Auto upcycle gains depth; M&M and TVS Motors stand out, Siddhartha Khemka explains

India's automotive sector, a cornerstone of its manufacturing prowess and economic growth, is currently experiencing a robust upcycle, as evidenced by a significant 17% year-on-year volume growth in Q3 across all segments. This resurgence is not merely a post-pandemic rebound but signifies a deeper positive trend driven by a confluence of factors, offering a positive medium-term outlook for automakers and ancillary industries.

The background context for this upcycle involves navigating several turbulent years. Prior to the COVID-19 pandemic, the auto sector faced a slowdown attributed to factors like rising fuel prices, increased insurance costs, and a general economic slump. The pandemic further exacerbated these challenges, leading to production halts, supply chain disruptions (notably semiconductor shortages), and a dip in consumer confidence. However, the resilient nature of Indian demand, coupled with proactive government policies and the inherent cyclicality of the auto industry, laid the groundwork for the current recovery. The festive season, traditionally a period of high sales, provided the initial impetus, which has now translated into sustained momentum.

What precisely happened is that the demand, which was suppressed for a period, has now resurfaced strongly. This is evident in lean inventories across dealerships, indicating that vehicles are being sold as quickly as they are produced. Consequently, the need for aggressive discounts, a common practice during periods of low demand, has eased, allowing automakers to command better prices. This combination directly translates into improved revenues, profits, and crucially, higher margins for manufacturers. Companies like Mahindra & Mahindra (M&M) and TVS Motors have been particularly highlighted for their strong performance, likely due to a combination of new product launches, strategic market positioning, and efficient supply chain management.

Key stakeholders in this scenario include the **automakers** themselves (e.g., M&M, TVS Motors, Maruti Suzuki, Tata Motors), who are the primary beneficiaries of increased sales and profitability. The **auto ancillary industry**, comprising manufacturers of components like tires, batteries, and electronic parts, also sees a direct positive impact as vehicle production scales up. **Consumers**, both urban and rural, are the ultimate drivers of demand, their purchasing power and confidence being critical. The **government** plays a crucial role through its industrial policies, taxation (GST), and infrastructure development. **Financial institutions** (banks, NBFCs) facilitate vehicle purchases through loans, making affordability a key factor. Lastly, **employees** across the entire value chain benefit from job creation and stability.

This upcycle holds immense significance for India. The automotive sector contributes significantly to India's Gross Domestic Product (GDP), estimated to be around 7.1% of the country's GDP and 49% of its manufacturing GDP. A healthy auto sector signals robust industrial activity and overall economic recovery. It is a major employer, providing direct and indirect employment to millions, thereby impacting livelihoods across the manufacturing, sales, service, and logistics segments. The sector also attracts substantial Foreign Direct Investment (FDI), bolstering India's position as a global manufacturing hub. Furthermore, increased sales translate into higher Goods and Services Tax (GST) collection for the government, aiding fiscal consolidation. This aligns perfectly with the 'Make in India' initiative, promoting domestic manufacturing and reducing reliance on imports.

Historically, the Indian auto sector has demonstrated remarkable resilience and adaptability. From its nascent stages post-independence to the liberalization era of the 1990s that opened doors to global players, the industry has evolved significantly. It has navigated various economic cycles, policy shifts, and technological transitions, consistently emerging as a key growth engine. The current upcycle is a testament to its inherent strength and the vast potential of the Indian market.

Looking ahead, the future implications are multi-faceted. The sustained positive outlook suggests continued investment in capacity expansion, research and development, particularly in emerging areas like Electric Vehicles (EVs). Government policies like the **Production Linked Incentive (PLI) Scheme** for the automotive sector (notified in September 2021 with an outlay of ₹25,938 crore) and the **FAME-II (Faster Adoption and Manufacturing of Hybrid & Electric Vehicles) Scheme** (launched in 2019) will be crucial in shaping the sector's trajectory towards sustainability and technological advancement. These policies aim to boost domestic manufacturing, encourage advanced automotive technology, and promote EV adoption. The sector's growth will also spur demand in allied industries like steel, rubber, plastics, and electronics. Challenges like global supply chain resilience, rising input costs, and the transition to cleaner fuels and stricter emission norms (e.g., Bharat Stage VI) will continue to shape its evolution. From a constitutional perspective, the government's power to legislate on industries falls under the **Seventh Schedule** (Union List, Entry 52 for industries declared by Parliament to be expedient in the public interest; Concurrent List, Entry 24 for welfare of labour in industries). The imposition of GST is enabled by **Article 246A** of the Constitution, which grants concurrent powers to both Parliament and State Legislatures to make laws with respect to GST. The broader economic objectives are also aligned with **Directive Principles of State Policy (DPSP)**, particularly **Article 39(b) and (c)**, which aim for equitable distribution of material resources and prevention of concentration of wealth, though these are more general economic directives rather than specific to the auto sector.

In essence, the current auto upcycle is a vital indicator of India's economic health, reflecting consumer confidence, manufacturing strength, and the efficacy of government policies. Its sustained growth is critical for achieving broader national development goals, including employment generation and industrial self-reliance.