Increasing FDI: Apparently good news to Indian automotive manufacturers

Between April 2014 and February 2015, the Indian automobile sector received FDI worth US$2.42 billion, up from US$1.28 billion pumped in during the same period a year ago.

The Dollar Business Bureau Automotive Industry Overseas investors seem to be betting on India’s automobile sector as the industry saw the whopping 89% increase in foreign direct investment (FDI) during the last financial year. Between April 2014 and February 2015, the Indian auto sector received FDI worth US$2.42 billion, almost double than US$1.28 billion pumped in during the same period a year ago. During the entire financial year of 2013-14, the industry received foreign direct investment worth US$ 1.51 billion, according to the latest data released by the Department of Industrial Policy and Promotion (DIPP). Experts say that the steep hike in foreign funding could trigger increased manufacturing activities in India-based plants of global automobile makers. Many global car makers like Hyundai, Ford, Volkswagon and Honda are exploring options to reduce manufacturing cost, increase profit and offset losses due to sluggish sales, say analysts. In the past few years, India has emerged as a preferred manufacturing hub of cars with the availability of skilled labour at cheaper rates. Besides, auto makers also see a lot of potential to explore global markets by exporting vehicles made in Indian plants. According to the Society of Indian Automobile Manufacturers (SIAM), the industry produced a total 1.90 million vehicles including passenger vehicles, commercial vehicles, three-wheelers and two-wheelers in April 2015 as against 1.86 million in April 2014, registering a marginal growth of 2.55% over the same month last year. India’s automobile exports grew by 7.66% in April this year. The rate of increase in passenger vehicle segment was 20.87%, while that of commercial vehicles and three-wheelers at 19.87% and 79.24% respectively, SIAM said in a statement earlier this month. Healthy FDI growth in the automobile sector has helped to push the overall growth in the foreign investment in the country. During April-February 2014-15, FDI in India has increased by 39 per cent to $28.81 billion, up 39% as compared to the same period in the previous fiscal. Other sectors that recorded increase in foreign direct inflows include telecommunication, computer software and hardware and pharmaceuticals.