a seminar report on “automobile sector of india”

7/28/2019 A SEMINAR REPORT ON “AUTOMOBILE SECTOR OF INDIA”

http://slidepdf.com/reader/full/a-seminar-report-on-automobile-sector-of-india 1/33

A

SEMINAR REPORT

ON

“AUTOMOBILE SECTOR OF INDIA”

Submitted in partial fulfillment for the

Award of degree of

Master of Busines Administration

2011-2012

Submitted to:- Submitted by:-

Ms. Swati Godha Mohammed Saleem

Mrs.Karishama Sharma MBA II Semester

Faculty, DMS

PGC

Poornima School of Management

ISI-2-6, Ricco industrial Area, Sitapura, Jiapur



PREFACE

A full time professional course like two year Management Program demand bothconceptual and practical theory of knowledge.Hence there is a provision of

project study work.

During this project the student learn through his/her own experience, realsituation of corporate world, and its protocols and to put his/her theoreticalknowledge in to practice.This experience is very valuable for the student andplays a leading as well as vital role in the professional life of managementstudent.

Implementing and learning the concepts of Marketing in a work place provides anopportunity to learn practically.I got a chance to apply our theoretical knowledge.



Acknowledgement

I would like to express my gratitude to all those who gave me thepossibility to complete this contemporary issue report. I want to thankthe Department of Management Studies ( Poornima School of Management) for giving me permission to commence this report in thefirst instance, to do the necessary research work and to useDepartment data. I further thank Shri R.K.Agarwal, (Advisor, PGC) who gave and confirmed this permission and encouraged me to goahead with my report. I am thankful to Mr. Shashikant Singhi(Director) for their stimulating support.

I want to thank them for all their help, interest and valuable hints. Ispecial thanks to Ms. Swati Godha & Mrs. Karishma Sharma at thefinal version of report for English style and grammer, correcting bothand offering suggestions for improvement, and for giving me chanceto get such an experience.

MOHAMMED SALEEM



EXECUTIVE SUMMARY

The Indian Automobile Industry is manufacturing over 11 million vehicles andexporting about 1.5 million every year. The dominant products of the industry aretwo wheelers with a market share of over 75% and passenger cars with a market

share of about 16%. Commercial vehicles and three wheelers share about 9% of the market between them. About 91% of the vehicles sold are used byhouseholds and only about 9% for commercial purposes. The industry hasattained a turnover of more than USD 35 billion and provides direct and indirectemployment to over 13 million people.

The supply chain of this industry in India is very similar to the supply chain of theautomotive industry in Europe and America. This may present its own set of opportunities and threats. The orders of the industry arise from the bottom of thesupply chain i. e., from the consumers and goes through the automakers andclimbs up until the third tier suppliers. However the products, as channelled in

every traditional automotive industry, flow from the top of the supply chain toreach the consumers.

Interestingly, the level of trade exports in this sector in India has been mediumand imports have been low. However, this is rapidly changing and both exportsand imports are increasing. The demand determinants of the industry are factorslike affordability, product innovation, infrastructure and price of fuel. Also, thebasis of competition is the sector is high and increasing and the life cycle stage isgrowth. With a rapidly growing middle class, all the advantages of this sector inIndia are yet to be leveraged.

Note that, with a high cost of developing production facilities, limited accessibilityto new technology and soaring competition, the barriers to enter the Indian

Automotive sector are high and these barriers are study. On the other hand, Indiahas a well-developed tax structure. The power to levy taxes and duties isdistributed among the three tiers of Government. The cost structure of theindustry is fairly traditional, but the profitability of motor vehicle manufacturershas been rising over the past five years. Major players, like Tata Motors andMaruti Suzuki have material cost of about 80% but are recording profits after taxof about 6% to 11%.

The level of technology change in the Motor vehicle Industry has been high but,

the rate of change in technology has been medium. Investment in thetechnology by the producers has been high. System-suppliers of integratedcomponents and sub-systems have become the order of the day. However,further investment in new technologies will help the industry be more competitive.Over the past few years, the industry has been volatile. Currently, India’sincreasing per capita disposable income which is expected to rise by 106% by2015 and growth in exports is playing a major role in the rise andcompetitiveness of the industry.



