The Indian auto industry, which has been going through a slump, faces the challenge of continuous innovation and upgradation to remain globally competitive, the Economic Survey said on Thursday.

The Survey said that in the April-November period, the sector recorded negative production growth chiefly because of a 10.6 per cent decline in output of motorcycles and 6 per cent of auto-rickshaws as compared with the corresponding period of the previous year.

However, the production of passenger cars grew by 15.6 per cent, and scooters and mopeds by 18.9 per cent, it added. Noting that India was a net importer of auto components, the Survey said under the current liberalised duty regime, the challenge is to innovate and upgrade continuously to remain competitive in the international market.

During 2006-07, automobile export crossed $ 2.76 million, with 15 per cent of cars produced being shipped overseas. In the same period, almost 10 per cent of commercial vehicles, 26 per cent of three wheelers and 7 per cent of two-wheelers were exported, it added.

On the components front, the Survey said turnover of the sector grew from $ 3.1 billion to $ 15 billion between 1997-98 and 2006-07. It also highlighted the government's steps to make India a preferred destination for design and manufacture of automobiles with the finalisation of Automotive Mission Plan 2006-16.

The National Automotive Testing and R&D Infrastructure Project was also set up at a cost of Rs 1,718 crore, it added. In 2006-07, the government had announced reduction in duty of raw materials to 5-7.5 per cent from 10 per cent, it said.

Economic Survey 2007-08: Complete Coverage