The Indian automotive industry is on the rise, with a recovery in economic activities and increased mobility over the past two years, said credit rating agency ICRA in its latest report. The passenger vehicle industry reached record volumes in FY23, with a forecast of 6-9% YoY growth in FY24.
The commercial vehicle industry, on the other hand, saw robust growth in FY23, with a modest 2-4% YoY growth expected in FY24. However, the two-wheeler industry continues to struggle, with volumes still below pre-COVID peak levels.
Shamsher Dewan, Senior Vice President & Group Head, Corporate Ratings, ICRA, while commenting on the outlook for the automotive industry, said: “We expect growth across the automotive industry segments to remain at moderate levels in FY24… The impact of an uneven monsoon precipitation on rural demand across segments remains monitorable, even as the government’s efforts on rural infrastructure development, crop procurements etc. remain a positive.”
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ICRA has forecast a CAGR (compound annual growth rate) of 6-9% across the automotive segments over the medium to long term. Factors such as rising per capita incomes, demographic profile, low vehicle penetration, and favourable policy environment are expected to support steady industry growth. The electric vehicle (EV) segment has seen significant growth over the past two years, spurred by government subsidies under the FAME-II policy, enhanced awareness, and increasing product launches.
The electric two-wheeler (e2w) segment accounted for approximately 85-90% of total EV sales (excluding e-rickshaws) to date, thanks to healthy subsidies. Despite a reduction in subsidy benefits for e2ws from June 2023 slowing down adoption, original equipment manufacturers (OEMs) remain focused on developing more affordable products which is likely to aid adoption over the medium term.
As the electrification transition continues, OEMs are expected to invest significantly in the development of EV platforms and enhancing manufacturing capacities. This investment is expected to moderate return indicators for the industry over the near to medium term. Despite this, competitive manufacturing capabilities and ongoing efforts by OEMs to enhance distribution networks bode well for export prospects.
However, over the near term, domestic industry volumes are expected to continue driving growth, with export prospects remaining weak due to a shortage of dollar availability in key markets and inflationary pressures.
