India’s automobile manufacturing sector has emerged as one of the fastest-growing industries in the country, contributing significantly to economic growth and employment. The government’s focus on turning India into a global hub for automobile production has led to the introduction of several policies designed to support and boost the sector. From fostering domestic manufacturing to encouraging innovation in electric vehicles (EVs), these policies have played a crucial role in transforming the Indian automotive landscape.
In this article, we delve into the key government policies driving the growth of automobile manufacturing in India and explore how these initiatives are shaping the future of the industry.
The Importance of Government Support in Automobile Manufacturing
India is the fourth-largest automobile market in the world, and the sector plays a vital role in the country’s economy, contributing around 7.1% to the GDP and 49% to the manufacturing GDP. Government policies are essential to ensuring that the sector remains competitive on a global scale, while also promoting sustainability and innovation.
The following government policies have been instrumental in fostering growth in India’s automobile manufacturing sector:
1. Make in India Initiative
Launched in 2014, the Make in India initiative is one of the cornerstone policies aimed at encouraging domestic and foreign companies to manufacture their products in India. For the automobile sector, this policy has significantly enhanced manufacturing capabilities by offering incentives to automakers, fostering investments, and encouraging technological advancements.
The goal of Make in India is to position India as a global manufacturing hub, and the automobile sector is one of the key focus areas. Under this initiative, companies like Tata Motors, Hyundai, Maruti Suzuki, and Mahindra have ramped up production, while new entrants like Kia Motors and MG Motors have set up manufacturing plants in India.
The policy has not only boosted domestic production but also helped India become a major exporter of automobiles.
2. Production Linked Incentive (PLI) Scheme for the Automotive Sector
The Production Linked Incentive (PLI) scheme, launched in 2020, is one of the most significant policies to drive growth in India’s automotive sector. The PLI scheme aims to increase the production of advanced automotive technologies and components, particularly those related to electric vehicles (EVs) and clean energy.
The government has allocated substantial incentives under this scheme to encourage automakers to invest in the development of new technologies and build production facilities that align with global trends in innovation. The PLI scheme also incentivizes the production of fuel-efficient, low-emission vehicles, supporting the country’s long-term sustainability goals.
Key features of the PLI scheme for the automobile industry include:
- Incentives for manufacturers of electric vehicles, hydrogen fuel cell vehicles, and alternative fuel vehicles.
- Support for battery manufacturing, which is essential for the EV sector.
- Encouraging localization of auto components and reducing dependence on imports.
3. FAME India Scheme (Faster Adoption and Manufacturing of Electric Vehicles)
With a focus on electric mobility, the FAME India Scheme (Faster Adoption and Manufacturing of Electric Vehicles) was introduced in 2015 to promote the adoption of electric vehicles in India. The policy is part of the government’s broader goal to reduce carbon emissions, enhance sustainability, and make India a global leader in EV manufacturing.
FAME II, the second phase of the policy launched in 2019, focuses on incentivizing EV production and developing charging infrastructure across the country. The government has allocated substantial funds under this scheme to support:
- The manufacturing of electric vehicles (two-wheelers, three-wheelers, buses, and passenger cars).
- Setting up EV charging stations in key urban centers and along highways.
- Research and development in electric mobility and battery technologies.
The FAME scheme has led to a surge in EV production, with companies like Tata Motors, Ather Energy, Ola Electric, and Mahindra Electric investing heavily in electric mobility solutions. India’s push toward electric vehicles is helping reduce dependence on fossil fuels while addressing environmental concerns.
4. Automotive Mission Plan 2026
The Automotive Mission Plan (AMP) 2026 is a collaborative effort between the government and the automotive industry to make India one of the top three global automobile manufacturers by 2026. The plan outlines a roadmap for industry growth and emphasizes increased production capacity, innovation, and global competitiveness.
Some of the key goals of AMP 2026 include:
- Increasing the industry’s contribution to India’s GDP.
- Creating additional employment opportunities in the automotive sector.
- Fostering innovation and R&D to improve vehicle safety, fuel efficiency, and emission standards.
- Expanding the export of vehicles and components, turning India into a leading automotive export hub.
AMP 2026 also aligns with the government’s vision of promoting sustainable practices, such as electric mobility and hybrid vehicles, as part of India’s commitment to climate goals.
5. Corporate Average Fuel Efficiency (CAFE) Standards
To address environmental concerns and promote fuel efficiency, the government has introduced Corporate Average Fuel Efficiency (CAFE) standards, which mandate automakers to meet specific fuel efficiency targets for their vehicle fleets. These standards are in line with India’s commitment to reducing carbon emissions and promoting greener automotive technologies.
By enforcing CAFE standards, the government aims to:
- Encourage automakers to produce vehicles that are more fuel-efficient and emit fewer greenhouse gases.
- Push for the adoption of electric vehicles and hybrid vehicles, reducing reliance on fossil fuels.
- Align India’s automotive industry with global best practices in sustainability.
Automakers are investing in technologies like lightweight materials, hybrid systems, and advanced internal combustion engines to meet these fuel efficiency norms. Maruti Suzuki, Tata Motors, and Hyundai have already rolled out more fuel-efficient models to comply with CAFE regulations.
6. GST Reduction on Electric Vehicles
To promote the adoption of electric vehicles, the Indian government has implemented a Goods and Services Tax (GST) reduction for EVs. The GST on electric vehicles has been reduced from 12% to 5%, making EVs more affordable for consumers.
Additionally, the government has provided tax incentives for buyers of electric vehicles, further encouraging the shift toward green mobility. These incentives not only promote EV sales but also boost the domestic manufacturing of electric vehicles and related components.
7. Scrappage Policy
In 2021, the government introduced the Vehicle Scrappage Policy, which aims to remove old, polluting vehicles from Indian roads and replace them with newer, cleaner alternatives. Under the policy, vehicles that are more than 15 years old will be subject to mandatory fitness tests, and those that fail will be scrapped.
The policy encourages the use of environmentally friendly vehicles and is expected to boost demand for new vehicles, thereby increasing manufacturing activity. The scrappage policy also promotes the recycling of vehicle materials, contributing to a more sustainable automotive ecosystem.
Conclusion
India’s government policies have played a pivotal role in boosting automobile manufacturing, making the country one of the fastest-growing automotive markets globally. From encouraging domestic production through the Make in India initiative to promoting the adoption of electric vehicles with the FAME scheme, these policies are transforming India into a global leader in automotive manufacturing.
As the country continues to push for innovation, sustainability, and global competitiveness, the Indian automotive sector is poised for significant growth in the years to come. By embracing these government-led initiatives, automakers in India are well-positioned to thrive in an increasingly competitive and eco-conscious global market.