Channel: Industry

Thursday, December 09, 2010
Indian Automobile sector in auto Growth mode
While the telecom sector is quickly losing its sheen due to eroding bottom lines, the Indian Automobile sector is well on track to become the power house of Indian manufacturing growth.
Tables & Graphs

Indian growth story seems to have found a new golden goose. While the telecom sector is quickly losing its sheen due to eroding bottom lines, the Indian Automobile sector is well on track to become the power house of Indian manufacturing growth. With monthly sales touching a record high for the fourth time in a row in Oct, future looks quite promising.


The turnaround in Indian automobile sector began with liberalization norms being introduced as part of India’s post 1991 saga, which helped in bringing foreign investment and technology to the sector. The performance clearly justifies the move with India emerging as Asia's fourth largest exporter of passenger cars, behind Japan, South Korea and Thailand in 2009. It is the world's second largest manufacturer of motorcycles, with annual sales exceeding 8.5 million in 2009. The passenger car and commercial vehicle manufacturing industry in India is the seventh largest in the world, with an annual production of more than 2.6 million units in 2009.


What has driven India’s auto sector growth is a cluster of factors. While the government transformed itself and is ready to play the role of enabler, the advent of technology and capital has brought the paradigm shift in the sector. Moreover, the recent surge in demand is driven by basic factors like easy access to credit and infrastructure growth. The encouraging aspect is that the demand surge has been well recognized by global players and many of them have made their foray into the Indian market. Another change that is visible now is that India’s luxury auto segment is ready to take off. The launch of Bugatti Veyron 16.4 Grand Sport priced at Rs 16 crore (India's costliest car) is a testimony to this fact. With its debut in the sub-continent, India has become the world’s only country to sell the cheapest as well as the most expensive car.


While most of the top 20 global players are operating in Indian auto sector, Indian companies have also expanded their horizons worldwide. Tata Motors, ranked 19th globally (see table 1) in terms of volume of production owns the coveted brands like Jaguar and Land Rover. Another Indian company to have global footprint is Mahindra & Mahindra with a global rank of 32. It has operations in India, South East Asia, Europe, North Africa, North America. The Ashok Leyland is 3rd entrant with 50th position globally.


The momentum gathered in recent years is becoming a trend for Indian Automobile sector and it is not uncalled for. India has adequate vertical integration in the sector to optimize the production. The uniqueness of the Indian auto sector is very much evident from the fact that it not only provides an excellent market but also suitable factors for making India a manufacturing hub. This gives manufacturer the leverage in terms of export for additional production and thus helps in building up Economies of Scale for the sector thereby helping India become a global hub for small car segment.


The forecast for the current year is equally bullish. With the increased focus on Infrastructure by the government, the Transport sector is likely to pay rich dividends. The commercial vehicle sector in India is forecasted to register 19% growth (see table 2) in the current fiscal. The growth looks inevitable as India has one of the lowest vehicle densities among the automobile markets in the world. The double digit growth rate and middle class population are the additional factors driving the growth of the sector.


Having said so, it is important to recognize that there is positive policy intervention required to keep the momentum going. Not only India’s ecological concerns may well become a bottleneck for its auto industry growth, an unfriendly tax regime can be equally disastrous. Not only this, India also needs to develop a long term policy to promote R & D activities for sustainable innovation along with easy and convenient credit access.


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