India’s auto sector powers $5 trillion economy dream; contributes over 7 per cent to GDP
India’s booming automobile sector, contributing over 7 per cent to GDP, is key to its $5 trillion economy goal. With strong policy support, EV adoption, and local manufacturing growth, it reflects India’s rise in global auto production and clean-tech innovation
New Delhi: As India moves closer to achieving its $5 trillion economy dream, the automobile sector is emerging as a strong pillar of growth by contributing around 7.1 per cent to the country’s GDP and nearly 49 per cent to its manufacturing GDP.
Additionally, it supports over 3.7 crore jobs and accounts for close to 8 per cent of India’s total exports. Clearly, the performance of this sector is closely linked to the overall economic growth of the country.
More than just a commercial industry, the auto sector is now seen as a reflection of India’s growing power in global manufacturing and innovation. As of the financial year 2024-25, India is the third-largest automobile market in the world by sales and the fourth-largest in terms of production.
The country produced over 31 million vehicles across various segments. This included more than 5 million passenger cars, 1 million commercial vehicles, 1 million three-wheelers, and nearly 24 million two-wheelers. In terms of exports, India shipped around 5.7 million vehicles to markets like Japan, Mexico, Latin America, and Africa.
This rapid growth has been supported by government policies aimed at boosting local manufacturing, reducing imports, promoting clean technologies, and making India a key player in global supply chains.
One of the most important schemes has been the Production Linked Incentive (PLI) for the automobile and auto components sector. With a budget of Rs 25,938 crore, this scheme is focused on promoting electric vehicles (EVs), hydrogen vehicles, autonomous systems, and advanced vehicle technologies.
By early 2025, this scheme had attracted investment proposals worth over Rs 67,000 crore. It is expected to generate Rs 2.3 lakh crore in additional sales and create 7.5 lakh direct jobs.
However, out of the total $23 billion approved under PLI schemes across all sectors, only US$1.7 billion has been disbursed so far, raising concerns about slow implementation.
Another major initiative is the FAME-II scheme (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles), launched with a budget of Rs 11,500 crore.
It supports the adoption of electric two-wheelers, three-wheelers, buses, and taxis. Over 1.3 million EVs have already been supported under this scheme. Originally planned to end in March 2024, the scheme has been extended until March 2025 to keep up the EV push.
To reduce dependency on imported batteries, the government also launched a PLI scheme for Advanced Chemistry Cell (ACC) Battery Storage with an outlay of Rs 18,100 crore. Three companies are already working on building battery gigafactories under this scheme. This is important because batteries make up more than 40 per cent of the total cost of an EV.
The Vehicle Scrappage Policy is another key effort aimed at removing old and polluting vehicles from Indian roads. This is expected to improve air quality, road safety, and increase the demand for newer, more efficient vehicles.
The electric vehicle market in India is steadily growing. In 2024-25, EVs made up over 6 per cent of all vehicles sold, with two-wheelers and three-wheelers leading the trend. In May 2025, electric car sales touched 12,304 units, crossing the 4 per cent mark in market share for the first time — up from 2.57 per cent in May 2024.
