The Automobile Industry's Indian Base

Reference library · 997 words

India assembles more vehicles today than almost any country outside China, the United States and Japan, and it is the world's largest market for two-wheelers by a wide margin. That position is recent. For roughly four decades after independence, the Indian car industry consisted of two companies making two designs, both of them foreign models from the 1950s. Hindustan Motors, founded in 1942 and producing at Uttarpara in West Bengal, built the Ambassador, derived from the Morris Oxford. Premier Automobiles in Mumbai built the Padmini, derived from a Fiat. Both were made under industrial licences that capped output, waiting lists ran into years, and there was no reason for either firm to improve the product. This was not incompetence. It was the predictable result of a policy regime that treated cars as a luxury to be rationed rather than an industry to be built.

The break came through an unusual state venture. Maruti Udyog was incorporated in 1981 as a public sector company and entered a joint venture with Suzuki of Japan, choosing a partner with expertise in exactly the small, cheap, fuel-efficient cars India could absorb. The Maruti 800 went on sale in December 1983 from a plant at Gurgaon, south of Delhi. Its significance was not only the car. Suzuki brought Japanese production practice into India: tight supplier integration, quality auditing of vendors, just-in-time delivery, and the expectation that a component maker would improve continuously rather than simply meet a specification. A generation of Indian component firms in the Delhi region learned to manufacture to export standard because Maruti insisted on it. Over the following decades the government progressively sold down its stake and the company became Maruti Suzuki India, still the largest passenger vehicle maker in the country.

Clusters, not a national industry

Liberalisation from 1991 removed licensing and opened the sector to foreign manufacturers, and what followed was not a single national industry but three or four regional clusters, each with its own character. The north around Gurgaon and Manesar in Haryana grew out of the Maruti supply chain. The west, around Pune and the Chakan industrial belt in Maharashtra together with Sanand and Halol in Gujarat, hosts Tata Motors, Mahindra, Volkswagen, Mercedes-Benz assembly and a dense engineering base. The south, centred on Sriperumbudur and Oragadam near Chennai, attracted Hyundai, which began Indian production in the late 1990s, along with Renault-Nissan, Ford and later a heavy concentration of export-oriented capacity, earning Chennai the label of India's Detroit. Karnataka around Bengaluru adds Toyota's Indian operations and a growing share of the electric and electronics side.

Clustering matters because vehicles are assembled from thousands of parts made by other firms. Roughly speaking, most of the value of a car is bought in, not made in-house, so an assembly plant is only as good as the suppliers within a day's truck drive. This is why plants attract more plants, and why states compete hard with land, power and tax concessions to land an anchor manufacturer. The most publicised example was Tata's small car project, which was begun at Singur in West Bengal, abandoned in 2008 after prolonged protest over land acquisition, and relocated to Sanand in Gujarat, a sequence that became a reference point in Indian debates about industrial land.

Two wheels, and what comes next

The passenger car story tends to crowd out the larger one. India's mass motorisation happened on two wheels. Bajaj Auto's scooters, Hero's partnership with Honda from the mid 1980s in commuter motorcycles, TVS, Royal Enfield's revival as a mid-capacity motorcycle brand, and Honda's own Indian operations together produce volumes that dwarf car output. The economics are straightforward: a motorcycle costs a fraction of a car, is financeable on a modest income, and suits congested roads and short trips. Any account of Indian automotive manufacturing that measures only cars misunderstands both the market and the export base, since two-wheelers and three-wheelers are shipped in quantity to Africa, Latin America and Southeast Asia.

Indian firms have also moved outward. Tata Motors bought Jaguar Land Rover from Ford in 2008, a transaction that turned an Indian truck and car maker into the owner of two British premium brands and gave it access to engineering it could not have developed alone. Mahindra has acquired stakes in vehicle and component businesses in Europe and Korea. In the other direction, some entrants have left: General Motors stopped selling in the domestic market in 2017 and Ford ended Indian vehicle production in 2021, both having failed to reach the volumes that make a plant viable in a market where buyers are highly price sensitive and the small car segment is fiercely contested.

Policy has been unusually active in the last decade, in two directions. On emissions, India moved from Bharat Stage IV standards directly to Bharat Stage VI in April 2020, skipping a stage, which forced rapid and expensive engine and fuel redesign and effectively ended most small diesel cars. On electrification, the central government has run successive schemes to subsidise electric vehicle purchase and charging infrastructure, alongside production linked incentive schemes for automotive manufacturing and for advanced chemistry cell battery production, the latter being an attempt to build domestic cell capacity rather than import cells from China and Korea. Whether these will produce a genuine battery supply chain in India, as opposed to assembly of imported cells into packs, is the central open question of the sector.

The honest summary is that India's automotive base is strong in exactly the places its economy is strong: high-volume, cost-engineered, labour-efficient manufacture of affordable vehicles, plus a deep and increasingly sophisticated component sector that exports to global assemblers. It is weaker where India has generally been weaker, in original platform development, in semiconductors and power electronics, and in the capital-heavy upstream of batteries. The industry also carries an unresolved tension between its dependence on cheap personal mobility and the congestion and air quality costs that mobility imposes on Indian cities, a tension that no incentive scheme has yet addressed.

Back to the library