24156189 Indian Automobile Industry

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INTRODUCTION Auto component Industry: An overview: Indian auto component industry is quite comprehensive with around 500 firms in the organised sector producing practically all parts and more than 10,000 firms in small unorganised sector, in tierized format. The auto component sector has been one of the fastest growing segments of auto industry, growing by over 28%, in nominal terms between 1995 and 1998. The Industry also sustained a high growth rate and could achieve growth of 24% in 2003, 16% in 2004-05 and 15% in 2005-06 (estimated). The industry, over the years, developed the capability of manufacturing all components required to manufacture vehicles, which is evident from the high levels of indigenization achieved in the vehicle industry as well as the components developed for the completely Indian made vehicles like the Tata Indica, Tata Indigo, Mahindra Scorpio, Bajaj Pulsar, TVS Victor and TVS star. The component industry has now holistic capability to manufacture the entire range of auto-components e.g. Engine parts, Drive, Transmission Parts, Suspension & Braking Parts, Electricals, Body and Chassis Parts, Equipment etc. The component-wise share of production, as indicated by the ACMA, is Engine parts-31%, Drive and Transmission Parts-19%, Suspension & Braking Parts-12%, Electricals-9%, Body and Chassis Parts-12%, Equipment-10%. Auto Industry: A World Overview 1.1The production of passenger and commercial vehicles has reached a new record of 66.46 million units in 2005. There has been an addition of 10.59 million vehicle production since 1997. A majority of this growth is coming from the Asia – Pacific region (excluding Japan). Theproduction has nearly stagnated in Western Europe at 17 million, NAFTA at 16 millionand Japan at 10 million but it has more than doubled in Asia-Pacific region from 7.1million in 1997 to 16 million in 2005.

Indian Automotive Industry: An overview Indian Automotive Industry started its new journey from 1991 with delicensing of the sector and subsequent opening up for 100 percent FDI through automatic route. Since then almost all the global majors have set up their facilities in India taking the production of vehicle from 2 million in 1991 to 9.7 million in 2006. The surge in number of people with higher purchasing power alongwith strong growth in economy over a past few years has attracted the major auto manufacturers. The market linked exchange rate and availability of trained manpower at competitive cost has added to the attraction of Indian market. This increasing pull of Indian market on one hand and the near stagnant rate of growth in auto sector in markets of USA, EU and Japan have worked as a push factor for shifting of new capacities and capital in the auto industry to India. The increasing competition in auto companies has not only resulted in a spurt in choices of Indian consumers at competitive costs, it has also ensured an improvement in productivity by almost 20 percent a year in auto industry, taking it to one of the highest in Indian manufacturing sector. To maintain this high rate of growth and to retain the attractiveness of Indian market and for further enhancing the competitiveness of Indian companies the

Government through the Development Council on Automobile and Allied Industries constituted a Task Force to draw a ten year Mission Plan for the Indian Automotive Industry. The idea is to draw a futuristic plan of action with full participation of the stakeholders and to implement it in mission mode to meet the challenges coming in the way of growth of industry. Besides making concerted efforts for removal of obstacles in the way of competition, the required infrastructure be put in place well in time to alleviate its constraining impact on the growth. Through this Automotive Mission Plan, government also wants to provide a level playing field to the players in the sector and to lay a predictable future direction of growth to enable the manufacturers in making a more informed investment decision. The production of all categories of vehicles has grown at a rate of 16% per annum over the last five years. The last 5 years production figures are as follows: Production (in nos.)

Source: SIAM Export of Vehicles: Automotive industry of India is now finding increasing recognition worldwide. While a beginning has been made in export of vehicles, the potential in this area still remains to be fully tapped. Significantly, during the last two years the export in this sector has grown specifically in export of cars and two / three wheelers. The table below indicates the performance during last six years. Export (in nos.) The automobile exports crossed USD 1 billion mark in 2003-04 and reached USD 2.28 billion in 2005-06. OBJECTIVE OF THE STUDY: METHODOLOGY:-

1. The Demand Side Analysis
1.1 Law of demand 1.2 Movements along the demand curve and shifting of demand curve 1.1 Law of demand The Law of Demand states that the relationship between a good’s price and the quantity demanded of that good is negative. This is referred to as a “change in quantity demanded”. Own-price changes cause movements along a given demand curve. The demand for automobiles for is dependent of certain factors:

