for motor-vehicle output to rise to 10m units by 2020/21.
• India’s automotive industry had attracted US$18.4bn in foreign direct
investment (FDI) by the end of 2017/18. It brought in another US$1.8bn during
the first ten months of 2018/19, although inflows were down by 7% year on
year. Around US$8bn in local and foreign investment is expected by the end
of 2020. Major investors will include Maruti Suzuki, Tata Motors, Hyundai
and its sister company, Kia, along with Volkswagen (Germany), Volvo and
Ford.

• Carmakers will also focus on lowering costs. After losses in India, General
Motors (US) stopped selling its cars locally by end-2017, retaining a plant for
exports. Its Chinese partner, SAIC Motor, bought its other plant and will invest
US$1bn to produce vehicles under its British MG Motor brand. Two other
Chinese manufacturers, Beiqi Foton and Changan, had also been expected to
invest in Indian production but have encountered delays. In March 2018
Suzuki and Toyota agreed to share their factories and dealer networks in India
to reduce costs.

Industry Report: Automotive 1st Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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8 India

Vehicle production
('000 units)
Passenger cars Light commercial vehicles Medium and heavy vehicles
5,000

4,000

3,000

2,000

1,000

0
2013 14 15 16 17
Source: International Organisation of Motor Vehicle Manufacturers.

• Most production in the forecast period will be aimed at the domestic market.
However, according to SIAM, 747,287 vehicles were exported in 2018, down by
5.3% year on year. In value terms, both exports and imports are growing
rapidly. Vehicle exports were worth US$8.8bn in 2018, while automotive
component exports were worth US$5.7bn. Imports in the two categories were
worth US$361m and US$5.5bn respectively.
• The government's 2018/19 budget increased import duties on components to
15%, from 5-10% previously, and on CBUs from 20% to 25%. The barriers aim to
boost local manufacturing under the Make in India strategy. The new tariffs
created friction with the US and EU, as well as foreign investors such as Ford.
The EU has warned that a proposed free-trade agreement with India will not
be concluded unless the tariffs are removed.

Market demand: motor vehicles and parts

Nominal US$ m US$ m at 2005 constant prices


100,000

80,000

60,000

40,000

20,000

0
2014 15 16 17 18 19 20 21 22 23
Source: The Economist Intelligence Unit.

Fuel sources Petrol prices


• India removed fuel subsidies in 2013/14. The price of a litre of petrol is close to
the global median level, on par with Argentina and slightly higher than in
Mexico. However, due to low personal income levels, we put India at the
bottom of the 60 countries included in our affordability rankings.

Industry Report: Automotive 1st Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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India 9

Oil price and petrol consumption


2014 a 2015 a 2016 a 2017 b 2018 b 2019 c 2020 c 2021 c 2022 c 2023 c
Petrol consumption ('000 tonnes) 19,341 22,336 24,519 25,920 26,975 28,029 29,007 29,711 30,459 31,293
Oil prices (Brent; US$/b) 98.9 52.4 44.0 54.4 71.1 66.0 60.5 69.8 75.6 75.0
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.
Sources: International Energy Agency; The Economist Intelligence Unit.

• Although oil prices will remain moderate and will rise only gradually in
2019-23, affordability is likely to become an even bigger challenge in coming
years. Fuel prices, particularly for diesel, have risen in recent months.
% of monthly personal Affordability
Item Price (US$) disposable income rank
Regular unleaded petrol (1 l) (average) 1.23 1.18 60 out of 60
Note. Affordability rank: for each country the price of an item as a percentage of monthly personal
disposable income is calculated. Countries are ranked according to these percentages. The most
affordable country will have the lowest percentage and be ranked first.

CO2 emissions
• According to the World Health Organisation, India has six of the world's ten
worst-polluted cities. This has prompted efforts to restrict diesel-vehicle sales,
and to scrap older vehicles. The share of diesel-powered cars dropped to 33%
of total car sales in 2018, from a high of 48% in 2012.
• The government is enforcing strict emissions requirements. In April 2017
Bharat Stage IV emission standards (equivalent to Euro 4) took full effect. The
government plans to skip Bharat Stage V and to implement Stage VI from
April 2020. The introduction of Bharat Stage VI-grade fuel was fast-tracked in
the capital, New Delhi, to tackle severe air pollution; the fuel was made
available in April 2018.
Alternative energy vehicles
• According to SIAM estimates, electric two-wheelers are becoming increasingly
popular in India, but electric cars remain expensive, and their sales are further
hampered by the lack of charging infrastructure. Only 2,000 EVs and hybrids
were sold in India in 2018. The government aims for a 15% EV share by 2023,
and a 30% share by 2030, but has retracted an earlier promise to ban the sale
of new fossil-fuel-powered vehicles by 2030.
• Under the government's US$1.4bn FAME II programme, US$1.2bn in subsidies
will be spent over the next three years to support the sale of 1m electric two-
wheelers, 500,000 electric three-wheelers (used mainly as taxis), 55,000 EVs
and 7,000 electric buses. Another US$140m will be spent on expanding the
charging infrastructure.
• M&M and Maruti currently dominate the EV market, but most manufacturers
are expanding into the segment, including Tata Motors, Volvo, Nissan, Toyota
and Hyundai. Tesla (US) is also planning a 2019 entry into India, while Honda
is planning to introduce an electric car in India by 2023. In addition,
Australia's Tritium recently signed a memorandum of understanding (MoU)
with a Tata Motors subsidiary, Tata AutoComp, to provide fast-charging
stations throughout India, including government offices.

Industry Report: Automotive 1st Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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10 India

• However, as part of its FAME II programme, the government recently


announced a phased increase in tariffs on imports for the EV sector. Imports
of EV parts for assembly in India will be subject to a 15% tariff from April
2020, while tariffs on lithium-ion cells will rise to 10% in April 2021. Duties on
CBU electric trucks and buses will be doubled to 50% in April 2020.
• These measures are intended to shield domestic producers from competition
and to spur EV vehicle production, but they may also raise prices and set back
technological progress in the domestic EV industry.

Petrol consumption and oil price


Petrol consumption ('000 tonnes); Oil (Brent) nominal spot price (US$/b);
left scale right scale
35,000 110

30,000 100

25,000 90

20,000 80

15,000 70

10,000 60

5,000 50

0 40
2014 15 16 17 18 19 20 21 22 23
Sources: IMF; International Energy Agency; The Economist Intelligence Unit.

Industry Report: Automotive 1st Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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India 11

Industry publishing schedule


Our automotive reports cover the following 58 countries and are updated quarterly, semi-annually or annually,
depending on the country.
Quarterly Semi-annual Annual

Brazil Argentina Austria

China Australia Belgium

France Canada Bulgaria

Germany Chile Denmark

India Colombia Finland

Indonesia Czech Republic Greece

Japan Egypt Hungary

Mexico Hong Kong Iran

Russia Israel Ireland

South Korea Italy Kazakhstan

Turkey Malaysia Netherlands

United Kingdom Nigeria New Zealand

United States of America Pakistan Norway

Philippines Peru

Poland Portugal

Saudi Arabia Romania

Singapore Slovakia

South Africa Slovenia

Spain Sweden

Taiwan Switzerland

Thailand Ukraine

United Arab Emirates Venezuela

Vietnam

Industry Report: Automotive 1st Quarter 2019 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2019

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