Accelerated growth

Print edition : October 07, 2011

The manufacturing plant of General Motors at Talegaon in Maharashtra. - SHASHI ASHIWAL

India is all geared up to be a global automotive hub.

TIME was when India manufactured just half a dozen types of automobiles. These were the Ambassador, the Premier Padmini, the Bajaj scooter, which was an Indian version of the Italian Lambretta, the Royal Enfield motorcycle, and a couple of heavy duty trucks and jeeps manufactured by the Tatas, Ashok Leyland, and Mahindra & Mahindra. Any other vehicles one saw on the road were imported. But since the early 1990s, when economic reforms were kicked off, the automobile sector in the country has been on a turbo drive mode.

The Indian automobile industry is the seventh largest in the world, according to the Society of Indian Automobile Manufacturers (SIAM). It all began with the government realising that the sector could contribute significantly to the economy. Thus, liberal policies replaced the rigid old ones, and several growth drivers were put in place. For instance, import duties were relaxed. It was only a matter of time before the industry flourished. In 1981, the government started Maruti Udyog Limited (now called Maruti Suzuki India Limited) in collaboration with the Suzuki Motor Corporation of Japan. It manufactured small cars at affordable prices.

Maruti is the largest player in the car segment today. Eventually, several other global auto giants entered into joint ventures with Indian companies, and within no time the automobile industry's growth chart surged. The annual car sales in the country are projected to increase up to 5 million vehicles by 2015 and more than 9 million by 2020. By 2050, the country is expected to top the world in the volume of cars, with approximately 611 million vehicles.

In global terms, India is the second largest two-wheeler market, the fourth largest commercial vehicle market, and the 11th largest passenger car market. India is soon expected to become the third largest automobile market in the world, behind the United States and China. Furthermore, India has emerged as Asia's fourth largest exporter of automobiles, after Japan, South Korea and Thailand. A study conducted by the consultancy firm Deloitte says that at least one Indian automobile company will feature among the top six automobile companies that will dominate the car market by 2020.

The automobile industry in India comprises the automobile and auto component sectors. The former includes passenger cars; light, medium and heavy commercial vehicles; multi-utility vehicles such as jeeps, scooters, motorcycles, three-wheelers, tractors, and so on. The auto component sector deals with engine parts, drive and transmission parts, suspension and braking parts, electrical, body and chassis parts. Together, these sectors provide employment to over 10 million people in the country, says a leading auto journal.

Auto experts say 2009 has been the best year in the history of the automobile industry in India. Stimulus packages from the government, rising demand for automobiles among people, and low interest rates on loans helped the industry grow by 26.41 per cent that year.

According to SIAM, as of 2010, India was home to 40 million passenger vehicles. More than 3.7 million vehicles were produced in the country that year (an increase of 33.9 per cent from the previous year), making it the second fastest growing automobile market in the world.

The downturn in the global economy is likely to affect the industry in India, largely because of high fuel prices, costly borrowings from banks, and inflation. From the manufacturers' point of view, the biggest challenge is the price of steel and rubber, says an analyst. For instance, the sales of cars and sport utility vehicles (SUV) have been buoyant, but the growth this fiscal would be only at 10 per cent (compared with 30 per cent in 2010-11).

At present, says SIAM, Indian, European, Korean and Japanese automobile companies hold a significant percentage of the market share. In the commercial vehicle segment, Tata Motors dominates over 60 per cent of the Indian market. It is the largest medium and heavy commercial vehicle manufacturer as well.

In the two-wheeler segment, motorcycles dominate, with Hero Honda (now Hero MotoCorp) accounting for 50 per cent of this market. Honda holds a 46 per cent share in the two-wheeler scooter segment.

Chennai-based TVS makes 82 per cent of the mopeds in the country. In the three-wheeler segment, Bajaj is the undisputed leader, with a 68 per cent control of the market. Piaggio comes in second at 32 per cent.

Cars make up 79 per cent of the passenger vehicle market. Maruti Suzuki, the largest car producer in India, has a 52 per cent share in the passenger car market. In case of multipurpose vehicles, it has a complete monopoly. In utility vehicles, Mahindra holds a 42 per cent share. Hyundai and Tata Motors are the second and third ranked car producers in India.

Growth drivers

Several factors have contributed towards the growth of the automobile sector in India. Reports by the Press Information Bureau and a private bank say India's urbanisation and the rising population of working people have played a big part in auto sales. According to the management consultants McKinsey, the middle class in India will grow from 50 million to 550 million by 2025. There has also been an increase in disposable incomes among people in rural areas.

The introduction of ultra low-cost cars has aided the growth of the automobile sector. The increasing maturity of Indian original equipment manufacturers (OEMs) and the availability of a variety of vehicle models have also contributed to robust production. Additionally, easy finance schemes and favourable government policies have helped the sector considerably.

With the gradual liberalisation of the automobile sector since 1991, the number of manufacturing units in India has grown progressively. One of the key drivers that have served the sector well is the 100 per cent foreign direct investment (FDI) under the automatic route in the sector, including in the passenger car segment. Further, the automobile industry has been delicensed and the import of components is freely allowed.

With the objective of accelerating and sustaining growth in the automotive sector, the government has prepared the Automotive Mission Plan (AMP) 2006-2016. It seeks to make India a global automotive hub and aims at doubling the contribution of the automotive sector in the gross domestic product (GDP) by taking the turnover to $145 billion and providing additional employment to 25 million people by 2016.

In an effort to go green and combat rising fuel costs, the government has also begun to encourage electric cars and vehicles. With the setting up of the National Mission for Electric Mobility and the National Council and Board for Electric Mobility, the government says it is committed to the early adoption of electric vehicles, including hybrid vehicles, and the manufacturing of these vehicles and their components.

Future plans for the industry include setting up two automotive manufacturing hubs spread over 10,000 acres each in central and eastern India. The new hubs, aimed at consolidating India's position as an important destination for low-cost automotive production, will be in addition to the existing zones in Haryana, Maharashtra and Tamil Nadu.

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