The demand function for X: XD = f (PX, Ps, Pc, I, T&P, Pop, A, O, PPP, R, SP, Av, In, Tr, F) Where: XD = quantity demanded PX = X’s price; the price of a car Ps = the price of substitutes Pc = the price of complements PPP=Purchasing Power parity of the consumers R= Rising income level of the consumer I= Inflation of the country A=after sales service cost T&P=tastes and preferences Pop=population in market or market size O=Oil prices SP= Price of Spare Parts Av= Availability of nearby service station In=Lack of proper roads Tr= Traffic Condition on the Roads F=Financing options available in the market

Demand schedule:

MID SEGMENT CRISIS
MODEL Q1 Sales Y-O-Y Change (%)

ENTRY LEVEL
Tata Indigo Suzuki Dzire Honda City Hyundai Verna Ford Fiesta Suzuki SX4 Renault Logan Hyundai Accent Chevy Aveo Ford Ikon Mitsubishi Lancer 17539 15766 9793 8729 6727 6183 6023 3757 1263 940 110 NA NA -11 -6 -20 -34.5 -25 129 -21 -48 NA

PREMIUM SEGMENT
Skoda Octavia Honda Civic Chevy Optra Toyota Corolla Mitsubishi Cedia Hyundai Elantra 3834 3549 1477 1067 627 18 10 -36 9 -46 NA NA

Demand curve

1.2 Movement along the demand curve and Shifting of demand curve



Changes in this causes movements along the demand curve: Price ➢ A change in the quantity demanded is a movement along the demand curve. ➢ A movement along the demand curve for X would be caused by a change in Px. ➢ When price increases, the quantity demanded by consumers falls at every price and when price decreases, the quantity demanded by consumers rises at every price. Example: When price increases from $1000 to $5000, the quantity demanded decreases from 3 units of cars to 2 units of cars.



Changes in these shift the demand curve: • Number of buyers • Tastes and preferences • Income of the consumers • Purchasing Power Parity • Change in Fuel Prices • Change in Financing Options • After sales servicing cost • Availability of spare parts • Lack of Infrastructure Facilities like Roads, etc. • Price of substitutes or complements • Expectation of future prices

➢ Shift of the entire demand curve is caused by a change in one of the “ceteris paribus”
demand variables. This is referred to as an increase or decrease in demand. ➢ An increase in demand is a rightward shift in the entire curve. A decrease in demand is a leftward shift in the entire curve. ➢

1. Number of buyers • Demand is originating from new segments of the market; Apart from the usual clientele like industrialists, film stars and chairpersons of companies, an increasing number of young professionals like doctors, chartered accountants, lawyers and software professionals owning start-ups do not mind splurging on our cars. 1. Tastes and preferences • The surge in demand for compressed natural gas (CNG) and liquid petroleum gas (LPG) vehicles in India is driven by the increasing price of petrol and diesel, as well as by the fact that CNG prices are relatively low compared to prices for more traditional fuels. • Demand is driven by growing environmental concern and the Indian government's proactive measures to implement Euro-II emission norms. 1. Price of substitutes or complements Substitutes: Goods that can serve as replacements for one another: when the price of one increases, demand for the other goes up. • When the price of a Honda city goes up, the demand for its substitute the Hyundai car goes up. Complements/complementary goods: Goods that “go together”, i.e. a decrease in the price of one results in an increase in demand for the other. • If the price of petrol increases, the demand for car and its complementary good will fall. if the price of Cars were to rise dramatically, less people would chose to buy and use cars, switching perhaps to public transport - trains perhaps !. It follows that under these circumstances the demand for the complementary good - Petrol - would also decrease. 1. Expectations of future Price Changes Just as an actual increase in the price of a product may reduce demand, so the expectation that prices are about to rise will increase demand, as people buy more now, in order to avoid paying a higher price latter. • For example if price of automobiles is expected to increase after the budget the people would prefer buying their vehicles before the budget is put to effect in anticipation of high prices in future.

