ASSESSMENTS

Can India's Auto Industry Become the Bedrock the Country Needs?

Oct 23, 2018 | 09:00 GMT

Employees assemble parts and make final inspections of Honda Activa scooters in Narasapura, on the outskirts of Bangalore, India. The Activa is India's top-selling two-wheeled vehicle.

(MANJUNATH KIRAN/AFP/Getty Images)

Highlights

A young and growing middle class will drive the expansion of India's automotive industry in the coming decade, but Prime Minister Narendra Modi's desire to create jobs means the industry will continue to maintain tariff barriers.
Protectionist policies focused on the domestic market will continue to keep India from becoming a major exporter of automobiles, while limited exposure to foreign competition means productivity won't reach its potential.
Rising oil prices and increasing interest rates will dampen domestic auto demand in the short run, though sales will pick up during the festive season surrounding Diwali.

U.S. President Donald Trump's threat of drastically raising tariffs on cars imported to the United States has unnerved the global automotive industry. Yet India appears unfazed. Washington and New Delhi have certainly sharpened their arrows as they jostle over disagreements on trade. Trump, who has called India the "tariff king," wants to chip away at the $23 billion bilateral trade deficit by gaining greater access to various sectors of the Indian market, including dairy and medical devices. And New Delhi has threatened to impose $241 million in retaliatory tariffs against Washington for refusing to grant waivers on its steel and aluminum shipments destined for the American market. But India's largely domestically focused automotive sector will fly beneath the radar of Trump's auto protectionism and continue to focus on serving a vast internal market of nearly 1.3 billion consumers....

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