Date of Submission :

-17/07/2014

AUTOMOBILE
INDUSTRY
Comparative study pre and post liberalization
Submitted By :-
Varun Narayanan - 2105 - Introduction and Post Liberalization Period

Parth Parekh - 2029 - Pre Liberalization Period

Roshni Vinod - -Conclusion

Submitted to :-
Prof. Vijay Mishra
 TABLE OF CONTENTS

S.no Topic Page

Number

Introduction

1 Automobile industry in India 4

2 Automobile export market

5
3 Key automobile manufacturers

Body

4 Automobile industry pre-liberalization 6

5 Automobile industry post liberalization 8

Conclusion
INTRODUCTION
Automobile Industry in India
The automotive industry in India comprises of all vehicles, including 2-3 wheelers, passenger
cars and multi-utility vehicles, light and heavy commercial vehicles, and agricultural tractors
and other earth moving machineries, besides the component segment for all these categories.

The vehicles segment and the allied components segment are sometimes alternatively termed
as automotive industry. The industry is characterized by a very high percentage (about 80%)
of 2-3 wheelers production.

As seen in the above graph, the production of the Indian Automobile sector has grown very
largely, from this we imply that it is one of the most profitable sectors in the economy.

Coming more toward the current scenario, the cumulative production data for April-March
2013 shows production growth of only 1.20 percent over the same period last year. The
industry produced 1,685,355 vehicles in March 2013 as against 1,845,868 in March 2012,
which declined by (-) 8.70 percent.

The Indian automobile industry seems to come a long way since the first car that was
manufactured in Mumbai in 1898. The automobile sector today is one of the key sectors of
the country contributing majorly to the economy of India. It directly and indirectly provides
employment to over 10 million people in the country.

The Indian automobile industry has a well established name globally being the second largest
two wheeler market in the world, fourth largest commercial vehicle market in the world, and
eleventh largest passenger car market in the world and expected to become the third largest
automobile market in the world only behind USA and China.

The growth of the Indian middleclass along with the growth of the economy over the last few
years has resulted in a host of global auto giants setting their foot inside the Indian Territory.
Moreover India also provides trained manpower at competitive costs making the country a
manufacturing hub for many foreign automobile companies.

India proves to be a potential market as compared to most of the other countries which are
witnessing stagnation as far as automobile industry growth is concerned.

Indian Automobile Export market

India is a very favorable market for small cars be it production, sales or export. Since the
Indian automobile industry is the largest manufacturer of small cars companies like Hyundai
and Nissan Motors export about 2,40,000 and 2,50,000 annually.

India emerged as Asia's fourth largest exporter of automobiles, behind Japan, South Korea
and Thailand.

Key automobile manufactures in India

General Motors

Ford India Limited

Bajaj Auto

Hero Motors

Hindustan Motors
 Hyundai Motors India Limited

Royal Enfield Motors

TVS Motors

Maruti Udyog

Automobile Industry Pre-Liberalisation

Indian economic policy after independence was influenced by the colonial experience, which
was seen by Indian leaders as exploitative, and by those leaders' exposure to British social
democracy as well as the planned economy of the Soviet Union.

Domestic policy tended towards protectionism, with a strong emphasis on import substitution
industrialisation, economic interventionism, a large public sector, business regulation,
and central planning, while trade and foreign investment policies were relatively liberal.

Five-Year Plans of India resembled central planning in the Soviet Union. Steel, mining,
machine tools, telecommunications, insurance, and power plants, among other industries,
were effectively nationalised in the mid-1950s.

Development and Structure of the Industry

The auto industry consists of two separate industries:

(i) The automobile industry; and

(ii) The auto components or parts industry. The automobile industry in turn has three sub
sectors: (a) two-wheelers; (b) three-wheelers; and (c) four-wheelers (passenger vehicles and
commercial vehicles). Researchers have found it convenient to map out the history of the
Indian auto industry from 1947 until now into three phases. See Table 1 for a summary of the
three phases:

Phases Main features

Phase 1: 1947- Closed market
1983 Growth of market limited by domestic supply
Very few innovations, outdated model, fuel inefficient
Number of firms: 5
Phase 2: 1983- Joint Venture between Government of India and Suzuki to form Maruti
1993 Udyog
Number of firms: 6
Phase 3: 1993- Industry delicensed in 1993
Major MNC Original Equipment Manufacturers (OEMS) commenced
assembly in India
Implementation of the Value Added Tax (VAT)
Imports allowed from April 2001
Number of firms: >35
Indias automobile industry shows distinct phases since the pre-independence period till now.
It all started since the 1940s and after a decade since then leading entrepreneurs and the
government of India have helped building up a manufacturing industry of automobiles with
its components in 1953.

