India's light vehicle market will grow to 5.4 million units by 2020, close to doubling in a little more than five years.

India has seen a lot of automotive sector interest in recent years. It is a market with a huge potential for growth, but a China-like market surge is not expected. Indeed, the economic crisis of 2013 and subsequent slowdown has hurt the automotive industry, which has also been dragged down by slower economic growth, inflation, high interest rates and expensive fuel.

Almost 3 million cars were sold in India in 2013. So far this year the market is down 3 per cent compared with June 2013, according to LMC Automotive, a leading provider of automotive production, sales and powertrain forecasts and automotive industry market intelligence.  

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Stronger sales have caused renewed optimism

However, stronger sales over the past few months have caused renewed optimism. India is also a substantial auto exporter, with solid export growth expectations for the near future.

Looking at the facts, there are ample reasons to be optimistic about the automotive industry’s future in India.

In April, Narenda Modi’s conservative Bharatiya Janata Party won India’s national election. Analysts believe this will contribute to a renewed focus on the Indian auto industry. The country, called the world’s largest democracy, is also forecasted to see significant GDP growth from 2014 to 2020, while the young and growing population can expect steadily increasing standards of living. Many of the country’s citizens have become members of the rising middle class, which allows them to increasingly afford luxury goods, such as cars.

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Prospects for India remain promising

There are several reasons to expect the export of cars out of India to increase. The country’s geographical position, low wages and skilled workforce make it an ideal location for manufactures to set up production for both domestic sales and export. Some of the largest manufacturers currently doing this are Ford, Hyundai, Nissan and Suzuki. Global information company IHS Automotive forecasts exports to increase from 440,000 units in 2013 to 530,000 units in 2020. Continued weakness in the domestic market could contribute to seeing these forecasts increase as local manufacturers look for other markets to serve.  

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The long-term prospects for India remain promising. Given the size of India's population and future economic growth, incomes will most likely rise.

If history is any indicator, a rising urban middle-class will be drawn to car ownership. IHS Automotive forecasts that India's light vehicle market will grow to 5.4 million units by 2020, close to doubling in a little more than five years. Surely, that will be an exciting ride.