No one can say for sure but the economic meltdown had not, with the exception of commercial vehicles, affected India’s auto industry too severely in 2008. Sales till November-end showed that passenger vehicles were 1.1% ahead, and 2-wheelers 3.8% ahead. Auto exports were however threatened. Paradoxically the luxury segment seemed to be doing much better than the popular segments suggesting that the top of India’s automotive iceberg is well above water.

2009 will be very stressed and we are sure to see many tempting offers from all the car and bike companies with price cuts, free accessories, holidays, subsidized finance schemes and other freebies. Vehicles today are very reliable – so many customers will resist the temptation of buying new models. But despite the uncertainties, cars and bikes are now indispensable necessities in urban and rural India. People want to communicate and commute faster – better public transport, while helpful, will not be a sufficient answer.

But the Government must sustain the growth of industry because of its economic importance. Few of India’s planners understand that the automotive Industry is a huge driver of employment and growth. According to Japan’s Automobile Manufacturer’s Association, automobiles contribute to 21% of Japan’s GDP and are the main engine of its economic growth employing 7.3 million people. According to Society of Indian Automobile Manufacturers, the industry contributes nearly 12% to India’s GDP.

The impact on employment can be seen from any auto plant. Though they may directly employ less than 100,000 people, they create employment for many more. The 20,000 dealers employ over 400,000, and about 300,000 people are employed by the 60,000 trucks used to transport cars. They, however, make no steel, castings, forgings, tyres, batteries, electricals, brakes, glass and components so the employment by all the vendors must exceed 2,000,000. Together they may generate some 4,000,000 salaried jobs.

But these salaries create another huge multiplier effect of tertiary employment for the millions who supply the salaried employees with food, clothing, shelter, entertainment, education, medical facilities, etc., as is evident in new townships like Pune, Surajpur, Sriperumbudur, Malaimaraipur, Bidadi, etc., that demonstrate the impact automobiles have on employment and economic growth. Teashops, schools, cinemas, restaurants, video parlours and grocery shops multiply. Doctors, architects, interior decorators and caterers stream in. Unlettered locals prosper as masons, carpenters, mechanics and contractors. Prosperity quickly creates even more prosperity.

India’s planners had been so long obsessed by the vision of automobiles being elitist that they crippled one the greatest generators of employment and economic growth. So India’s automobiles are overtaxed. The combined impact of 40% Modvat on components, 16-24% excise duties, 12% local sales taxes plus octroi have a cascade effect to almost double the manufacturing costs. In most countries, there is one uniform tax like 15% VAT in EU and USA, 8% in Korea and 8-16% in Japan (according to size). With similar taxes, a Maruti 800 would probably cost about Rs. 1.40 Lakhs with a similar impact on two wheelers and transport vehicles. Perhaps the next election slogan should be: Kar (tax) ghatao, gaari chalao, unatti badhao.