The automotive industry in India is one of the largest in the world as well among the fastest growing annually. India's automobile production across all categories was 1, 97, 24, 371 in the 2014-2015 Financial Year and 2, 04, 69, 385 in 2015-2016 Financial Year.1 This represents a 3.77 % increase in production of automobiles over a one-year period.2 India's passenger car and commercial vehicle industry is currently the sixth largest in the world.3 Over-all Exports have grown 14.89 % in the 2014-2015 FY from the 2013-2014 FY4 the total turnover of the Indian automotive component industry was estimated at USD 38.5 billion in 2014-15. Auto ancillary exports fetched USD 11.2 billion in the same year.

The opening up of the Indian market following the economic reforms of 1991 and permission of up to 100% FDI in the automobile sector has been contributing factors to the sustained growth of the automotive industry in India. From independence, till 1991 there were very few automobile manufacturers in India producing few models. Following the economic liberalization, several Indian manufacturers have expanded their domestic and international operations. Further expansion of the sector has been due to India-specific investment by multinational automobile manufacturers setting up shop in India through their wholly-owned subsidiaries or through JVs with Indian manufacturers.

India has a $44 billion automotive parts industry. The Indian Government, in its latest Foreign Trade Policy ("FTP 2012") had incentivized export of auto components by Indian entities to Brazil, Russia, Iran, China and South Africa by adding 23 auto parts (like locks, pistons, piston rings, oil filters, gearboxes, headlamps etc.) under the market-linked focused product scheme (MLFPS).5 According to the Automotive Component Manufacturers Association of India (ACMA), the Indian auto-components industry is expected to register a turnover of US$ 100 billion by 2020 backed by strong exports ranging between US$ 80- US$ 100 billion by 2026, from the current US$ 11.2 billion.6

The western hub of automobile manufacturing near Mumbai and Pune is one of the largest contributors to the automobile and automobile parts production in India. The Chakan corridor near Pune, Maharashtra accommodates the assembly plants of companies like General Motors, Volkswagen, Skoda, Mahindra and Mahindra, Tata Motors, Mercedes Benz, Land Rover, Jaguar Cars, Fiat and Force Motors. Gujarat is an emerging automobile manufacturing powerhouse with the manufacturing facility of General Motors in Halol and the planned Tata Nano plant at Sanand.7


  • India's automobile market is quite different from other top automobile markets (except China) in that two-wheelers constitute the bulk of the demand (almost 80%).8
  • Growth is driven by factors such as affordability, fuel economy, alternate fuels (like electric cars etc.).9
  • The rural market is still relatively untapped and holds great potential for the Indian automotive industry.
  • Large scale acquisitions like Tata-JLR can help bring Indian expertise in supply-chain efficiency and lower production costs to foreign manufacturers, in addition to bringing greater choice for the Indian customer.
  • The commercial vehicle category is poised to take a great leap in the next decade due to the increase in Government spending on public transport which is a result of the strained road infrastructure in most big cities in India.


Leading Indian companies

  • Tata Motors, Mahindra & Mahindra, Hindustan Motors, TVS Motors, Bajaj Auto, Ashok Leyland.

Leading MNC Companies in India

  • BMW India, Mercedes-Benz India, Ford India, Maruti Suzuki, Volkswagen Group and its subsidiaries (Audi India, Skoda India, Volkswagen India), Hyundai Motor India, General Motors India.

Important Industry Associations

  • Society of Indian Automobile Manufacturers (SIAM)


Motor Vehicles Act, 1988 and Central Motor Vehicles Rules 1989

  • Governs emission norms and safety standards in India.
  • Consolidates the law relating to motor vehicles.
  • Lays down law relating to driving license, registration of motor vehicles, control of traffic, construction & maintenance of motor vehicles


Income Tax Act, 1961

  • It is tax on income imposed by Central Government
  • Residents in India are taxed on their worldwide income
  • Non- residents are taxed on Indian source of income
  • The Indian tax rates applicable to non-residents could be up to 40% (excluding applicable surcharge)
  • If the tax payable by any company is less than 18.5% of its book profits, it will be required to pay Minimum Alternate Tax
  • Interest received by a non-resident from Indian on foreign currency denominated loans may be taxable
  • Payments towards royalty and fees for technical services is taxable
  • Expenditure on scientific research is treated as capital expenditure and is deductible.

Transfer Pricing Regulations

  • Income tax Act makes provision for taxation of income arising from international transaction between associated enterprises.
  • Transfer Pricing Regulations lay down that any income arising from such an "international transaction" shall be computed having regard to the "arm's length price".
  • The Regulations also lay down methods for calculation of arm's length price

Research and Development Cess Act, 1986

  • All payments made towards the import of technology are subject to a cess of 5% under the Act.
  • Technology includes any special or technical knowledge or any special service required for any purpose whatsoever by an industrial concern under any foreign collaboration, and includes designs, drawings, publications and technical personnel.

