Evolution and growth of Indian auto industry

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The year 1898 saw the first car rolling out, on the streets of Mumbai. Since then Indian auto industry has witnessed a lot of change. A land of Premier Padminis, Ambassadors, scooters, temps, trucks and autos galore, India had not seen much of choice in vehicles.  Only the affluent could think of owning a personal four-wheeler and the clichéd image of a car followed by lots of children on a dusty road was actually true.

Protectionism – Early 1980s

This was the pre-1980 era where the manufacturing of automobiles especially cars was subject to strict licensing, restrictive tariff structure and limited avenues for expansion. The advent of foreign technology collaboration came with the inception of Maruti Udyog in collaboration with Suzuki of Japan in the passenger car segment. Indian roads saw the launch of Maruti 800. It was still not very easy to own a car, first was affordability and next was a long waiting period.

Liberalization – 1990s

In the early 1990s, with liberalization, some more Japanese manufacturers entered the two-wheeler and the commercial vehicle segment in a collaborative arrangement. This period characterized joint ventures in India and the market started opening up. Automobile Industry was delicensed in July 1991 with the announcement of the New Industrial Policy. The passenger car industry was, however, delicensed in 1993.

The abolition of the controls led to an avalanche of demand. The era of controls and protection came to an end. Curbs on capacity were done away with, decrease in customs and excise duties meant that a vehicles started getting affordable. The entry of foreign banks with attractive auto finance schemes helped garner a huge base of middle class population. However the market was still ruled by the sellers.

Globalization – 2000s

Early 2000 however saw globalization of Indian auto industry. Several policy changes were introduced with focus on boosting the auto exports. A Core Group on Automotive Research and Development (CAR) was established in 2003 for encouraging R&D activities. Foreign manufactures started looking at India for sourcing auto components. The buyers started ruling the market due to the availability of choices in the form of models, price points and brands. A vibrant economy meant an increase in the GDP and per capita income. These factors turned out to be significant contributors in pushing up the domestic demand. The vast geographic spread of India attracted foreign investments. The marquee brands from all over the world started courting Indian consumers aggressively. The mature markets in the developed countries paled in comparison to the sheer numbers and the growth phase of the Indian auto industry.

For the commercial vehicles, the steady growth in Indian economy led to demand for trucks, tempos, buses etc. The IT and BPO culture that boosted exports and employment also pushed the sales of vehicles. Indian economy also witnessed rapid industrialization. Factories needed transport both for goods and for their employees. The retail boom in India saw malls, supermarket chains mushrooming all over the urban areas, pushed the demand for efficient logistics and that in turn increased the number of commercial vehicles.

Growth Trajectory of Indian Auto Industry

This graphic shows the vehicle sales in India since 1980. The sharp increase between 2001 and 2006 is the result of government initiatives, growing economy and disbursement of loans for purchase of vehicles.

A World Bank report puts India up ahead as the fourth largest economy in the world in terms of purchasing power parity. The sales of automobiles have increased due to an increase in income and a rapid increase in private final consumption expenditure.

It is estimated that India will see over Rs 30,000 crore being invested by 2010. This is because Indian auto industry is racing ahead with a healthy growth. The graphic below shows the growth trend in the production of automobiles in million units.

What makes the Indian Auto Market attractive?

While the markets in the developed countries reach a maturity point, markets such as India are looking very attractive. As the second largest populous country, with poor public transport and infrastructure, most of the people are depending on their personal transport for comfort, convenience and style. The consumers are being wooed by the manufacturers with attractive finance options and with models at various price points. There is a huge potential for the demand of cars because of the low penetration rates of 11 cars for 1000 people. The hub and spoke approach followed by most distributors and suppliers is pushing the demand for commercial vehicles drastically.

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