Tata Motors is leading the commercial vehicle segment with a market share of about 64%. Maruti Suzuki is leading the passenger vehicle segment with amarket share of46%. Hyundai Motor India and Mahindra and Mahindra arefocusing expanding their footprint in the overseas market. Hero Honda Motors isoccupying over 41% and sharing26% of the two wheeler market in India with

Bajaj Auto. Bajaj Auto in itself is occupying about 58% of the three wheeler market.

Consumers are very important of the survival of the Motor Vehicle manufacturingindustry. In 2008-09, customer sentiment dropped, which burned on theaugmentation in demand of cars. Steel is the major input used by manufacturersand the rise in price of steel is putting a cost pressure on manufacturers and costis getting transferred to the end consumer. The price of oil and petrol affect thedriving habits of consumers and the type of car they buy.

The key to success in the industry is to improve labour productivity, labour

flexibility, and capital efficiency. Having quality manpower, infrastructureimprovements, and raw material availability also play a major role. Access tolatest and most efficient technology and techniques will bring competitiveadvantage to the major players. Utilising manufacturing plants to optimum leveland understanding implications from the government policies are the essentialsin the Automotive Industry of India.

Both, Industry and Indian Government are obligated to intervene the Indian Automotive industry. The Indian government should facilitate infrastructurecreation, create favourable and predictable business environment, attractinvestment and promote research and development. The role of Industry will

primarily be in designing and manufacturing products of world-class qualityestablishing cost competitiveness and improving productivity in labour and incapital. With a combined effort, the Indian Automotive industry will emerge as thedestination of choice in the world for design and manufacturing of automobiles.



S.No. Content Pg.No.

1 Introduction 1

2 Objective and scope 3

3 Research methodology 7

4 Hostory

5 Findings,data & analysis 13

6 Conclusion 15

7 Recommendations 16

8 Limitations 21

9 Bibliography 24



INTRODUCTION TO AUTOMOBILE SECTOR

The Indian automobile market is gearing towards having internationalstandards to meet the needs of the global automobile giants and become aglobal hub. Players are strategizing to consolidate their position and graduallyincrease market penetration with the launch of new models, targeting differentsegments. Since the sector is price driven, huge investment is envisaged toremain competitive through cost advantage, for which indigenization is highlyimportant. The product becomes dearer if it is manufactured using importedparts. IT in the automobile sector plays a crucial role.. Some players are workingtowards development of efficient production systems that control the entireproduction process with high precision and accuracy. Such systems working The

automobile industry, one of the core sectors, has undergone metamorphosis withthe advent of new business and manufacturing practices in the light of liberalization and globalization. The sector seems to be optimistic of postingstrong sales in the next couple of years in view of a reasonable surge in demand.

on real time operating systems allow efficient control of different parts of manufacturing and production. It is essential to leverage skills of differentengineering disciplines to build these kinds of integrated systems.

Analysts foresee high scope in the electronics for auto sector and expect theretailing of such electronics products to contribute a major chunk of future

revenues. The government is increasing the research and development (R&D)fund for the automobile industry over and above the Rs 1400 crores earmarkedfor eight years. All laboratories in the country researching on automobiletechnology, such as BHEL which is developing cell technology as alternative fuel,have also been brought together through the setting up of a national R & Dworking group. The group is working out a plan to link all major laboratoriesacross the country to give a thrust to automotive research.Indian automobile sector being a driver of product and process technologies, andhas become a excellent manufacturing base for global players, because of itshigh machine tool capabilities, extremely capable component industry, most of the raw material locally produced, low cost manufacturing base and highly skilled

manpower Not only a large number of world manufacturers have set upproduction bases in India but also a large number of foreign companies arecollaborating with the auto component suppliers and vendors.

Indian Automobile Components Industry has been making rapid stridestowards achievement of world-class Quality Systems by imbibing ISO 9000/QS9000 Quality Systems whereby the Indian Automotive industry has become morecompetitive in the export market due to its technological and quality advances, so



much so that in quality conscious markets such as Europe and America, it isemerging as a major player, based on its performance. India today exports:Engine and engine parts, electrical parts, drive transmission & steering pats,suspension & braking parts among others.

