The Smart Manager - - Contents - 01 Au­to­mo­bile, In­dus­try. “Au­to­mo­tive in­dus­try in In­dia”. In­dian Brand Eq­uity Foun­da­tion. Re­trieved 31 Jan­uary 2016. 02 From Novem­ber 2016 re­ports by So­ci­ety of In­dian Au­to­mo­bile Man­u­fac­tur­ers, SIAM. 03 From shod­­flib­­stre

Megha Jain, Tata Mo­tors ex­am­ines the strengths and short­falls of the In­dian au­to­mo­bile sec­tor.

The au­to­mo­bile sec­tor in In­dia has ad­vanced due to the surge in in­vest­ment since the late 1980s. The coun­try is now the sec­ond fastest flour­ish­ing mar­ket for au­to­mo­biles and au­to­com­po­nents in the world, after China. The gov­ern­ment fos­ters for­eign in­vest­ment in this sec­tor by al­low­ing 100% FDI un­der the au­to­matic route. Ad­di­tion­ally, var­i­ous ini­tia­tives by the gov­ern­ment and the key au­to­mo­bile play­ers in the In­dian mar­ket are aimed at mak­ing In­dia a world leader in the twowheeler and four-wheeler by 20201.

World­wide, the mo­tor ve­hi­cle in­dus­try (four-wheel­ers) con­trib­utes 5% to the to­tal man­u­fac­tur­ing em­ploy­ment. In In­dia too, it is one of the strate­gic driv­ers of man­u­fac­tur­ing growth and em­ploy­ment op­por­tu­ni­ties. The In­dian au­to­mo­bile in­dus­try has re­al­ized splen­did achieve­ment in re­cent years—from two-wheel­ers to multi-util­ity ve­hi­cles to com­mer­cial and lux­ury ve­hi­cles. It con­trib­utes to 7.1% of the coun­try’s GDP. With nearly 81% mar­ket share, the twowheeler seg­ment is the leader of the In­dian au­to­mo­bile mar­ket ow­ing to a grow­ing mid­dle class and young pop­u­la­tion.

el­e­men­tary sta­tis­tics

Presently, In­dia is the world’s largest maker of trac­tors, sec­ond largest maker of two-wheel­ers, and the fifth largest man­u­fac­turer of com­mer­cial ve­hi­cles. It is also the fourth largest pas­sen­ger car mar­ket in Asia, and is home to the world’s largest mo­tor­cy­cle man­u­fac­turer. From FY 2006-2016, the pro­duc­tion of au­to­mo­biles in the coun­try in­creased at a CAGR of 9.4% 2. Dur­ing the same pe­riod, the pas­sen­ger ve­hi­cle seg­ment wit­nessed the fastest growth at a CAGR of 10.09%, fol­lowed by the two-wheeler seg­ment that grew at a CAGR of 9.48%. Au­to­mo­bile ex­ports grew at an av­er­age an­nual rate of more than 55% be­tween 2001-02 and 2005-06, while auto-com­po­nents ex­ports grew at 21%. Two-wheeler ex­ports have ex­panded at an an­nual av­er­age growth rate of 27%, pas­sen­ger car ex­ports have grown at 80%, and com­mer­cial ve­hi­cles at about 55%.

From FY 2006-2016, the pro­duc­tion of au­to­mo­biles in the coun­try in­creased at a CAGR of 9.4%.

mul­ti­plier and link­age ef­fect

The au­to­mo­bile sec­tor is con­sid­ered piv­otal for growth be­cause of its deep eco­nomic back­ward and for­ward link­ages. Since it gen­er­ates de­mand across sec­tors—from raw ma­te­ri­als and com­po­nents to trans­porta­tion and other ser­vices—it has a strong and pos­i­tive mul­ti­plier ef­fect that pro­pels the coun­try’s growth. The ef­fi­ciency of the au­to­mo­bile sec­tor not only im­pacts pro­duc­tion and con­sump­tion di­rectly, but also cre­ates in­di­rect pos­i­tive im­pact. For in­stance, the in­dus­try cre­ates ten ex­tra em­ploy­ment op­por­tu­in­ity for each auto fac­tory job through its back­ward and for­ward link­ages.

In­dia’s au­to­mo­bile sec­tor mainly de­pends on duty pro­tec­tion. The al­lowance of 100% FDI in this sec­tor will pro­vide the muchre­quired im­pe­tus to the man­u­fac­tur­ing sec­tor, in the long run. This will fur­ther boost its mul­ti­plier ef­fect for over­all eco­nomic growth. Presently, 21 do­mes­tic and 18 for­eign au­to­mo­bile man­u­fac­tur­ers are func­tional in the coun­try, man­u­fac­tur­ing ve­hi­cles of dif­fer­ent seg­ments.