1. Changes in income There are two ways an increase in the level of income can affect the demand of cars. On the demand side, typically an increase in income would mean an increase for the demand of cars. However, this may not apply to low end cars such a maruti. Since people have more money, they most likely would buy a nicer car, so low-end cars may see a decrease in demand. 2. Purchasing Power Parity Though there is increase in income level of the consumers but that does not mean that his purchasing power has increased. Due to the rising inflation prevailing in the country the value of the

money decreases and that decrease the purchasing power of the consumers. This will affct the demand of the cars in country. 3. Rising fuel Price As we know that when the fuel prices increases the sales of premium vehicles decreases as Fuel Prices and Cars are complementary goods. In the case of complementary goods the price of one product affects the demand of other complementary good. So there has to be a proper decision in the price of complementary goods.

Fuel Prices (Petrol Sales of In Rs) Cars 45 120000 47 115000 49 112000 52 110000
We can see from the table that increase in the prices of the petrol decreased the sales of car. The graph is shown below.

4. Lack of infrastructure facilities: Lack of infrastructure facilities also affects the buying decision of the consumers. Since there is no proper infrastructure facility like roads, so due to this there can occur traffic jams, so consumer in that condition postpone their decision to buy a new car and that decreases the demand for the automobiles.

2. The Supply Side Analysis
2.1 Law of supply 2.2 Movements along the supply curve and shifting of supply curve
2.1 Law of supply The Law of Supply states that the relationship between a good’s price and the quantity supplied of the good is positive. Own-price changes cause movements along a given supply curve. The supply of cars e.g. Honda city is dependent on certain factors. The supply function for X: XS = g (PX, Pfop, Poc, S&T, N) Where: XS = quantity supplied PX = X’s price Pfop = prices of factors of production Poc = opportunity costs (alternatives in productions) S&T = science and technology R= Price of raw materials like Steel, tyre, plastics for making dashboards, etc. N = number of firms in the market

SUPPLY CURVE

2.2 Movements along the supply curve and shifting of supply curve

➢ Changes in this causes movements along the supply curve:
Price

➢ A change in the quantity supplied is a movement along the supply curve. ➢ A movement along the supply curve for X would be caused by a change in Px. ➢ When price increases, the quantity supplied by suppliers rises at every price and
when price decreases, the quantity supplied by suppliers falls at every price. Example: When price increases from $1000 to $5000, the quantity supplied rises from 3 units of cars to 5 units of cars.

➢ Changes in these shift the supply curve:
• • • • • • Price of resources(labor, land, Capital, Raw materials) Management skills Technology Marketing Production techniques Expectations

1. Price of other commodities-There are two types Competitive supply-If a producer switches from producing A to producing B, the price of A will fall and hence the supply will fall because it's less profitable to make A. Example- if the car producers switches from producing luxury car, Honda city to producing small segment car, the price of Honda city will fall and hence the supply will fall because it is less profitable to make Honda city. Joint supply-A rise in one product may cause a rise in another. Example- a rise in the price of cars may cause a rise in the price of car accessories and car gear. This means supply of car accessories and car gear will rise because it is more profitable. 2. Costs of production-If production costs rise, supply will fall because the manufacture of the product in question will become less profitable. 3. Change in availability of resources-If steel becomes scarce; fewer cars can be made, so supply will fall. 4. Research and Development: R&D cost increases the price of the vehicles, regular products

3. The Consumer Equilibrium Analysis
The equilibrium price (and quantity) is determined from the intersection of the supply and demand curves. Imbalance • • Surplus: the amount by which quantity supplied exceeds quantity demanded when the price in the market is too high. Shortage: the amount by which quantity demanded exceeds quantity supplied when the price in a market is too low.

• • •

Less wealthy buyers will be largely prevented from entering the market because of substantially higher ERP and fuel costs. Existing owners who can afford these usage cost increases will replace their cars after six to seven years - up from the current four to five years The new measures to contain vehicle growth and improve public transport are likely to weed out the marginal car owners, force others to keep their cars longer... … And eventually stabilize the car population

4. The calculation of the price, arc, income, promotional and cross elasticities

4.1 The price elasticity of demand for automobiles:

HONDA SIEL CARS INDIA LIMITED (2008) MONTH TOTAL QUANTITY SOLD IN `000 3.22 3.04 3.39 TOTAL QUANTITY DEMANDED IN `000 3.50 3.25 3.67 TOTAL PRICES CHARGED IN `000000000 2.5 2.4 2.7