The sector is striding inroads into the rural middle class after its inroads intothe urban markets and rural rich. It is trying to bring in varying products to suitrequirements of different class segments of customers.

States like Rajasthan, Uttar Pradesh, Maharashtra, Andhra Pradesh andWest Bengal are vying to woo global players with proposals including heavy taxexemptions and to create a more investor friendly regime, each state isproposing to provide all regulatory clearances at express speed.

The Government should promote Research & Development in automotiveindustry by strengthening the efforts of industry in this direction by providing

suitable fiscal and financial incentives.

The current policy allows Weighted Tax Deduction under I.T. Act, 1961for sponsored research and in-house R&D expenditure. This will be improvedfurther for research and development activities of vehicle and componentmanufacturers from the current level of 12.5%.

In addition, Vehicle manufacturers will also be considered for a rebate onthe applicable excise duty for every 1% of the gross turnover of the companyexpended during the year on Research and Development carried either in-houseunder a distinct dedicated entity, faculty or division within the company assessed

as competent and qualified for the purpose or in any other R&D institution in thecountry. This would include R & D leading to adoption of low emissiontechnologies and energy saving devices.

Government will encourage setting up of independent auto design firms byproviding them tax breaks, concessional duty on plant/equipment imports andgranting automatic approval.

Allocations to automotive fund created for R&D of automotive industry shall be

increased and the scope of activities covered under it enlarged.



OBJECTIVE & SCOPE

VISION

To establish a globally competitive automotive industry in India and to double itscontribution to the economy by 2010.

POLICY OBJECTIVE

This policy aims to promote integrated, phased, enduring and self-sustainedgrowth of the Indian automotive industry. The objectives are to:-

Exalt the sector as a lever of industrial growth and employment and toachieve a high degree of value addition in the country;

Promote a globally competitive automotive industry and emerge as aglobal source for auto components;

Establish an international hub for manufacturing small, affordablepassenger cars and a key center for manufacturing Tractors and Two-wheelers in the world;

Ensure a balanced transition to open trade at a minimal risk to the Indianeconomy and local industry;

Conduce incessant modernization of the industry and facilitate indigenousdesign, research and development;

Steer India's software industry into automotive technology; Assist development of vehicles propelled by alternate energy sources;

Development of domestic safety and environmental standards at par withinternational standards.

SIAM welcomed the announcement of Auto Policy, and feels that the policywould serve as a reference document for all stake holders and other interestedparties.

The Auto Policy has spelt out the direction of growth for the auto sector in Indiaand addresses most concerns of the automobile sector, including-

Promotion of R&D in the automotive sector to ensure continuous technology

up gradation, building better designing capacities to remain competitive; Impetus to Alternative Fuel Vehicles through appropriate long term fiscal

structure to facilitate their acceptance; Emphasis on low emission fuel auto technologies and availability of

appropriate auto fuels and encouragement to construction of safer bus/truck bodies - subjecting unorganized sector also to 16% excise dutyon body building activity as in case of OEMs



The policy has rightly recognized the need for modernizing the parch profile of vehicles to arrest degradation of air quality. The terminal life policy for commercial vehicles and move toward international taxing policies linked to ageof vehicles, are steps in the right direction.

SIAM has always been advocating encouragement of value addition within thecountry against mere trading activity. However, this aspect has not been fullyaddressed. The Auto Policy allows automatic approval for foreign equityinvestment up to 100% in the automotive sector and does not lay down anyminimum investment criteria.

The recommendation of promoting passenger cars of length up to 3.8 metersthrough excise benefits is not in line with the free market concept and may leadto market distortion.

