For an industry besieged with news of companies exiting the market, this will come as a welcome relief. The flow of FDI in the automobile sector has shown a sharp spike in this financial year, the annual Economic Survey 2021-22 has said.
In the first half of the current financial year, the sector garnered FDI worth USD 4.9 billion which was more than 10 times the tally in the first half of fiscal 2021 (USD 0.4 bn). This has made automobiles the second largest FDI attracting sector in the country during this period accounting for a record 15.8 percent of overall FDI in the country. It is behind only computer software and hardware sector that received FDI of USD 7.1 billion, a steep decline for USD 17.6 bn of H1 fiscal 2021.
The jump in investment flow comes in the backdrop of a fall in the previous year. In fiscal 2021, the sector received FDI of USD 1.6 billion which was lower than the USD 2.8 billion of pre-pandemic fiscal 2020. The uptick in FDI coincides with an increase in capex by domestic players largely on the back of all-time high funding of USD 444 million by EV tech startups in 2021. Startups that attracted maximum funding in the just-ended year include Ola Electric (USD 253 million), Blusmart (USD 25 million), Simple Energy (USD 21 million), Revolt (USD 20 million) and Detel (USD 20 million).
The flow of investment is only likely to gather further momentum in the coming fiscal years. In 2021, nearly 50 companies proposed investments worth USD 13 billion–half of them in the electric mobility space. Most of these investments would happen over fiscals 2023 and 2025. The government’s ambitious USD 26 billion PLI scheme where the automotive sector received the maximum outlay of all, will also aid the investment rush.
“Government’s intervention to boost this industry has come at a time when the global economy is facing an acute shortage of semiconductors due to severe disruptions in supply chains. Several companies from diverse industries have been forced to either shut or curtail production in response to breakdown of supply chains,” the Economic Survey noted. “The PLI and other schemes to boost semiconductors will not only help domestic companies to overcome the challenges posed by COVID 19 but also assist them to become globally competitive especially in chip making. Semiconductors are an integral part of modern technology used in automobiles and its components, electronic and medical devices. The comprehensive interventions being introduced by the government will aid in the establishment of an ecosystem that boosts semiconductor production in India.”
Semiconductor chip manufacturing is also integral to India’s electric vehicle dreams where it wants to emerge not just as a big domestic market but also a hub fo exports.
“The electric vehicle ecosystem is definitely a green shoot for the economy. Not only it helps supports the dream of Atmanirbhar Bharat, but also delivers towards attaining the net zero emissions target set by the Prime Minister at COP26 Summit. The government’s target to make India a manufacturing hub is also driven by the incentives announced for manufacturing of auto and electronic components. Much to the credit here is the Production Linked Incentives(PLI) Scheme,” said Samrath Kochar, Founder & CEO, Trontek. “The introduction of PLI for the auto and auto components industry, and the Advanced Chemistry Cell Scheme, encouraged scaling up of electric vehicle industry. The pace of growth of Indian EV industry has been consistent, thanks to the efforts by the Government of India. In addition, the demand incentives have been able to give the further push for creating demand of electric vehicles.”
The various PLI schemes are expected to create minimum production of over USD 500 billion in 5 years. The automotive sector, which accounts for nearly half of the country’s manufacturing GDP, is bound to play a significant role in that. The uptick in FDI in this fiscal could just be the start of an overall economic turnaround.
Also Read:
The survey said that government intervention to boost semiconductors and display manufacturing ecosystem in the country has come at a time when the global economy is facing acute shortage of semiconductors due to severe disruptions in supply chains.
India has also experienced similar trends in the automobile sector, Economic Survey 2021-22 pointed out. As per data from the Society of Indian Automobile Manufacturers (SIAM), carmakers sold 2,19,421 passenger vehicles in the domestic market in December 2021, down 13 per cent (year-on-year), it stated.