JANUARY FEBURARY MARCH

APRIL MAY JUNE

3.37 3.88 3.74

3.86 4.27 4.15

2.8 3.1 2.9

PRICE ELASTICITY OF DEMAND FOR HONDA:a. POINT ELASTICITY ( FEB – JAN) =3.25-3.5/2.4-2.5*2.5/3.5=1.78 b. POINT ELASTICITY (MAY –MAR)=4.27-3.67/3.1-2.7*2.7/3.67=1.10 c. ARC ELASTICITY (JUN – JAN)=4.15-3.5/2.9-2.5*2.5+2.9/3.5+4.15=1.14 DEMAND CURVE FOR HONDA

• Proportion of income spent; Since buying an automobile involves a large proportion of income being spent, the demand for automobiles is elastic. Consequently even a little increase in price would affect the demand for cars. • Closeness of substitutes; Automobiles have a large number of substitutes available , for e.g. Honda city, Hyundai accent,etc in luxury segment of cars, consequently the demand for automobiles is elastic, as consumers have the option of buying from a variety of substitutes if the price of the product increases. • Nature of goods ; Automobile are luxury goods the demand for which is price elastic as changes in price level affect the luxury goods comparatively more than the necessary goods.

4.2 Income elasticity of demand of automobiles: How would the demand for a good change if income increased or decreased? This is known as the income elasticity of demand. For example, how much would the demand for a luxury car increase if average income increased by 10%? If it is positive, this increase in demand would be represented on a graph by a positive shift in the demand curve. At all price levels, more luxury cars would be demanded.


The income elasticity of automobiles is greater than 1 as automobiles are luxury goods and consequently their demand increases with an increase in the income of the consumer. For e.g. if a person earns 10 million p.a. and owns a Hyundai Santro, on a rise of income to 20 million p.a., the consumer shall buy more and costlier cars.

4.3 The promotional elasticity of demand;

The influence of advertising and promotional activities on the demand for automobiles is very high. The type of, segment, accessories, colour, model of the car purchased are affected by the ads and sales promotion, thereby making the advertising elasticity for automobiles high.
4.4 The cross elasticity of demand of automobiles:

Another elasticity sometimes considered is the cross elasticity of demand, which measures the responsiveness of the quantity demanded of a good to a change in the price of another good. This is often considered when looking at the relative changes in demand when studying complement and substitute goods.
MARUTI SUZUKI INDIA LIMITED (2008) MONTH TOTAL QUANTITY SOLD IN `000 45.63 47.93 51.34 48.83 59.91 61.24 TOTAL QUANTITY DEMANDED IN `000 53.64 51.87 56.78 58.32 66.36 67.27 TOTAL PRICES CHARGED IN `000000000 22.8 23.9 25.6 24.4 29.9 30.6

JANURARY FEBURARY MARCH APRIL MAY JUNE

CROSS PRICE ELASTICITY OF DEMAND FOR HONDA:HONDA; MARUTI (JUN-JAN)=2.9-2.5/30.6-22.8*22.8/2.5=0.46


A percentage change in the price of ‘Maruti’ car shall lead to a percentage change in the demand for the ‘Honda city’ car. • Also a percentage change in the price of a substitute good such another segment car, or a light motor vehicle, or any other mode of transport, shall also lead to a percentage change in the demand for the ‘Honda city’. For e.g. if the price of using public transport is Rs 10 a day and it further reduces to Rs 5, then the demand for ‘Honda city’ may go down as the per day usage for this car is Rs 15.



Also a percentage change in the price of a complementary good would lead to a percentage change in the demand for ‘Honda city’, for e.g. if the cost of fuel goes up to Rs 50 from Rs 35, it’s more expensive to drive around a ‘Honda city’, thereby reducing the demand for the car.

4.5 The price elasticity of supply;
PRICE ELASTICITY OF SUPPLY FOR HONDA:a. (FEB-JAN)=3.04-3.22/2.4-2.5*2.5/3.22=1.39 b. (MAY-MAR)=3.88-3.39/3.1-2.7*2.7/3.39=0.97 SUPPLY CURVE FOR HONDA LIMITATION: 1. 2. 3. 4. Secondry data has been analysed Scope of study was limited to Indian automobile market Under Indian automobile we have focused mainly on the Light Motor Vehicles High End Luxury segment could not be not covered in the study

CURRENT HAPPENING IN THE INDIAN AUTOMOBILE MARKET:

After a long sluggish market conditions, carmakers are offering diamonds sets, gold coins & chains, silver plates and MP3 music systems to lure customers into their showrooms before the festive season. Traditionally, festive season has meant free insurance covers and auto accessories for buyers. However, this time around, carmakers such as Hyundai Motor and Ford India are offering precious metals to attract female

customers and new buyers. Hyundai Motor India (HMI) is offering a free gold coin with its entire range (except i10 AT and Getz 1.5L CRDi) and an MP3 player with the Verna sedan range and the 1.1L & 1.3L Getz hatchback cars. HMI managing director HS Lheem said: “We are offering these gifts as part of our successful decade-long operations in India. Besides, with these valuable offerings, we’re making Hyundai products very attractive for our customers.”

While Ford Motors India, which recently gave a facelift to Fiesta, is now offering Tanishq diamonds worth Rs 20,000 with every Fiesta. It has also started special offers including cash incentives for corporate and public sector buyers. Car sales have nosedived in the past two months after a three year-long growth drive. While sales grew 3% in July, August saw a 1.71% dip year-onyear. To fight the slowdown, other companies are taking different routes to tap the market. Maruti Suzuki India has launched special incentives to attract over 25.4 lakh employees from the insurance, banking and retail sector with additional discounts of Rs 17,000 on SX4, Rs 5,000 on M800 & Alto, Wagon R, Estilo and Rs 4,500 on Swift (petrol version). “It is a tough time and we are concentrating on non-core markets. Banks, financial institutions and insurance companies make up a big market, but still remain tapped. We are directly giving cash discounts to customers in place of tangibles,” a senior executive of Maruti said. American auto major General Motor has also followed the similar path offering huge cash discounts. The highest cash rebate of Rs 58,000 comes on the Spark compact car, followed by Rs 46,000 on Tavera multi-utility vehicles. Other pre-Diwali offers include Rs 28,000 discount on Optra Magnum sedan along with a 4-5% interest waiver on all loan deals. Honda Siel Cars India (HSCI) has plunged into the discount market for the first time and has waived 50% insurance premium on its popular City and Civic sedans, besides offering comprehensive warranty and service packages to the customers.
DIFFERENT MARKET STRATEGIES ADOPTED TO BOOST SALES IN INFLATION:

With car sales witnessing a 4.7% decline to 96.48 lakh units fiscal, auto majors have steeped on the gas to push sales through village fairs. Few can fathom images of young executives wheeling out test drives to eager beaver villagers in the same rustic setting. While some car manufacturers have been organizing fairs of their own to attract rural consumers, other sell four wheelers at traditional village fairs. They use melas (Fair) largely as a source of reaching out to rural communitie and also for the sales since they are good business opportunities. Besides, dealers are quick to spot the trend as they now recruit local village boys who are not just familiar wit the lingo but also able to walk the company talk. Also the rural consumers are often not comfortable in snazzy urban showroom with an English – speaking sales force. “Rural consumers prefer buying in a setting where they are more comfortable. Hence, melas are tailor made for them. Most car makers have set up special team to target the rural market. The marketing strategy is simple to promote products to the rural populace in a way that appeal to them. Many a time, the purchasers are first time buyers but the companies have been promoting exchange in rural areas. Auto financiers offer buyers cut-rate lift In a rising rate interest rate scenario, automobile financiers have hit upon new strategies to woo all those aspiring to buy cars. Action plan • • • Cut loan rate by up to 2%in an effort to keep consumer interest going. Cut dealer’s commission, thus retaining the rates at a level which makes it affordable to buyers. Offer floating rate loans

Both H.D.F.C Bank and Kodak Mahindra, who figure among the top three financiers of four wheelers, will reduce their rack rates by 2%.Kotak Mahindra Prime now charges the interest rate of 16% which will now bring down to 14%. HDFC Bank will bring down its rate from 14.75-15.5% to 12.8-14.16%depending upon the tenure of the loan. Other innovative moves being planned feature ICICI Bank is launching a floating rate loan product soon. Interest rates for car loans have gone up by close to 1.5% to 2% this year. In the last one month, four wheelers sales have been down 20%.