However, with the Auto Policy in place, the automotive industry would get further

fillip to become vibrant and globally competitive. The industry would get therequired support from other Ministries and departments of Government of India inachieving the goals laid down in the auto policy



REASEARCH METHDOLOGY

De-licensing in 1991 has put the Indian automobile industry on a new growthtrack, attracting foreign auto giants to set up their production facilities in thecountry to take advantage of various benefits it offers. This took the Indianautomobile production from 5.3 Million Units in 2001-02 to 10.8 Million Units in2007-08. The other reasons attracting global auto manufacturers to India are thecountry’s large middle class population, growing earning power, strongtechnological capability and availability of trained manpower at competitiveprices. These are the major findings of our new report, " Indian AutomobileSector - A Booming Market”

In 2006-07, the Indian automotive industry provided direct employment to morethan 300,000 people, exported auto component worth around US$ 2.87 Billion,and contributed 5% to the GDP. Due to this large contribution of the industry in

the national economy, the Indian government lifted the requirement of forging joint ventures for foreign companies, which attracted global to the Indian marketto establish their plants, resulting in heightened automobile production.

The Indian automobile market is currently dominated by two-wheeler segmentbut in future, the demand for passenger cars and commercial vehicles willincrease with industrial development. Also, as India has low vehicle presence(with passenger car stock of only around 11 per 1,000 population in 2008), it

possesses substantial potential for growth.

Key Research Highlights

- Passenger car production in India is projected to cross three million units in2014-15.- Sales of passenger cars during 2008-09 to 2015-16 are expected to grow at aCAGR of around 10%.- Export of passenger cars is anticipated to rise more than the domestic salesduring 2008-09 to2015-16.

- Motorcycle sales will perform positively in future, exceeding 10 Million units by2012-13.

- Value of auto component exports is likely to attain a double digit figure in 2012-13.- Turnover of the Indian auto component industry is forecasted to surpass US$50 Billion in 2014-15.



Key Issues & Facts Analyzed in the Report

- Study of the Indian automobile industry structure.

- Analysis of performance of industry sub-segments and their future outlook.

- Understanding the Indian auto component market and its growth aspects.

- Evaluation of factors fuelling growth in the Indian automobile market.- Discussion of the forces countering the market growth.

- Identification of future prospects for the Indian automobile industry.

Research Methodology Used in the Report

Information Sources The information has been sourced from various authentic and reliable sourceslike books, newspapers, trade journals and white papers, industry portals,

government agencies, trade associations, monitoring industry news anddevelopments, and through access to more than 3000 paid databases.

Analysis Method RNCOS industry forecast and analysis is based on various macro- andmicroeconomic factors, sector and industry specific databases, and our in-housestatistical and analytical model. This model takes into account the past andcurrent trends in an economy, and more specifically in an industry, to bring outan objective market analysis.

Our industry experts study the relationship between various industry and

economic variables to ensure the required accuracy and desired check on thequality of data and information given in the report.



FINDINGS & DATA ANALYSIS

delivers information, analysis and data for the world's automotive industry,including detailed coverage and analysis of the industry's leading markets andcompanies. Our reports features current and forecast estimates on the size of theindustry (sales, establishments, employment) for the largest world countries.

Automotive Market Reports provides business information to various sources, itcaters to C-level, managers, executives, research specialist, etc. It covers on acomprehensive scale company profiles, demand forecast, review, and other related research reports confined to automotive sector.

Our exclusive network of industry specialists ensures an unrivalled resource tobring you the very best in Automotive industry whether it be via our highlyrespected off-the-shelf research reports or our cost-effective customized clientresearch.

The automotive industry is becoming more and more competitive, characterisedby increasing globalisation, industry consolidation, diminishing margins andexcessive capacity. In such an environment, the need to make every investmentdecision a prudent one is paramount. Similarly there is a real need to fullyunderstand every step of the value chain if the full benefit of investment is to befelt.



For instance let have a look at Indian Automobile Sales Trend -



History of Automobile Industry

The automobile as we know it was not invented in a single day by a singleinventor. The history of the automobile reflects an evolution that took placeworldwide. It is estimated that over 100,000 patents created the modernautomobile. However, we can point to the many firsts that occurred along theway. Starting with the first theoretical plans for a motor vehicle that had beendrawn up by both Leonardo Day Vinci and Isaac Newton.

