Automotive industry is the key driver of any growing economy. It plays a pivotal role in country's rapid economic and industrial development. It caters to the requirement of equipment for basic industries like steel, non-ferrous metals, fertilisers, refineries, petrochemicals, shipping, textiles, plastics, glass, rubber, capital equipments, logistics, paper, cement, sugar, etc. It facilitates the improvement in various infrastructure facilities like power, rail and road transport. Due to its deep forward and backward linkages with almost every segment of the economy, the industry has a strong and positive multiplier effect and thus propels progress of a nation. The automotive industry comprises of the automobile and the auto component sectors. It includes passenger cars; light, medium and heavy commercial vehicles; multi-utility vehicles such as jeeps, scooters, motor-cycles, three wheelers, tractors, etc; and auto components like engine parts, drive and transmission parts, suspension and braking parts , electricals, body and chassis parts; etc.

In India, automotive is one of the largest industries showing impressive growth over the years and has been significantly making increasing contribution to overall industrial development in the country. Presently, India is the world's second largest manufacturer of two wheelers, fifth largest manufacturer of commercial vehicles as well as largest manufacturer of tractors. It is the fourth largest passenger car market in Asia as well as a home to the largest motor cycle manufacturer. The installed capacity of the automobile sector has been 9,540,000 vehicles, comprising 1,590,000 four wheelers (including passenger cars) and 7,950,000 two and three wheelers. The sector has shown great advances in terms of development, spread, absorption of newer technologies and flexibility in the wake of changing business scenario. It is also finding increasing recognition worldwide and a beginning has been made in exports of vehicles as well as components. During the year 2006-07 (up to November 2006), the automobile exports registered a growth of 27.25 per cent.

The Indian automotive industry has made rapid strides since delicensing and opening up of the sector in 1991. It has witnessed the entry of several new manufacturers with the state-of-art technology, thus replacing the monopoly of few manufacturers. At present, there are 15 manufacturers of passenger cars and multi-utility vehicles, 9 manufacturers of commercial vehicles, 14 of two/ three wheelers and 14 of tractor, besides 5 manufacturers of engines. They have set up a manufacturing capacity of over 95 lakh vehicles per annum. The norms for foreign investment and import of technology have also been liberalised over the years for manufacture of vehicles. At present, 100% foreign direct investment (FDI) is permissible under the automatic route in this sector, including passenger car segment. The import of technology for technology upgradation on royalty payment of 5% without any duration limit and lump sum payment of USD 2 million is also allowed under automatic route in this sector. The Indian automotive industry has already attained a turnover of Rs. 1,65,000 crore (34 billion USD) and has provided direct and indirect employment to 1.31 crore people in the country.

The growth of Indian middle class, with increasing purchasing power, along with strong macro-economic fundamentals have attracted the major auto manufacturers to Indian market. The market linked exchange rate, well established financial market, stable policy governance work and availability of trained manpower have also shifted new capacities and flow of capital to the auto industry of India. All these have not only enhanced competition in auto companies and resulted in multiple choices for Indian consumers at competitive costs, but have also ensured a remarkable improvement in the industry's productivity, which is one of the highest in Indian manufacturing sector.

The Department of Heavy Industry, under the Ministry of Heavy Industries and Public Enterprises, is the main agency in India for promoting the growth and development of the automotive industry. The department assists the industry in achievement of its expansion plans through policy initiatives, suitable interventions for restructuring of tariffs and trade, promotion of technological collaboration and up-gradation as well as research and development. The department is also concerned with the development of the heavy engineering industry, machine tools industry, heavy electrical industry, industrial machinery, etc.

In order to further accelerate and sustain advancements in the auto sector, the department has undertaken several policy measures and incentives. The most important being the announcement of the 'Auto Policy' of 2002, which aims to establish a globally competitive automotive industry in India and double its contribution to the economy by 2010. The policy seeks to set out the direction of growth for the sector and promote R&D therein so as to ensure continuous technology upgradation as well as building up of better designing capacities. It emphasizes on low emission fuel auto technologies and availability of appropriate auto fuels in order to take auto manufacturing to a self-sustaining level. Broadly, the objectives of the auto policy are to:-

Another milestone in this field has been the launching of the National Automotive Testing and R &D Infrastructure Project (NATRIP) which aims to create core global competencies in automotive sector and facilitate its integration with the world economy. It seeks to develop 'state-of -the- art' testing, validation and R& D infrastructure in the country with a view to support the growth and development effort of the automotive industry to reach international levels. NATRIP envisages setting up of world-class and homologation facilities in India with a total investment of Rs.1,718 crore within the three automotive hubs of the country. These are:- Manesar in Northern India; Chennai in Southern India; and Pune and Ahmednagar in Western India. The project largely aims at:-

Besides, the announcement of 'Automotive Mission Plan' for the period of 2006-2016 is a major step taken to make India a global automotive hub. The Mission Plan aims to make India emerge as the destination of choice in the world for design and manufacture of automobiles and auto components, with output reaching a level of US$ 145 billion (accounting for more than 10% of the GDP) and providing additional employment to 25 million people by 2016. The Mission seeks to oversee the development of the automotive industry, that is, the present scenario of the sector, its broad role in the growth of national economy, its linkages with other key facets of the economy as well as its future growth prospects. This is involved in improving the automobiles in the Indian domestic market, providing world class facilities of automotive testing and certification as well as ensuring a healthy competition among the manufacturers at a level playing field.

The future challenges for the Indian auto industry in achieving the targets defined in the Automotive Mission Plan would primarily consist of developing a supply base in terms of technical and human capabilities, achieving economies of scale and lowering manufacturing costs, as well as overcoming infrastructural bottlenecks. It also involves stimulating domestic demand and exploiting export and international business opportunities. In all these, the role of the Government is of facilitating infrastructure creation, promoting the country’s capabilities, creating a favourable and predictable business environment, attracting investments and promoting R&D. While, the role of industry is primarily of designing and manufacturing products of world-class quality standards, establishing cost competitiveness, improving productivity of both labour and capital, achieving scale and R & D enhancing capabilities as well as showcasing India’s products in potential markets.

All such initiatives indicate that the Indian automotive industry has been emerging as a sunrise sector of the economy. It is not only meeting the growing domestic demands, but also gradually increasing its penetration in the international markets. It has been continuously restructuring itself and absorbing newer technologies in order to align itself to the global developments and realize its potentialities. Endowed with several advantages like low cost and high skill manpower; globally competitive auto-ancilliary industry; established testing and R & D centres; production of steel at lowest cost; etc., the industry provide immense investment opportunities. This has instilled confidence in auto manufacturers to face international competition as well as improve quality standards of vehicles with safety norms in the wake of rapidly increasing traffic. Various policy incentives including time bound implementation of Automotive Mission Plan together with establishment of world class testing, homologation and certification facilities would ensure Indian automotive industry a distinct edge amongst the newly emerging automotive destinations of the world.