Spiraling fuel prices ignite CNG conversions The hike in petrol and diesel prices has led to a surge in cars converting to cheaper CNG (compressed natural gas),a phenomenon that has brought back long queues at

filling station here.CNG dispensing station in Delhi has seen CNG sales jump to 13 lakh kg a day from 11 lakh kg before the June 4 ,when petrol prices were hiked by Rs 5 a litre and diesel by Rs 3 a litre. During the last two years, Delhi has witnessed a growth of 250 percent in CNG users in the private segment, indicating vehicle owners are going for cheaper CNG conversion after the hike. One kg of CNG in Delhi cost Rs 18.90 as compared with the petrol price of Rs 55 a litre a car that runs on petrol or diesel gives a running cost of Rs 3.37 per km while the same on CNG costs just Rs 0.91 per km.CNG turns out to be cheaper than even LPG, which cost Rs 36.54 a kg. Car runs on auto-LPG consumes Rs 2.7 per km. A diesel bus needs Rs 9.94 worth of fuel for every km but on CNG runs at Rs 5.4 per km. SIGNIFICANCE SURVEY OF EARLIER LITERATURE: According to the survey of the SIAM ------The Indian Automotive Industry started its new journey from 1991 with delicensing of the sector and subsequent opening up for 100 percent FDI through automatic route. Since then almost all the global majors have set up their facilities in India taking the production of vehicle from 2 million in 1991 to 9.7 million in 2006. The surge in number of people with higher purchasing power alongwith strong growth in economy over a past few years has attracted the major auto manufacturers. The market linked exchange rate and availability of trained manpower at competitive cost has added to the attraction of Indian market. This increasing pull of Indian market on one hand and the near stagnant rate of growth in auto sector in markets of USA, EU and Japan have worked as a push factor for shifting of new capacities and capital in the auto industry to India. The increasing competition in auto companies has not only resulted in a spurt in choices of Indian consumers at competitive costs, it has also ensured an improvement in productivity by almost 20 percent a year in auto industry, taking it to one of the highest in Indian manufacturing sector. CONCLUSION The Indian Automotive Industry after de-licensing in July, 1991 has grown at a spectacular rate of 17% on an average for last few years. The industry has now attained a turnover of Rs. 1,65,000 crores (34 billion USD) and an investment of Rs. 50,000 crores. Over of Rs. 35,000 crores of investment is in pipeline. The industry is providing direct and indirect employment to 1.31 crore people. It is also making a contribution of 17% to the kitty of indirect taxes. The export in automotive sector has grown on an average CAGR of 30% per year for the last five years. The export earnings from this sector are 4.08 billion USD out of which the share of auto component sector 1.8 billion USD Even with this rapid growth, the Indian Automotive Industry’s contribution in global terms is very low. This is evident from the fact that even though passenger and commercial vehicles have crossed the production figure of 1.5 million in the year 200506, yet India’s share is about 2.37 percent of world production as the total number of passenger and commercial vehicles being manufactured in the world is 66.46 million against the installed capacity of 85 million units. Similarly, export constitutes only about 0.3% of global trade.

It is a well accepted fact that the automotive industry is a volume driven industry and a certain critical mass is a pre-requisite for attracting the much needed investment in Research and Development and New Product Design and Development. R&D investment is needed for innovations which is the life-line for achieving and retaining the competitiveness in the industry. This competitiveness in turn depends on the capacity and the speed of the industry to innovate and upgrade. No nation on its own can make its industries competitive but it is the companies which make the industry competitive. The most important indices of competitiveness are the productivity both of labour and capital. Recent initiatives of the Government In order to give a boost to the growth in this sector, the Government has taken several initiatives. Some of them are as under (i) The Finance Bill 2006 has given a further boost to the Automotive Industry by reduction of the excise duty on the small motor vehicles, the reduction in the duty for raw material which is now between 5 to 7.5% as compared to the previous level of 10%, and the thrust on infrastructure development. (ii) As a result of constant persuasion by the Department of Heavy Industry, some of the objectives like imposition of excise duty on body building activity of Commercial Vehicles, lower excise duty on the small cars, extension of 150% weighted deduction on R&D expenditure to the automotive sector, increased budgetary allocation for R&D activities in the sector and moving towards a lower duty regime have been achieved and steps are being taken to further strengthen the capability of the sector. (iii) National Automotive Testing and R&D Infrastructure Project (NATRIP): The most critical intervention of the Government thus far in the automotive sector has come in the form of an ambitious project on setting up world-class automotive testing and R&D infrastructure in the country to deepen manufacturing, encourage localized R&D (d) World-class proving grounds or testing tracks on around 4,000 acres of land at Pithampur in Madhya Pradesh; (e) National Centre for Testing of Tractors and Off-Road Vehicles together with national facility for accident data analysis and specialized driving training at Rae Bareilly in the State of Uttar Pradesh; and (f) National Specialized Hill Area Driving Training Centre as also Regional In-Use vehicle management Centre at Dholchora (Silchar) in the State of Assam. Growth potential of Indian Automotive Industry Automotive Industry offers huge growth potential in terms of sales volume (including exports) and also immense employment opportunities. The likely future volumes of different vehicle categories were estimated on the basis of projections made by iMaCS, NCAER and AT Kearney. Value of projected domestic output was computed based on historical average vehicle prices. Export potential was estimated on the basis of current trends and possible opportunities in major export destinations. Demand for after-market auto components and export output was also included in computing growth potential of the industry. The unit value of different vehicle

