India vs. Pakistan: Which Automobile industry is thriving?
Based on a 2016 comparative study of the neighboring automobile industries, the Economic Times quoted that annual statistics for Pakistan came up embarrassingly short. As per their report, India had sold nearly 23.56 lakh passenger cars whereas Pakistan had only managed to sell 1.52 lakh cars in the same year. The difference remains shocking with regards to production they claim, with India’s total car production also being four times higher than that of its neighbor Pakistan.
The Economic Times explains that there is an obvious disparity despite both being South Asian economies, and such close neighbours, because while India has “indigenous” car manufacturers, Pakistan does not. Quoting a representative of the Pakistan Automotive Manufacturers Association (PAMA), they say that between fiscal year 2014-2015, the difference in both industries was such that there was “no comparison” – “we [Pakistan] are nowhere in the picture”.
Another stark difference between the two industries is that cars sold in Pakistan are far more expensive in comparison to India.
Why are car prices different?
A report published in SAMAA, in 2020, highlighted that buying a new car in Pakistan is quiet an ordeal since none of the newer cars are priced below 1 million PKR. Referencing the Engineering Development Board (EDB) they say the primary reason behind this obvious price difference is – the demand for small cars.
Engineer Asim Ayaz of the EDB explains that India has a huge demand for smaller cars which is why the low production of car parts is cheaper for them based on the “economies of scale”.
Another possibility is that Taxes and duties are lower in India whereas, in Pakistan buyers pay nearly forty percent taxes and duties of the total car price. For instance, if a person buys a car for 1 million PKR he/she will have to pay an additional 4 lakh in taxes and duties. In contrast, the taxes are less than twenty percent although; this may vary from state to state.
Their report argued that while there is an obvious inconsistency in car prices for smaller automobiles, cost for bigger cars such as Toyota and Honda are similar in both countries.
COVID-19: How did it affect the automotive industry?
Then COVID-19 pandemic happened. Despite many industries being adversely affected by it globally, India’s automotive industry remained among the Top 5 Largest Global Car Market in 2020, despite having fallen a rank since 2018. Experts believed it was partly due to the pandemic, but also because “structural slowdown” well before the pandemic.
According to Ravi Bhattia, CEO of JATO Dynamics, “India faced a severe lockdown during the first wave of COVID-19… People were forced to WFH and overall mobility was impacted”. Bhattia elaborated that because of this disruption in the supply and demand chain, the Indian automotive Industry didn’t fare well in comparison to past years.
In contrast, Pakistan’s industry which was already on unstable ground, felt further tremors as many leading automobile manufacturers completely stopped production due to the lockdowns, in 2020. They periodically resumed operations but were made to continue on an even smaller scale due to the pandemic drastically affecting everyday lives.
What is the future of the Pakistan’s automotive industry?
According to Invest Pakistan, the country’s automotive industry is the fastest growing in Asia with production and sales having grown by approximately 171% and 172.5% between 2014 and 2018, alone. The growth primarily credited to the Automotive Development Policy 2016-21 (ADP2016-21) which has no doubt pushed Pakistan towards healthier competition with international companies namely KIA, Hyundai, Changan having entered the Pakistan market. With others including Renault, Nissan expressing the desire to expand within the Pakistan market as well.