In 1769, the very first self-propelled road vehicle was a military tractor inventedby French engineer and mechanic, Nicolas Joseph Cognate (1725 - 1804).Cognate used a steam engine to power his vehicle, built under his instructions atthe Paris Arsenal by mechanic Brazen. It was used by the French Army to haulartillery at a whopping speed of 2 1/2 mph on only three wheels. The vehicle had

to stop every ten to fifteen minutes to build up steam power. The steam engineand boiler were separate from the rest of the vehicle and placed in the front (seeengraving above). The following year (1770), Cognate built a steam-poweredtricycle that carried four passengers.

In 1771, Cognates drove one of his road vehicles into a stone wall, makingCognate the first person to get into a motor vehicle accident. This was thebeginning of bad luck for the inventor. After one of Cognate’s patrons died andthe other was exiled, the money for Cognate’s road vehicle experiments ended.

Steam engines powered cars by burning fuel that heated water in a boiler,

creating steam that expanded and pushed pistons that turned the crankshaft,which then turned the wheels. During the early history of self-propelled vehicles -both road and railroad vehicles were being developed with steam engines.(Cognate also designed two steam locomotives with engines that never workedwell.) Steam engines added so much weight to a vehicle that they proved a poor design for road vehicles; however, steam engines were very successfully used inlocomotives. Historians, who accept that early steam-powered road vehicleswere automobiles, feel that Nicolas Cognate was the inventor of the firstautomobile.

The automotive industry has certain trends it has to follow, just like fashion

designers and musical composers. In times of recession and decreasing salesthere is less room to take chances and manufacturers are prone to follow thecommon pattern as a safer bet rather than releasing a controversial product or idea that might or might not be successful. However throughout the automotiveindustry's history, great innovators have "boldly gone where no man has gonebefore" to set new trends which have dynamically altered the industry as a whole.

http://inventors.about.com/library/inventors/blrailroad.htm





1880's & early 1900's

About hundred years ago

-The first motor car was imported-Import duty on vehicles was introduced.-Indian Great Royal Road (Predecessor of the Grand Trunk Road) wasconceived.

First car brought in India by a princely ruler in 1898.

Simpson & Co established in 1840.-They were the first to build a steam car and a steam bus, to attemptmotor car manufacture, to build and operate petrol driven passenger service and to import American Chassis in India.

Railways first came to India in 1850's

In 1865 Col. Rooks’ Crompton introduced public transport wagonsstrapped to and pulled by imported steam road rollers called streamers.The maximum speed of these buses was 33 kms/hr.

From 1888 Motors Spirit attracted a substantial import duty.

In 1919 at the end of the war, a large number of military vehicles cameon the roads.

In 1928 assembly of CKD Trucks and Cars was started by the whollyowned Indian subsidiary of American General Motors in Bombay and in1930-31 by Canadian Ford Motors in Madras, Bombay and Calcutta In1935 the proposals of Sir M Vishvesvaraya to set up an AutomobileIndustry were disallowed.

1942 Hindustan Motors Ltd incorporated and their first vehicle was madein 1950.

In 1944 Premier Automobiles Ltd incorporated and in 1947 their firstvehicle was produced.

In 1947 the Government of Bombay accepted a scheme of Bajaj Auto toreplace the cycle rickshaw by the auto and assembly started in a coupleof years under a license from Piaggio. Manufacturing Programme for theauto and scooter was submitted in 1953 to the Tariff Commission andapproved by the Government in 1959.



In 1953 the Government decreed that only firms having a manufacturingprogramme should be allowed to operate and mere assemblers of imported CKD units be asked to terminate operations in three years.

Only seven firms namely Hindustan Motors Limited, Automobile Productsof India Limited, Ashok Leyland Limited, Standard Motors Products of India Limited., Premier Automobiles Limited, Mahindra & Mahindra andTELCO received approval. M&M was manufacturing jeeps. Few morecompanies came up later.

Government continued with its protectionism policies towards theindustry.

In 1956, Bajaj Tempo Ltd entered the Indian market with a programme of manufacturing Commercial Vehicles, and Simpson for making engines.

1960's s

In sixties 2 and 3 Wheeler segment established a foothold in theindustry.

Escorts and Ideal Jawa entered the field in the beginning of sixties.