After this for the next 3 decades the automobile industry faced a stagnated 3.5% growth from
1950-1980, though there was some significant growth between 1970-1980 mainly due to the
leading production role of Telso, Ashok Leylands, Mahindra & Mahindra, Hindustan Motors,
Premier Automobiles, and Bajaj Auto.

From 1980-1985 India saw its first significant change in the automobile industry when
Japanese company came to India to build cars and setup factories for building cars by tying
up with Indian firms.

At the same time component manufacturers also entered into a joint venture scenario with US
and European firms. From the mid period of phase 2(1983-1993) to phase 3(1993-) once
liberalisation kicked in this marked the entry of Maruti Udyog as high import tariffs were
relaxed and hence lesser import cost adding to the overhead production higher productions
were started leading to higher export.

The growth rate of all sectors within the wheeler sector and commercial vehicle has been
double digit with a growth rate of 19%. Medium and heavy vehicles registered a growth of
11%, which was a 100% increase over the first period. Jeeps saw the maximum increase of
inflow during this period with an increase from 5.77% to 14%.
AUTOMOBILE INDUSTRY POST LIBERALISATION
When India moved away from an inward looking industrialisation strategy to a more open
economy in 1991, industrial firms needed to restructure themselves to retain competitiveness.

Much of these restructuring is needed to correct the inefficiencies created by operating in a

protected market. The automobile sector has been a major candidate in the industrialisation
process since the beginning of planned development.

It was only after1991 that notable broad-based changes in policy that had far reaching
implications actually came into being. These changes dispensed with the bulk of controls and
regulations and for the first time since independence assigned a central role to market forces

Following the liberalisation period, it led to car manufacturers being able to invest in India
and therefore led to the arrival of new and existing models, easy availability of finance at
relatively low rate of interest and price discounts offered by the dealers and manufacturers
which resulted in the demand for vehicles and a strong growth of the Indian automobile
industry.
Government has liberalized the norms for foreign investment and import of technology and
that appears to have benefited the automobile sector. The production of total vehicles
increased from 4.2 million in 1998- 99 to 7.3 million in 2003 - 04.

It is likely that the production of such vehicles will exceed 10 million in the next couple of
years.

During this growth process, the industry experienced changes in the strategy adopted by
many firms in that efforts were made to build up technology acquisition, product quality was
improved and in general the industry became more competitive.

Economic policy forces have an impact on the extent and direction of technological efforts of
firms. While the technological efforts during import substitution era were generally directed
at increasing the local content of products, the export-oriented policy induced the firms to
direct efforts to reduce costs and improve quality by implementing changes that upgrade the
production process

Telco, a leading Commercial Vehicle manufacturer in India, also entered the Car segment
after 1991 and introduced four wheeled passenger cars that are ideally suited for long
distance travel on Indian roads.
The entry of Telco virtually decreased the market share of the two formerly leading car
manufacturers in India - Hindustan Motors and Premier Automobiles.

The two leading automobiles continued to face competition and struggled to maintain their
market share when more companies started to enter the Indian market. Companies like
General Motors and Ford Motor Company, Mercedes Benz, Daewoo Corporation
Automobiles, Peugeot.

Honda and Hyundai also soon then entered the Indian market which have introduced small
sized cars to compete with Suzuki.

Many of the companies that entered into the Indian market had to innovate and come out with
new models of cars to meet the Indian market. Generally, when it comes to automobiles, two-
wheelers are purchased by the most by individuals in India.
The demand for four wheelers exists to a large extent but greatly toward smaller cars rather
than cars that are bulky and big. Therefore, companies had to adapt themselves to the Indian
market.
For example, once Teclo entered the Indian market, they soon started to produce cars that are
smaller in size keeping in mind the demand in the Indian market.

The car segment therefore emerged as a cut throat battle between different companies and has
proved to be one of the biggest industries in India today post the liberalization.
Conclusion
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