Progress Card of the Indian Automobile Industry

By Tripathi, Vibha; Rao, K. B. | IUP Journal of Business Strategy, September 2016 | Go to article overview

Progress Card of the Indian Automobile Industry


Tripathi, Vibha, Rao, K. B., IUP Journal of Business Strategy


Introduction

The automobile industry played a significant role in the economic development of nations- witnessed in all major developed countries-USA, UK, Germany, France, Italy, Japan, South Korea and China. In an emerging economy like India, the manufacturing sector is expected to absorb a much larger workforce, relieving agriculture of the excessive burden and also contribute more to the national GDP. The automobile industry is one of the largest manufacturing industries in terms of revenue and is considered a bellwether of both consumer demand and the health of the overall economy. The auto industry of India has been recording tremendous growth over the years and has emerged as a major contributor to India's GDP This dynamic industry currently accounts for almost 7% of our GDP and employs about 30 mn people both directly and indirectly (SIAM Statistical Profile 2014-15). In fact, one of the major motives of the "Make in India" program is to generate more employment. India has become one of the most attractive destinations for foreign investments in the auto sector after the Make in India announcements. Automotive Mission Plan 2016-2026 aims at propelling Indian auto industry as the engine of the Make in India program. The Indian auto industry is set to become the third largest industry in the world with an annual production of 23.37 million vehicles in the Financial Year 2015 and is going to be the third largest in the world by 2020. Demographically and economically, India's automotive industry is well-poised for growth, servicing both domestic and global markets. A predicted increase in India's working-age population, rising prosperity, easier access to finance and increasing affordability is expected to boost the demand and growth segment-wise. With a CAGR of over 15% during the last 5-7 years (SIAM Report, 2015), the automotive sector is aptly described as the next sunrise sector of the Indian economy. The above-mentioned reasons are enough to spawn interest to know the growth patterns of the major segments in the automobile industry.

The study represents the current configuration of the automobile industry and projects the growth trajectory of automobile industry in terms of production, sales and exports in India through CAGR and YOY growth. It analyzes the growth trends of two major segments from 2001-2014 as they cover 94% of the market share in the Indian automobile industry.

Indian Automobile Industry

As one looks back at the last 50 years of the global automobile sector, clearly the 1960-70s belonged to America with its being the largest consumer of passenger cars and commercial vehicles. In the 1980-90s, the center of gravity shifted to Western Europe, but the 21st century clearly belongs to the Asia-Pacific, with it being the largest producer and consumer of the automobiles. This includes countries like China, Japan, South Korea, and now India too being in the league of major contributors. This shift is largely driven by strong domestic market, emerging middle segment of products and consumers, and strong thrust on manufacturing. India comprises approximately 20% of the Asia-Pacific market. There is a variation at the top of the global growth rankings, as the European and the Japanese presence diminishes and Brazil, Russia, India and China (BRIC) automakers climb steadily upwards (KPMG Auto Survey, 2014). India is likely to be the 3rd largest automotive industry globally post 2020. Global automotive Original Equipment Manufacturers (OEMs) and suppliers recognize India as a strong manufacturing powerhouse today. The automobile industry due to its deep forward and backward linkages with various other sectors in India, is recognized as a sector with a very high potential to increase the share of manufacturing in GDI, exports and employment. The following sectors can be broadly divided as the forward and backward linkages of auto sector:

Forward Linkages Dealership Retails, Credit and Financing, Logistics, Advertising, Repair and Maintenance, Petroleum Products, Gas Stations, Insurance, Service Parts

Backward Linkages Steel, Aluminum, Copper, Plastics, Paints, Glass, Electronics, Capital Equipment, Trucking and Warehousing

Potential of the Indian Automobile Industry

Automotive industry offers huge growth potential, be it production, sales, exports, FDI employment, revenue generation or its overall contribution to the economy. …

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