The Economic Survey 2022-23, which was tabled in Parliament yesterday by Finance Minister Nirmala Sitharaman, has a number of takeaways including the premise that India remains the fastest growing economy in the world, despite the many global challenges to growth.

GDP growth for FY2024 is predicted between 6% to 6.8%. The Survey states that this “optimistic growth forecast stems in part from the resilience of the Indian economy seen in the rebound of private consumption seamlessly replacing the export stimuli as the leading driver of growth.”

The Economic Survey highlights India Auto Inc as a key driver of India’s economic growth. In December 2022, with 4.4 million units, India became the world’s third largest automobile market, surpassing Japan and Germany in terms of sales. In 2021, India was the largest manufacturer of two- and three-wheelers and the world’s fourth-largest manufacturer of passenger vehicles. The sector’s importance is gauged by the fact that it contributes 7.1% to the overall GDP and 49% to the manufacturing GDP while generating direct and indirect employment of 3.7 crore people (end-2021).

Ten-fold growth for India EV Inc by 2030

India, which has outlined a net-zero emission goal by 2070 and aims to maximise the use of EVs, is targeting EVs to account for 30% of its mobility requirements by 2030. The upcoming seven years are expected to see a sharp increase in domestic demand for this form of eco-friendly mobility.  

The Economic Survey 2022-23 report states, “The automotive industry is expected to play a critical role in the transition towards green energy. The domestic electric vehicle (EV) market is expected to grow at a compound annual growth rate (CAGR) of 49% between 2022 and 2030 and is expected to hit 1 crore units (10 million) annual sales by 2030. The EV industry will create 5 crore direct and indirect jobs by 2030.”

The Economic Survey’s 10-million annual EV sales by 2030 forecast translates into a 10-fold growth for the Indian EV industry. In CY2022, EV sales crossed a million units for the first time as a result of growing eco-consciousness among buyers, Central and State government incentives both to industry and EV buyers and wider product choice. The high prices of petrol and diesel, and also CNG to some extent, are also driving vehicle buyers to EVs. And, the wallet-friendly nature of EV cost of ownership over the long run is a big catalyst.

Most of the growth is thanks to the two- and three-wheeler segments, both popularly billed as the ‘low-hanging fruits’ of the EV industry. Given that they are more affordable compared to electric passenger vehicles or commercial vehicle segments, understandably they are the biggest contributors to EV sales. In CY2022, with over 600,000 units, electric two-wheelers accounted for 62% of total EV sales in India, followed by e-three-wheelers with 34% and electric passenger vehicles with 4 percent.

Another positive for India EV Inc is the government’s PLI Scheme which is enabling and driving higher localisation of components for EVs. This will serve to reduce dependence on imports as well as enable EV manufacturers to optimise costs and price EVs closer to their IC engine siblings.

The Economic Survey also points out to some headwinds to future growth. “Despite the upbeat outlook, the automotive industry faces certain challenges. Higher borrowing costs and tempering global demand are expected to be near-term hurdles. Amongst structural issues, the increase in long-term third-party vehicle insurance premiums has increased the total upfront insurance cost by about 10-11 per cent, especially for two-wheelers. Therefore, the two-wheeler segment is the most affected and witnessed the lowest sales in the last ten years. Addressing these challenges will boost the automobile industry.”