Contribution of the Automobile Industry to Global Economies

Investments in infrastructure, technology and R&D, investments in the car industry, and the creation of a strong and sustainable automotive ecosystem all help the auto industry reach its full potential.

FREMONT, CA: The car industry, which spans numerous adjacent industries, is a foundation of the global economy, a key contributor to macroeconomic development and stability as well as technical innovation in both developed and developing nations.

Understanding the development of the car industry in other nations can provide emerging nations like India with a blueprint for the future. In terms of volume and price, India's car sector ranks as the sixth-largest producer of automobiles worldwide. With more than 35 automakers, the sector generates 7 per cent of India's GDP and employs 7 per cent to 8 per cent of the country's entire workforce.

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Auto's Contribution to the Global Economy

A wide range of business segments, both upstream and downstream, as well as adjacent businesses, are supported by the core automotive industry (makers of vehicles and parts), which has a multiplier impact on growth and economic development.

Generating revenue - The automobile is a catalyst for local development all around the world. OEM (original equipment manufacturer) factories that are surrounded by component production facilities, such as steel mills, glass factories, used vehicle lots, aftermarket stores, and transportation service providers, lead to the formation of industrial clusters. These clusters result in brand-new communities with reliable road systems, access to rail and freight, and fresh housing complexes.

Economic development - With the advent of the automobile, moving people and products across geographical boundaries has undergone a radical transformation. The development of new suburban regions has resulted in a phenomenon known as counter-urbanization, which is the movement of people, businesses, and industries away from urban centres. Developed nations have experienced this phenomenon for decades.

Economic development can be assessed primarily in two areas :

• Industrial development - The automobile is a catalyst for local development all around the world. OEM (original equipment manufacturer) factories that are surrounded by component production facilities, such as steel mills, glass factories, used vehicle lots, aftermarket stores, and transportation service providers, result in the formation of industrial clusters. These clusters result in brand-new communities with reliable road systems, access to rail and freight, and fresh housing complexes.

• Mobility -  With the advent of the automobile, moving people and products across geographical boundaries has undergone a radical transformation. The development of new suburban regions has resulted in a phenomenon known as counter-urbanization, which is the movement of people, businesses, and industries away from urban centres. Developed nations have experienced this phenomenon for decades. Emerging economies are starting to see this pattern.

People development - Due to their enhanced mobility, comfort, and safety, automobiles can improve people's quality of life. The sector also aids in the development of skills and the production of jobs. It creates both direct and indirect employment thanks to its various forward and backward linkages.

Employees get useful skills in R&D, design, sourcing, production, supply chain, sales, and marketing due to the complexity of the sector. In this sense, the automobile industry serves as a training ground for acquiring management and technical skills that are important across a wide range of businesses and the whole economy.

Fostering R&D and innovation -  Consumer expectations for more product variety, better performance, increased safety, stricter emission requirements, and cheaper prices are motivating automakers to spend in R&D. In terms of R&D spending, the auto industry ranks third overall. When it comes to cutting-edge manufacturing technology, which has permeated other industries, the automobile sector continues to be at the forefront. Supply chain integration and modular sourcing practices used in the car sector have also had an impact. The automotive industry was the first industry to delegate direct task duties, such as design, engineering, R&D, and buying. Automakers have increased profitability and effectively supplied specialised markets by concentrating on key operations.

Government imperatives

The following are some ways that the government may significantly contribute to the development of a strong, sustainable automobile ecosystem:

• Develop infrastructure - Project length can be shortened by streamlining the land acquisition procedure and minimising delays in statutory permissions. The Public Private Partnership (PPP) approach to planning rural road networks aid in quicker implementation. In urban areas, the problem of traffic congestion can be solved by building new roadways and bypass routes (such as specialised freight lanes).

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• Encourage innovation - The majority of suppliers to the car industry in India only spend between 1 per cent and 5 per cent of their total sales on research and development. Innovation will help address future demands for technology centred on green mobility as well as present demand in new categories (such as small SUVs and quadricycles). Government subsidies can help promote R&D by component manufacturers and assemblers.

• Develop human capital - High-potential talent will be attracted by alluring professional prospects. Equally crucial is expanding the talent pool through efficient technical and soft-skills training programmes, particularly in rural India and tier 2 and 3 cities.

• Target sustainability - The government should simultaneously propel the car sector  via sustainability while it strives for quick expansion. Regulations relating to car and road safety, as well as pollution restrictions, should be assured to be of international standards. Automakers will be able to prepare for the future generation of transportation, including hybrid, electric, and alternative fuel cars, with the aid of incentives and infrastructure improvements.

• Institute a clear policy on GST - The long-delayed Goods and Services Tax (GST) would help streamline the tax code and enable automakers to plan their product lineups.