How the automotive sector found its feet in independent India

A day after India celebrated its 79th Independence Day, it is time to look at the automotive sector, which has contributed immensely to nation-building. According to the NITI Aayog, the industry contributes 7.1% to India’s GDP, and has become the fourth-largest in the world in terms of vehicle production. The automotive industry is one of the shining beacons of the ‘Make in India’ mission, with some of the largest companies in the sector being home-grown companies.

The quest for self-reliance and ‘Make in India’ goes back to the genesis of the country, when in 1949, the government of the newly independent nation decided to ban the import of cars entirely built outside the country; later, wanting to give a fillip to local industry, it disallowed Indian manufacturers to assemble imported vehicles unless they increased localisation, according to the recommendations of the Tariff Commission on the Automobile Industry, 1953. The British had left India with a laissez-faire economy, making the country more of a consumer of British-manufactured goods. Unwilling to invest in India, GM and Ford exited the country, serving, in retrospect, a prelude to the exit both carmakers would make in a liberalised economy in 2017 and 2019, respectively.

Nevertheless, India’s closed economy saw the emergence of three carmakers—Hindustan Motors, which was promoted by a branch of the Birla family; Premier Automobiles, promoted by the Walchand Group; and the South-based Standard Motor. However, all these carmakers produced foreign-made cars under a licence, and it would not be until 1998 that Tata Motors (Telco, as it was known then) launched the Indica, India’s first indigenously designed and developed car.

Telco’s tryst with the Indian passenger vehicles market offers an interesting anecdote of how the venerated Tata group came shy of producing a car for Indian consumers. BVR Subbu, part of the founding team of Hyundai Motor India Limited—and also a Telco veteran—writes in his book, Santro: The Car That Built a Company, on how Telco sought to grab the opportunity of building a smaller car for the Indian market with both hands in 1956, when it wanted to make the DKW 900 series car, which was then owned by Mercedes-Benz, with which the Tata group ran a highly successful joint venture to manufacture trucks.

However, with the DKW brand changing ownership, and for “other reasons”, then chairman JRD Tata wrote in the annual report that it was “neither feasible nor desirable” to manufacture a small car, and therefore, was not in a position to manufacture a small passenger car. The industry could have taken a very different course had things turned out favourably.

In the 1980s, however, when the broadbasing of licences was introduced by the then Prime Minister Rajiv Gandhi, the Tata group once again sought to catch hold of the opportunity, this time with Honda to manufacture its famous “Accord” sedan. It was slated to be an ambitious joint venture, with Honda investing in Tata Motors, and rapid localisation on the anvil. However, the government thought it imprudent to incur a scarce foreign currency outflow for selling a luxury car like the Accord, and the venture was not approved.

In 1995, Tata Motors made its third attempt to produce a passenger car and tried partnering with Mercedes-Benz for the second time. Another ambitious undertaking, the project used Hindustan Motors’ Ambassador as a reference for a teardown analysis. However, yet again, the venture failed to take off as the two companies differed in the projection of volumes for the Indian passenger vehicles market, with the German carmaker taking a more conservative approach, and sitting out of the opportunity to foray into the car market.

All of this ostensibly led Tata Motors to focus on developing passenger cars alone, by signing specific agreements with organisations for specific functions of the car, instead of a full-fledged joint venture. The rest, they say, is history. The Indica became one of the most successful passenger cars in the country and served as a template for Tata Motors in the future.

Maruti Suzuki: an Indo-Japanese partnership that put India on wheels

The ambition of manufacturing a small passenger car can be traced back to the 1950s, to Manubhai Shah, the first Minister of Heavy Industries. However, it was in 1969, when Sanjay Gandhi, freshly returned from England after an apprenticeship at Rolls-Royce, took on the mantle of developing a small car instead. But the project was soon mired in controversy as allegations of nepotism and bureaucratic overreach started being levelled against both Sanjay and Indira Gandhi by the Janata government.

After Sanjay Gandhi died in 1980, the project was brought back to life by Indira Gandhi, who wanted the project to be revived in Sanjay Gandhi’s memory, and became its unofficial ‘brand ambassador’ in 1983. When the government first floated the idea of a people’s car, it faced widespread opposition. Sumant Moolgaokar—a Telco (now Tata Motors) veteran and doyen of the Indian automobile industry—vociferously dissuaded the members of Maruti Udyog from manufacturing passenger cars, and instead suggested that it should focus on manufacturing commercial vehicles. Such was his insistence that it culminated in a fallout with the rest of the members, and the resignation of Moolgaonkar—who was non-executive chairman of Maruti—from the company.

Determined to build an affordable car with a foreign collaborator, bureaucrats—including present chairman R.C. Bhargava—tasked with rolling out the car by 1983, ran pillar-to-post to seek interest from some of the biggest carmakers in the world. Maruti had briefly considered partnering with Renault, but the conditions put forth by the French automaker were such that the partnership would have been detrimental to India’s financial interests.

Several automakers baulked at advancing talks with the government, underestimating the potential of the Indian automobile market. India’s cumbersome bureaucratic red tape—and its insistence on measures to curtail foreign exchange outflows—led to many carmakers, including Ford and Volkswagen, dismissing the possibility of a collaboration.

This led to Maruti looking East—an idea that again faced opposition from MP Arun Nehru—as it found Japanese cars far more suitable. But Maruti’s excursion to Japan was heading towards disappointment, as the biggest Japanese carmakers—Toyota, Mitsubishi, Nissan—were unwilling to invest in a country alien to them.

However, Maruti’s enterprising and determined bureaucrats caught the eye of Osamu Suzuki, the chairman of a relatively minor carmaker, which was known more for its bikes. Such was the impression that Suzuki went against the advice of many, including the Japanese embassy in India, to make a large-scale, unwarranted, risky investment that many prophesied would flounder in a few years.

It was Suzuki’s entrepreneurial zeal and dynamism that made him see what some of the biggest names in the automobile industry could not—India’s potential as a manufacturer and consumer of cars. He believed it was the people who mattered, and everything else was secondary.

The rest, they say, is history. Not only did Maruti Suzuki bring a new paradigm to the sleepy, outdated automobile market in India, but the company is now one of the most significant contributors to Suzuki’s revenue, and Maruti Suzuki became a bellwether of the Indian automobile industry.

The way forward

While India has been a laggard in most technologies in the automotive sector, the tables have flipped recently, with India leapfrogging into battery electric vehicles. Both home-grown and foreign carmakers are doubling down on electric powertrains. In 2022, India surpassed Japan to become the third-largest car market, selling 4.25 million cars in the period.

According to the NITI Aayog, sales of electric vehicles in India went up from 50,000 in 2016 to 2.08 million in 2024, as against global EV sales having risen from 918,000 in 2016 to 18.78 million in 2024. Thus, India’s transition has been slow to start, but it is picking up. India’s EV penetration was only about one–fifth of the global penetration in 2020, but has picked up to over two-fifths of the worldwide penetration in 2024.

The focus is also on ‘Make in India for the World’ as India’s largest carmakers are looking to double down on exports, and have been posting increased export numbers. This shows healthy demand for made-in-India vehicles across the world.