Report: India’s Auto Industry Must Realign to Grow

India's auto market has great growth potential. But to capitalize on it in coming years, the country's auto industry must revisit its strategy, according to EY, the London-based global professional services firm.

The firm's new report, Revving Up! Indian Automotive Industry at a Crossroads, says Indian carmakers need to enhance their domestic supply base, create more flexible supply chains and production facilities, introduce new models and improve customer relations.

Rakesh Bata, the firm's automotive sector leader in India, says one of the industry's biggest challenges is the impending Goods and Services Tax bill, which would implement a value-added tax beginning next April. Bata says carmakers also will need new strategies to cope with impending rules on exhaust emissions, vehicle safety and end-of-life recycling.

EY emphasizes that the fundamentals for growth increasing demand, rising per-capita income, low fuel prices and aggressive seller discounting are intact and should enable strong expansion through fiscal 2020. But the firm says the measures it suggests will be necessary to create sustainable growth and profitability.

EY forecasts annual passenger vehicle sales in India will climb at a compound annual rate of 9-11% to reach 4-4.5 million by then. The report says the country's commercial vehicle market will expand 7-9% annually to reach about 900,000 units over the same period. Growth in demand for two-wheelers is likely to slow to 8-10%, reaching 25 million units by fiscal 2020.