Gov­ern­ment ini­tia­tives

The De­part­ment of Heavy In­dus­try, un­der the Min­istry of Heavy In­dus­tries and Public En­ter­prises, is the chief agency in In­dia for fos­ter­ing growth and de­vel­op­ment of the au­to­mo­tive in­dus­try.

01 In an en­deavor to ac­cel­er­ate and sus­tain ad­vance­ments in the auto sec­tor, the de­part­ment an­nounced the ‘Auto Pol­icy’ in 2002. It was aimed at es­tab­lish­ing a globally com­pet­i­tive au­to­mo­tive in­dus­try in In­dia and dou­ble its con­tri­bu­tion to the econ­omy by 2010. This pol­icy sought to pro­mote R&D so as to en­sure con­tin­u­ous tech­nol­ogy up­grades and build bet­ter de­sign­ing ca­pac­i­ties.

02 An­other land­mark ini­tia­tive has been NATRIP (Na­tional Au­to­mo­tive Test­ing and R&D In­fra­struc­ture Project) which aims at cre­at­ing cen­tral global com­pe­ten­cies in the auto sec­tor and fa­cil­i­tates its in­te­gra­tion with the world econ­omy.

03 The ‘Au­to­mo­tive Mis­sion Plan’ (AMP) for the pe­riod 2006-2016 pro­poses to make In­dia a global au­to­mo­tive hub.


While In­dian roads are some of the most dan­ger­ous, In­dian cars are among the least safe in the world. Un­like in the West where man­u­fac­tur­ers con­stantly up­date safety fea­tures them­selves, in In­dia com­pa­nies of­ten tend to defy strict laws. The coun­try has still not man­dated crash safety tests as com­pa­nies have been averse to em­brac­ing them. Also, many cars (es­pe­cially small mod­els) do not even have the ba­sic safety fea­tures such as anti-lock brak­ing sys­tem and airbags even as op­tional fea­tures. Ad­di­tion­ally, ex­ter­nal fac­tors such as fluc­tu­at­ing fuel prices, weak­en­ing ru­pee, and high in­ter­est rates have made mat­ters worse in the re­cent months.

The last cou­ple of years have seen the mar­ket fall for the In­dian au­to­mo­bile sec­tor, globally. En­vi­ron­men­tal sus­tain­abil­ity con­cerns, pri­mar­ily driven by the fuel ef­fi­ciency of the ve­hi­cle, re­mains an area of con­cern.

Many reg­u­la­tions have been im­posed on road trans­port, os­ten­si­bly to help it de­velop. How­ever, the re­al­ity is dif­fer­ent—these have only re­tarded growth. Fur­ther, over the years, the tax levied per ve­hi­cle in In­dia has been ris­ing steadily and it is now one of the high­est in the world. This is a ma­jor fac­tor that re­stricts the growth of road trans­port in the coun­try.

the road ahead

In the com­ing decade, the In­dian au­to­mo­tive in­dus­try need to re­visit the tech­nol­ogy it uses and equip it­self to pro­duce ef­fi­cient green ve­hi­cles, in the con­text of ris­ing costs and fuel con­sump­tion and in­creased aware­ness of en­vi­ron­ment is­sues. There is a need for cre­at­ing a more promis­ing ecosys­tem, epit­o­mized by an in­creased thrust on IT, R&D, cre­ation of more value-added prod­ucts, in­cen­tives and pol­icy sup­port from the gov­ern­ment, test­ing and val­i­da­tion cen­ters, and ap­pro­pri­ate train­ing in­fra­struc­ture to strengthen the hu­man re­source base. This will go a long way to­wards plac­ing the In­dian in­dus­try on the global au­to­mo­tive map.

The roll­out of the Goods and Ser­vices Tax will cer­tainly ac­cel­er­ate growth of the au­to­mo­tive base of the econ­omy. This is, how­ever, eas­ier said than done. Nev­er­the­less, for In­dia to achieve or even come close to at­tain­ing this am­bi­tious goal, it will need to con­sid­er­ably de­velop on its com­pet­i­tive­ness across var­i­ous pa­ram­e­ters. ■

The In­dian au­to­mo­tive in­dus­try need to re­visit the tech­nol­ogy it uses and equip it­self to pro­duce green ve­hi­cles.

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