Association of Indian Automobile Manufacturers formally established

in 1960.

Standard Motors Products of India Ltd. moved over to the

manufacture of Light Commercial Vehicles in 1965.

1970's

Major factors affecting the industry's structure were theimplementation of MRTP Act, FERA and Oil Shocks of 1973 and1979.

During this decade there was not much change in the four wheeler industry except the entry of Sipani Automobiles in the small car market.

Oil Shock of 1973 quickened the process of dieselization of theCommercial Vehicle segment.



Three other companies, namely, Kirloskar Ghatge Patil Auto Ltd,Indian Automotive Ltd and Sen & Pandit Engg products Ltd enteredthe market during 1971-75. They ultimately withdrew in early eighties.

During the seventies the economy was in bad shape. This and manyspecific problems affected the Automobile Industry adversely.

1980's - The period of liberalized policy and intensecompetition

First phase of liberalisation announced.

Unfair practices of monopoly, oligopoly etc slowly disappeared.

Liberalisation of the protectionism policies of the Government.

Lots of new Foreign Collaborations came up in the eighties. Manycompanies went in for Japanese collaborations.

Hindustan Motors Ltd. in collaboration with Isuzu of Japan introducedthe Isuzu truck in early eighties.

ALL entered into collaboration with Leyland Vehicles Ltd. sdevelopment of integral buses and with Hino Motors of Japan for themanufacture of W Series of Engines.

TELCO after the expiry of its contract with Daimler Benz, indigenously

improved the same Benz model and introduced it in the market.

Government approved four new firms in the LCV market, namely,DCM, Eicher, Swaraj and Allwyn. They had collaborations withJapanese companies namely, Toyota, Mitsubishi, Mazda and Nissanrespectively.

In 1983 Maruti Udyog Ltd was started in collaboration with Suzuki, aJapanese firm.

Other three Car manufacturers namely, Hindustan Motors Ltd.,Premier Automobiles Ltd., Standard Motor Production of India Ltd.also introduced new models in the market.

At the time there were five Passenger Car manufacturers in India -Maruti Udyog Ltd., Hindustan Motors Ltd., Premier Automobiles Ltd.,Standard Motor Production of India Ltd. and Sipani Automobiles.

Ashok Leyland Ltd. and TELCO were strong players in theCommercial Vehicles sector.



In 1983-84 Bajaj Tempo Ltd. entered into a collaboration with Daimler-Benz of Germany for manufacture of LCVs.

Important policy changes like relaxation in MRTP and FERA,delicensing of some ancillary products, broad banding of the products,modifications in licensing policy, concessions to private sector (bothIndian and Foreign) and foreign collaboration policy etc. resulted inhigher growth / better performance of the industry than in the earlier decades.

1990's

Mass Emission Norms were introduced for in 1991 for Petrol Vehiclesand in 1992 for Diesel Vehicles.

In 1991 new Industrial Policy was announced. It was the death of theLicense Raj and the Automobile Industry was allowed to expand.

Further tightening of Emission norms was done in 1996.

In 1997 National Highway Policy has been announced which will havea positive impact on the Automobile Industry.

The Indian Automobile market in general and Passenger Cars inparticular have witnessed liberalisation. Many multinationals likeDaewoo, Peugeot, General Motors, Mercedes-Benz, Honda, Hyundai,Toyota, Volvo and Fiat entered the market.

Various companies are coming up with state-of-art models of vehicles.

TELCO has diversified in Passenger Car segment with Indica.

Despite the adverse trend in the growth of the industry, it isresolutely trying to meet the challenges. Various issues of critical importance to the industry are being dealt with forcefully.



Role of Government in Automobile Industry

The government is making efforts to overcome the constraints at

their research centers for automobile industry. India can also learnfrom countries like Japan that are already using these technologies for a wide number of applications. The Indian auto industry should launchprogrammes for market development and a wider acceptance of alternative energy-driven vehicles in India. It should also work intandem with the government to make India a world leader in this area.

