The automotive sector, comprising of the automobile and auto component sub sectors, is one of the key segments of the economy having extensive forward and backward linkages with other key segments of the economy. It contributes about 4 per cent in India’s Gross Domestic Product (GDP) and 5 per cent in India’s industrial production. The auto component industry, which is an important part of automotive sector, comprises about 500 firms in the organized sector and more than 10,000 firms in the small and unorganized sector has been one of the fastest growing segments of Indian manufacturing. India’s auto market has immense growth potential with only 80/1,000 Indians owning a car compared with the developed western markets that have a ratio of 450/1,000. In 2007–08, industry leaders including Maruti, Hero Honda, Bajaj Auto, Hyundai Motors India Ltd and Tata Motors have planned new launches and all set to hit the road. The growth is due to the government’s initiative to improve the rural roads and establishing better connectivity with major towns and cities, improved agricultural performance and upward trend of purchasing power of the rural people. Comprising of a healthy mix of Indian players such as Mahindra, Bajaj, Tata, Ashok Leyland, Hero Honda and some international players such as Ford, Toyota, GM Honda, Daimler Chrysler, Hyundai, Suzuki and Volvo, the Indian consumers are spoilt for choice. Be it buying a car or a two-wheeler, the customer has a wide array of products to choose from, according to his/her needs and budget. The pricing has become competitive with the consumers emerging as winners.
With so many brands already present or on the verge of making their Indian debut, competition in the future is likely to intensify. Hence, the margins that automobile players enjoy might be under pressure, as manufacturers will now have little headroom to increase prices. An increase in the disposable income of the middle class coupled with low EMI values and friendly government policies are what have made a difference to this sector. With an annual contribution of 5% to the GDP and accounting for about 5% of the total industrial output, this segment clearly stands out as a significant contributor to the economic export.
The well-developed Indian automotive industry is producing a wide variety of vehicles namely passenger cars: light, medium and heavy commercial vehicles; multi-utility vehicles such as jeeps, scooters, motorcycles, mopeds, three wheelers and tractors. The sales volume has declined due to drop in sales of three-wheelers, motorcycle and electric two-wheeler segments. According to figures released by Society of Indian Automobile Manufacturers (SIAM), in the first half of 2008-09 (April-September 2008) the vehicle production grew by 12.7%. The half yearly data for 2008-09, saw automobile exports registering a growth of 27.38% with all segments registered positive growth. Passenger vehicles and two wheelers segment grew by 52.76% and 27.05% respectively, while exports of commercial vehicles grew marginally at 0.82% and three-wheelers segment grew at 1.67% in this period. The automotive sector is one of the largest manufacturing sectors in India. It has grown at a CAGR of 9.56% during past five years. Two-wheeler will show robust growth, after declining on volume in 2008 due to lower base. Also with global players trying to increase their share due to unfavorable market globally and seeing present growth in India automotive sector will try to increase their production capacities. Coming months small car segment will see intense competition. To put Indian Auto Industry at the global map, National Automotive Testing and R&D Infrastructure Project (NATRIP) at the total cost of Rs. 1718 crore has been initiated. With disposable income per head expected to grow, lowering age of first-time car users, shorter replacement cycles and lower car penetration, and sixth pay commission it is expected that Indian automobile industry will continue to grow at a robust rate in the long term. The industry is likely to witness a lot of action in the coming months.