Indian Automobile Industry

3 Automobile Growths and Changing Vehicular Composition in India

Automobile sector in India is growing fast and the growth pattern seems to have a clear correlation with the reforms related policies those influenced both domestic demand pattern as well as trade. India is a global major in the two-wheeler industry producing motorcycles, scooters and mopeds principally of engine capacities below 200 cc. The two-wheeler industry in India has grown at a compounded annual growth rate of more than 10 per cent during the last five years and Indian two-wheelers comply with some of the most stringent emission and fuel efficiency standards maintained worldwide. In two-wheelers India is the second largest producer in the world and the world’s number one

These component suppliers are obviously in the organised segment and supply directly to the OEMs in India and abroad or to tier-1 players abroad. Tier-2 and tier-3 auto-component manufacturers are relatively smaller players. Though some of the tier-2 players are in the organised sector, most of them are in the unorganized sector. Tier-3 manufacturers include all auto-component suppliers in the unorganized sector, including some Own Account Manufacturing Enterprises (OAMEs) wherein manufacturing involves use of a single machine such as the lathe. The history of the Indian automobile industry comprises of three qualitatively distinct period’s The first phase, 1928-1955 dominated by import and assembly activity. During the British regime, India had no auto industry to begin with and all the automobiles were imported from the global auto manufacturers such as General Motors and Ford Motors. In the 1940s, Hindustan Motors and Premier Motors were established by Indian entrepreneurs, by importing know-how from General Motors and Fiat respectively. The next phase, 1955-1974 should be characterized as the phase of import substitution and emergence of indigenous automobile manufacture. For a detailed account see Bhakatavatsala

Looking into the passenger vehicles segment we find that the share of utility vehicles (UVs) and Multi-purpose vehicles (MPVs) declined while the share of passenger cars increased sharply. Needless to say, that the current private vehicle ownership level in India is still low compared to the industrialized countries. The relationship between the growth of vehicle ownership and per-capita income is highly non-linear. Vehicle ownership grows relatively slowly at the lowest levels of per head income, then about twice as fast as income at middle-income levels (from $3,000 to $10,000 per capita), and finally, about as fast as income at higher income levels, before reaching saturation at the highest levels of income (Dargey et al. 2007). It has been found in the more motorized countries that vehicle ownership growth rates do not begin to level out until ownership levels of about 500 vehicles per 1,000 populations or higher are achieved. Consequently, the experiences of the more motorized countries would suggest that, despite the rapid increases already being experienced in the developing regions, many countries are still at the bottom of the growth curve and have yet to enter the