Indian automobile industry is also consistently trying to meet theemerging challenges of environmental pollution and better safetystandard. According to a study, automobile exhaust contributes morethan 60% of the atmospheric pollution in metropolitan cities, with the

growing number of vehicles, the pollution in the cities is continuouslyincreasing. Government initiated controls by notifying emissionstandard from the year 1992 under which were furthers tightened in

April 1996 under the Motor Vehicles Act. Euro-I emission norms havealready been made applicable throughout the country and Indian ispoised to induct Euro-II norms across the country by April 2005. Formthat date 7 metropolitan cities are going to switch over to Euro –IIInorms. To meet this emerging challenges of newer emission normsIndian automobile industry has already braced itself up with newinvestment and fresh technological induction.

With the growing number of vehicles, the pollution in the cities isever increasing. Government initiated controls by notifying emissionstandards from the year 1992 which were further tightened under theMotor Vehicle Act. For meeting these norms, unleaded petrol was alsointroduced in metropolitan cities from 1995, which enabled fitments of catalytic convertors on new petrol driven vehicles. The norms arebeing further tightened from April,2000 when India’s stage one normequivalent to Euro-I will become effective. For 2-wheelers, India hasannounced one of the tightest norms in the entire world. In thenational capital territory region of Delhi, India’s stage 2 normsequivalent to Euro-II norms, will be effective from April, 2000, as per

the order of Hon’ble Supreme Cour t. This would apply to passenger cars.

The government seems most keen to hand over a hugereplacement market on a platter to the automobile industry withoutensuring that manufacturers take responsibility of the emissionperformance of the vehicles they produce for its useful life. In fact themost important action point that was recorded after the ministerial



consultation was that manufacturers would have to give emissionswarranty for two- wheelers from But ultimately, the government couldnot muster enough courage to push the mighty automobile industryand enforce it.

Government will encourage and assist establishment of specialized training institutes for the automobile sector through theactive association of interested automobile industries. These instituteswill be set up in Bidadi Industrial area and Dharwad Growth center.The Institute will be managed by the participating automobileindustries and will train skilled category of auto workers, in specifiedskill areas such as painting, welding, auto mechanical, etc. It also ismaking an effort abe to enlist the support of multilateral aid institutionsto provide part of the funding for this project, which promisestremendous environment-improvement benefits for the vehicle, whichcreate pollution.

The policy of broadbanding capacities in the eighties led toincreased utilization of capacity for four-wheelers in the industry.

The liberal policy on foreign participation through technical andfinancial collaboration in early eighties led to substantial productupgradation and introduction of new models. But it was alleged thatthe policy was discriminatory in favor of MUL, while others like Telco,PAL, HM were denied permission to produce cars in collaboration withJapanese companies.

The GOI controls the car sector by way of framing policies on

depreciation norms, import duty on cars and parts used in it, petrolprices and import duty of steel.

During the era of socialist inspired controls, the governmentprotected the car industry from new entrants by making effective useof licenses. However, after liberalization and with the consequentopening up of the auto sector in 1992-93, the license raj ceased toexist .

The perception of a car as a luxury good lead to heavy exciseduty on cars. The excise duty doubled from 25% in FY87 to 55% in

FY91. Till 1987, the GOI followed a discriminatory policy so as tocharge lower duty on fuel efficient car with engine capacity of lessthan 1000cc. This helped MUL to price its car at a lower price incomparison to others. But with lobbying from PAL and HMgovernment withdrew the provision in 1987.

But with the onset of the liberalization process in the earlynineties, the government has continually rationalized the excise duty



regime. Presently, there is a duty of 40% (16% + 24%) on motor vehicles, designed for transport of not more than six persons(excluding the driver). On vehicles designed for transport of more thansix persons, but not more than 12 persons, the duty is 32% (16% +16%). Over and above the excise duty, cess by the Central

Government, states are now charging a uniform sales tax of 12%. Thiscame in being after the 15th of May 2000. Earlier, states used tocharge sales tax varying from 3 to 14%. But MUL vehicles receivefavorable treatment in terms of sales tax as well.

