In just 3 years, India to be 4th largest car market

India will become the world's fourth largest passenger vehicle market in the next three years, but will require an investment of about $20 billion to build up to nine new plants to meet the demand by then, according to global consultant Booz&Co.

The Indian passenger vehicle market will touch 3.5 million units mark in the next three years, it said.

"By next three years, India will be the fourth largest passenger vehicle market in the world. Only the US, China and Japan will be ahead of India," Booz&Co Partner Vikas Sehgal told PTI.

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Currently, the domestic passenger vehicle market is the world's seventh largest and it is likely to grow at 15-20 per cent every year till 2013, he added.

According to Society of Indian Automobile Manufacturers, the passenger vehicle market stood at about 2 million units in 2009-10 and is expected to reach 2.4 million units in this fiscal.

"India will even cross Japan by selling about 5 million passenger vehicles by 2017-18," Sehgal said.

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In order to reach to such a mammoth size, auto makers will constantly need addition of capacities to meet demand.

"India, in next three years, will need 6 to 9 new car plants with an average annual capacity of 150,000 units. This will require at least $15-20 billion investment," Sehgal said.

The auto makers will not only have to add capacities, but will also have to expand distribution network, strengthen component sourcing chain and enhance R&D capabilities, he added.

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Under the Automotive Mission Plan, the Indian market had earlier set a target to become a $145 billion by 2016, for which $35-40 billion investment is required.

According to rating agency Fitch, the growth of Indian passenger vehicle market will slow down to 15 per cent in 2011 and profits of the companies are likely to be moderate due to inflationary pressure and huge capacity addition. During 2010, the total passenger vehicle sales grew at about 30 per cent.

Fitch had, however, said that ongoing large capacity additions by many auto makers will create a demand-supply mismatch in the short-to-medium term until demand rises sufficiently to fully absorb the new capacity.