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INDIAN AUTOMOTIVE INDUSTRY: THE INDIAN SCENARIO

Posted by Connie R. Aponte on November 23, 2013 in Automotive industry |

THE INDIAN SCENARIO

Indian automobile and auto- components industry, barring downtrends in few years, was on a growth trajectory, aided by robust economic activity and infrastructure development; growing middle-class population with disposable income; and growing consumer demand. The Indian automobile and auto components industry produces a wide range of models and products. The industry has witnessed high sales turnover, in the last few years, and the exports too have surged over the years. The industry has also started establishing manufacturing and marketing bases abroad. However, the recessionary trends in world market and financial sector meltdown has affected the growth trend of the industry during 2011-12.

The norms for foreign investment and import of technology have also been progressively liberalized over the years for manufacturing of vehicles, including passenger cars, in order to make this sector globally competitive. With the gradual liberalization of the automobile sector, since 1991, the number of manufacturing facilities in India has grown progressively. At present there are about 15 manufacturers of passenger cars & multi utility vehicles, around 10 manufacturers of commercial vehicles, around 15 manufacturers of 2/3 wheelers, besides 5 manufacturers of engines.

It is estimated that the Indian automotive industry contributes more than 5% of the national GDP, and tax contribution of the sector to the exchequer is estimated to be Rs. 25,000 crores. The industry provides direct and indirect employment to over 1.3 crore people. The turnover of the automobile industry was estimated to be around US $ 35 billion and that for components industry was at US $ 18 billion in 2007-08. The investment in automotive industry, comprising of the automobile and the auto component sectors, which was estimated to be at Rs. 50,000 crore in 2002-03, has gone upto Rs. 80,000 crore by the year 2007-08. With the saturation of traditional automobile markets, such as EU, USA and Japan, the growth opportunities for emerging markets such as India have been increasing. India is aggressively looking forward to take advantage of its inherent strengths in automotive design and manufacturing capabilities and position itself as an export base for vehicles as well as components.

Current State of the Indian Auto Market

The Indian auto market is currently small with potential for dramatic growth. While the regional average is for 16.45 percent of the population to own a car, less than 1 percent of the Indian population owns one. Given the large size of the middle class with increasing purchasing power and the youthful population (over half the population is less than 25 years of age and India has the highest proportion of population below 35), there is the potential to penetrate a largely untapped market. Also, given the availability of cheap, skilled labor, India has the potential to serve as a regional export hub for manufacturers in the Asia-Pacific region.

Small Vehicle Market

The Indian market is dominated by small, low-cost vehicles (two wheelers such as scooters and motorcycles make up about 75 percent of the market share). Approximately 75 percent of passenger car sales in India are small cars. Tata Motors has introduced the Nano, which is both fuel-efficient (about 50 miles per gallon) and cheap ($2,500). Tata launched sales of the Nano in 2008. A number of other manufacturers have already announced plans to develop small cars in a similar price range in order to compete effectively in this market.

Indian Exports and Top Manufacturers

Currently, Asia and Africa are India’s largest export markets, but the European market has seen recent growth as well. Exports of passenger vehicles nearly tripled from 72,005 in 2002-03 to 198,478 units in 2006-07.10 According to the Society of Indian Automotive Manufacturers (SIAM), approximately 1.4 million passenger vehicles were sold in FY06/07. The top India manufacturers, in descending order, are Maruti Suzuki, Hyundai, Tata Motors, Honda, Ford India, General Motors India, Hindustan Motors, Skoda Auto India, Toyota Kirloskar Motor, and Fiat India. Most of these manufacturers are already calculating how to further expand production and sales in India. For example, Maruti plans to produce 1 million cars annually by 2010. Nissan, in a joint venture with Renault and Mahindra & Mahindra, plans to open a plant in 2009 with a 400,000 unit production capacity. By the end of 2008, Honda will double its production capacity to 100,000 units, with a second factory set to open in 2009. Toyota has also announced plans to invest $340 million in a second production plant near Bangalore to produce small, affordable cars. Production at this new plant is scheduled to begin in 2010 with a production capacity of 100,000 units. With India’s goal to be a major regional export hub, coupled with manufacturers’ increased investments, it can be expected that the number of exports from India will continue to rise significantly.

Auto Components Industry

India is estimated to have the potential to become one of the top auto component economies by 2020, according to a study by IBM. According to another study, the auto component industry in India has potential to grow at a CAGR of 13% to reach US $ 40 billion by 2015. India’s share in world auto components would thus grow from around 1%, at present, to over 2.5% by 2015. Domestic market is projected to grow at around 8-10% per annum in the next 10 years. Exports are projected to grow at over 30% per annum in the long term.

The automotive market in India has grown significantly owing to the growth in income and in the living standards of the middle class population, and a significant increase in their disposable incomes. However, there has been a slowdown in demand for vehicles, in 2008-09, which is impacting the autocomponent industry adversely. Responding to emerging scenario, Indian auto component sector has shown great advances in recent years in terms of quality, spread, absorption of newer technologies and flexibility. Availability of skilled manpower, reasonably priced workforce, together with the strengths gained by the country in IT and electronics, have built-up an environment for significant leap in the auto component industry.

India has been emerging as a significant exporter of auto components since the last decade. From a level of US $ 330 million in 1997-98, exports of auto- components have reached to over US $ 3.6 billion in 2007-08. Export orientation of Indian auto-component industry has also increased from a level of 11% in 1997-98 to over 20% in 2011-12. Export of auto components have grown at a CAGR of 24% during this period. India exports its auto components to almost every part of the world, the major markets being developed countries such as USA, Germany and UK. Some of the important Asian markets for auto-components include Bangladesh, Sri Lanka and Nepal. According to ACMA, the export potential of auto components industry is expected to post a CAGR of around 24% to reach US $ 20-22 billion by 2015.

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