In line with its treatment for luxury items import duties for car have been maintained high. In the 80's, import duties varied between150 to 200% based on the engine capacity of a car. The import dutyon cars and components has come down in the last few years in linewith general reduction in import tariffs. In the FY98 budget, the importduty on cars has also been further brought down from 50% to 40% advalorem. Substantial reduction in import duty has been extended inthe budget FY98 for import of certain items which would help theindustry to reduce the emission level of vehicles. The import duty oncatalytic converters and parts thereof has been reduced from 25% to5%. The duty on CNG kits and parts thereof have been reduced from10% to 5%.



LIMITATIONS

FDI up to 100 percent has been permitted under the automatic routeto this sector, which has led to a turnover of US$12 billion in the Indian

auto industry and US$3 billion in the auto parts industry

The manufacturing of automobiles and automobile components ispermitted with 100 percent FDI under the automatic route

The automobile industry in India does not belong to the licensedagreement

Imports of components are allowed without any restrictions and alsoencouraged

Coal Unlike China, India has allowed FDI inflows in its coal industries.Following are some of the vital points for overseas investment in thecoal sector.

The captive coal mining unit allows private sector participation

All the sales of coal mining are made through Coal India Ltd.

FDI inflows are permitted in the coal production unit in Indiadepending on outputs

Foreign investors holding less than a 50 percent share in coalproduction units in India can invest in coal mining or other relatedactivities, and this does not require approval from the ForeignInvestment Promotion Board. This has been systematized by theIndian government in order to put certain restrictions on the power of the foreign investors while investing in the Indian market

FDI of higher value are sometimes permitted in coal productiondepending on the end-product. If the output of coal production unitlinks to any significant sector or activities, then FDI of higher value isnot permitted, which is just the opposite if the end-product is not so

serious

FDI inflows up to 100 percent are permitted in the coal and lignitemining for captive consumption in the power generation sector, and for captive consumption of the same in steel and cement sector, FDI isallowed up to 74 percent



FDI of up to 10 percent is allowed in the coal processing unit whichincludes coal washing and sizing



SEGMENTATION OF AUTOMOBILE INDUSTRY



2 WHEELER



PASSENGER VEHICLE



COMMERCIAL VEHICLE



IMPACT ON GDP

Directly and indirectly it employs more than 10 million people.

The market value of Automobile Industry is more than US$8 billion. and

Contribution in Indian GDP is near about 4% and will be double by

2016.

The automobile industry in India grew at rate of 11.5 % over the pastfive years, but growth rate in last year 2008-09 was only 0.7%.

FDI inflows in Automobile Industry 2008-09 was Rs.5,212 Cr an

increase of 47.25% compare to 2007-08.

In 2009, India emerged as Asia's fourth largest exporter of automobiles,

behind Japan, South Korea and Thailand.



SWOT OF AUTOMOBILE INDUSTRY

STRENGTHS

• Large domestic market

• Sustainable labor cost advantage

• Government incentives for manufacturing plants

• Strong engineering skills in design

• Able to achieve significant gains in productivity

WEAKNESSES

• Low labor productivity

• High interest costs and high overheads

• Rising cost of production

• Low investment in Research and Development



OPPORTUNITIES

• Commercial vehicles

• Heavy thrust on mining and construction activity

• Increase in the income level

• Cut in excise duties

• Rising rural demand

THREATS

• Rising interest rates

• Cut throat competition

• Lack of technology for Indian Companies



FUTURE PROSPECT OF INDIAN AUTOMOBILE SECTOR

• Automobile industry expert predicts that by 2050 every sixth car in the

world will be for Indians.

• By 2010 India will take over Germany in sales volumes and Japan by

2012

• The Indian automobile component industry is estimated to triple from

USD 63 billion to USD 190 billion within a span of six years by 2012.

• Industry analysts predict this industry to touch USD 13000 million

mark by 2010, a cumulative growth of 9.5% annually.

• It is said that for every Re 1 spent, the auto sector returns Rs. 2.24 tothe Indian economy.



CONCLUSION

Industry across countries will have to meet challenges of newer

technologies, alternative fuels and affordability of automobiles by

people at large through constructive cooperation. The earlier we are

able to achieve this the better it would be for the world performance.

a seminar report on “automobile sector of india”

Documents