Custom Duty

  • Customs duty is charged on imports of items into India.
  • Foreign automobile manufacturers who want to avail of lower custom duties and thereby pass on the cost benefit to the customers can import Completely Knocked Down (CKD) kits which are charged customs duty at a concessional rate of 10.10
  • At present, a Completely Built Units (CBUs) attract a duty of 105% while Semi-Knocked Down (SKD) units attract an import duty of around 64%.11
  • For the purpose of this exemption, a CKD unit is said to exclude "such units which contain a pre-assembled engine or gearbox or transmission mechanism or a chassis where such parts or sub-assemblies is installed."12 This provision was introduced in the 2012 Budget.13
  • Excise duty on diesel engines is higher than on petrol engines.
  • The 2012 Budget has introduced concessions for the import of specified parts of hybrid vehicles like lithium ion batteries – the custom duty on such specified parts has been lowered from 10% to 6%.14

Sales Tax / Value Added Tax (VAT)

  • Sales tax/VAT is levied by states on sale of goods within its territory.
  • Central Sales Tax is currently higher on diesel vehicles than on petrol vehicles.


  • Duty imposed by Central Government on manufacture of goods.
  • The government revises the rates of CENVAT from time to time.


The Ministry of Shipping, Road Transport & Highways (MoSRT&H) acts as the central agency for formulation and implementation of various provisions of the Motor Vehicle Act, 1988 (as amended) and Central Motor Vehicle Rules, 1989 (as amended) ("CMVR"). Additionally, the Ministry of Environment & Forest (MoEF), Ministry of Petroleum & Natural Gas (MoPNG) and Ministry of Non-conventional Energy Sources also govern various aspects of the automotive industry. The MoSRT&H has constituted certain standing committees of eminent individuals to advise the MoSRT&H on various issues including safety, standards for regulation of emissions etc. on the basis of which the MoSRT&H may consider modification(s) / amendment(s) to the CMVR:

CMVR- Technical Standing Committee

  • Advises the MoSRT&H on technical aspects related to CMVR and any amendments that may be required in light of advancement in technology.
  • The Committee comprises of a wide range of stakeholders, from organizations such as the Ministry of Heavy Industries & Public Enterprises, Bureau of Indian Standards, Automobile Research Association of India, Society of Indian Automobile Manufacturers etc.
  • Recommendations are made to the Government regarding international standards / best practices which can be used in lieu of standard notified under the CMVR to permit use of components / parts / assemblies complying with such standards.
  • Additionally, CMVR-TSC is assisted by another committee called the Automobile Industry Standards Committee which advises in drafting the technical standards related to safety.

Standing Committee on Implementation of Emission Legislation (SCOE)

  • This committee deals with issues relating to implementation of emission norms.
  • The main functions15 of this committee are :
  • to discuss future emission norms;
  • to recommend final norms for current vehicles to MoSRT&H, ;
  • to finalize test procedures and implementation strategy for emission norms;
  • advise MoSRT&H regarding any issue relating to implementation of emission regulations.

Automotive Research Association of India (ARAI)

  • ARAI is a cooperative industrial research association established by the automotive industry with the Ministry of Heavy Industries & Public Enterprises, Govt. of India.
  • The objectives of the Association are R&D in automotive engineering for industry, testing, certification and homologation of automobiles, automotive equipment and ancillaries and framing of vehicle regulations.


The Indian automobile industry is poised at the start of a great phase of growth. The potential of alternate-fuel vehicles has not been completely explored yet but holds great promise as research into more efficient electric vehicles and bio-fuels are being carried out at a tremendous pace. These vehicles will be less polluting and will pass on huge cost benefits to the owner of the vehicles. The duty benefits on imports of specific parts of hybrid vehicles can be a huge boost to this sector.16 India's Automotive Mission Plan 2006-2016, which is a collaborative effort between the Indian Government, the automotive industry and the academia, aims for India "To 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 Indian automotive industry has witnessed significant growth during the first half of Automotive Mission Plan during which period all vehicle segments registered a compound Annual Growth Rate in excess of 10%. However, from FY 2011 the slowdown in global economy coupled with weakness in the fundamental growth drivers has resulted in decline in growth across vehicle segments except for two wheelers, which posted a CAGR of 4.6%. This has resulted in gaps between actual performance of the industry vis-à-vis targets envisaged under Automotive Mission Plan of 2006- 2016. The Indian Government however has now come out with the latest Automotive Mission plan for 2016-2026 seeking to define the trajectory of evolution of the automotive ecosystem in India including the glide path of specific regulations and policies that govern research, design, technology, testing, manufacturing, import/ export, sale, use, repair, and recycling of automotive vehicles, components and services. Such progressive and persistent steps taken by the Government along with active involvement of the industry stakeholders can ensure the creation of the right environment for growth of this industry at an exponential pace."

1 Domestic Sales Trend (July 07, 2016),

2 Industry Performance in 2014-2015 (July 07, 2016)

3 Overview of the Indian Auto Industry,

4 Automobile Exports Trends (October 16, 2012),

5 Auto parts firms to benefit from export incentives (June 11, 2012),

6 Indian Brand Equity Foundation, Sectoral Presentation (January, 2016),

7 New plant for Tata Nano at Sanand inaugurated

8 The Indian Automotive Industry (June , 2016),

9 Id.

10 New rules on CKD imports may hit carmakers that import engines, The Hindu Business Line,


12 Customs Notification 1 of 2011,

13 Supra note 8

14 Budget 2012: Auto industry welcomes incentives to promote hybrid vehicles, The Economic Times (March 16, 2012),

15 Regulatory Framework

16 Id.

Nishith Desai Associates 2013. All rights reserved.