categories in 2016 have been estimated keeping in view the need for compliance with emissions and crash standards. The projected size in 2016 of the Indian automotive industry varies between USD 122 billion and USD 159 billion including USD 35 billion exports. This translates into a contribution of 10-11% to India’s GDP by 2016, that is, double the current contribution. This would mean a domestic vehicle market of USD 82 billion to USD 119 billion by 2016, USD 12 billion exports of vehicles and tractors, USD 20-25 billion component exports and more than USD 5 billion after market of components. Another USD 2 – 2.5 billion in engineering services outsourcing opportunity is expected to develop. The total size of the auto component industry in India is expected to become USD 40-45 billion by 2016. This calls for a major focus and policy initiative to market India as an attractive “Manufacturing Destination” Areas to Focus The future challenge for Indian automobile industry would be to develop a supply base with emphasis on lower costs and economies of scale, develop technical and human capabilities, overcome infrastructural bottlenecks, stimulate domestic demand and exploit export and international business opportunities. The key to success is to achieve the critical mass that would make India competitive and profitable for sustained investments. Keeping these in view the identified challenges and interventions are in the areas of competitiveness in manufacturing and technology; demand, brand building and infrastructure; export and international business; environmental and safety standards, and human resources development. A key deficiency that needs to be addressed for attaining the vision is to improve competitiveness in manufacturing. Systemic deficiencies could be overcome through a long-term and stable policy regime that will support the industry to fulfill its’ potential. Competitiveness in manufacturing The share of manufacturing sector (within the Industry sector) has shown only a marginal improvement from 16.6% in 1991 to 17% of Indian GDP 2003. In comparison, in some East Asian economies the share of manufacturing has ranged from 25% to 35% of their GDP. It is known that stagnation of manufacturing as a proportion of GDP has adverse impact on employment generation. Therefore it is imperative to boost manufacturing given the huge anticipated increase in the workforce over the next 15 years. Demand creation, brand building and infrastructure In order to raise the contribution of automotive industry to GDP from 4.4% to 10%, there has to be a focus both on the domestic market as well as exports. Domestically the focus should be on developing and selling appropriate products for the large population of the country. These products could include cost effective small carriers, strong, rugged, low cost vehicle for the rural market, USD 300-350 motorbikes and small, safe four wheelers for family transport. For exports, the focus should be on new geographies for growth beyond traditional markets. India’s GDP is expected to grow from USD 650 billion to USD 950 billion in 2010 and USD 1390 billion in 2016. Automotive industry’s contribution in these years is expected to rise from USD 34 billion to USD 69 billion and to USD 145 billion

respectively. These translate into a contribution to GDP to grow from the current 5.2% to 7.2% and 10.4% in 2010 and 2015. Secondly, the challenge lies in developing appropriate infrastructure to sustain this growth. Also, important would be to establish brand image not only in the domestic market but internationally also. An appropriate policy for attracting investment would ensure realization of the potential. Government is aiming for creating suitable stable, predictable, and sustainable policy environment and partnering with industry to look beyond borders.

BIBLIOGRAPHY 1. 2. 3. 4. 5. 6. Business world (Jan – Sep 08 Editions) Times of India ( June – Sep 08 Copies) Auto India ( Dec – Aug 08 Editions) Motoring ( Jan – Aug 08 Editions) Society of Indian Automobiles (SIAM) www.google.com

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