GROWTH PATTERN OF AUTOMOBILE INDUSTRY IN INDIA SINCE 1970

Bnhmitttti for t e luarb of tjjc Begree of

JBottor of $i|iIO!B^opi)P IN

COMMERCE

BY

FAHEEM USMAN SIDDIQUI

Under th« Supervision of

Professor NAFEES BAIG

DEPARTMENT OF COMMERCE ALIGARH MUSLIM UNIVERSITY

ALJGARH (JNO)A)

1991

T4073

! N • ^ ^ ! V V

T^O^S,

Professor Nafees Baig M. Com., Ph. D., D. Litt., CASF (Manchester)

^ Office : 25761 & 25674

Department of Commerce Aligarh Muslim University

ALIGARH - 202002 (India)

February 6, 1992

CERTIFICATE

This is tio certify that the thesis entitled

"Growth Pattern of Automobile Industry in

India Since 1970" submitted by Mr. Faheem

Usraan Siddiqui has been completed under iy

supervision. This work, in my opinion is

suitable for submission for the award of

DocLoratc in Coiiinierce.

(Prof. Nafees Baig)

Supervisor

Residence : Nafees Manzil, 4/814 Sir Syed Nagar, Aligarh. ^ 2 7 8 6 8

C O N T E N T S

PREFACE

LIST OF TABLES

CHAPTER- I :

CHAPTER- II :

CHAPTER-III :

CHAPTER- IV :

CHAPTER - V :

BIBLIOGRAPHY

Page

I - IV

V

GROWTH OF AUTOMOBILE INDUSTRY -A CONCEPTUAL FRAME WORK

EVOLUTION AND GROWTH OF AUTOMOBILE INDUSTRY IN INDIA

THE STRUCTURAL CHANGE IN THE INDIAN AUTOMOBILE INDUSTRY - AN APPRAISAL

INDIAN CAR INDUSTRY COMPARATIVE GROWTH

A CASE OF

FINDINGS AND CONCLUSIONS

40

63

111

148

171

PREFACE

PREFACE

The Indian Automobile Industry is sufficiently

grown,diversified and upgraded to become a leading sector of

the Engineering Industry.lt plays a vital role in the

economic development of the country.The volume of production

in the industry is modest going by world standards,yet the

Industry today is not lacking in maturity and strength. It

meets the current demand for vehicle and has the capability

to keep pace with the requirements of the growing economy.

The structure of the industry has changed significantly over

the years until the early seventies,there was a preponderance

of commercial vehicles But by the end of the seventies the

personal transport vehicles were nearly three times the

commercial vehicles.During the eighties the diversification

and segmentation of the market took place,with the result

that at the end of the eighties, the personal transport

vehicles constituted more than eight times the commercial

Vehicles. On another aspect also, the structure has changed.

The policy shifts of the early eighties changed the entire

structure of the Indian automobile industry.The

liberalisation of the early eighties resulted in the

introduction of numerous new models of motor vehicles of all

types in collabaration with Japanese and western

manufacturers leading to a transformation of the existing

11

structure of the industry.The transformation took different

paths in different segments of the industry.lt relaxed

industrial licensing,liberalised imports and reduced import

duties and taxes. These policy measures of early eighties

have boosted the growth of the industry.However with the new

phased manufacturing programmes(PMP),the import of components

and of materials (like special quality deep drawing steel

which were not available indigenously) the fore<-gn exchange

requirements of the .automobile industry wentup.As the new

technologies were absorbed and as PMP's were implemented,the

level of indigenisation has comedown.Infact the development

of this industry has been a powerful stimulant to the

industry growth in the economically developed as well as

developing countires.I have under taken this study of the

Growth pattern of Automobile industry in India with the

purpose of highlighting the problems of this significant

component of our industrial economy. The central focus of the

study would lie on measures taken from an all-round

development of the industry as it relates to production,

sales, research and development and fiancial strength.

ACKNOWLEDGEMENT

All my efforts in bringing out this work would be in

vain if I do not acknowledge the contribution of -those who

have inspired me at every stage of this work. I owe a great

iii

deal to my supervisor Professor Nafees

Baig, (M.coni/Ph.D/D.Litt/CASF Manchester) Dean Faculty of

Commerce,A.M.U., Aligarh, who has been a guiding spirit and a

source of inspiration to me in completing the present

study.The present work bears at every stage his keen

interest,invaluable advice, enthusiastic support,sincere

criticism,valuable suggestions and constant supervision.He

spared his valuable time as and when I approached him and

encouraged me all through th-e various stages of the work.

Thanks are also due to Professor Samiuddin for

assisting me sincerely in the completion of the work.I would

like to take this opportunity to pay my respect to Professor

Isharat.H.Farooqui and Professor Habib-Ur-Rehman,Ex-Deans of

Faculty of Commerce and Ex-Chairmen Department of

Commerce,A.M.U., Aligarh,for their invaluable suggestions and

affectionate attitude towards me. I am grateful to Professor

Abdul Farooq Khan, Department of Commerce, A.M.U., Aligarh,

for having evinced interest in my work.I would like to thank

Dr Asif Ali Khan,Dr Qamar Uddin Khan,Or B,A.Iqbal,Dr

I.A.Bilgrami,Dr. Mohd Talha and Dr A.Q.Khan and other learned

teachers of Department of Commerce A.M.U., Aligarh.lam

thankful to Mr Salman Khalil (Research Assistant) Department

of Statistics, A.M.U., Aligarh, for having helped me in the

statistical analysis.

I will fail in my duty, if I donot acknowledge the

IV

efforts of my colleagues and friends,for th6^r help and

encouragement they gave me during the period of my study.

I express my thanks to Mr.Shahzad Ali,Mr.M.Shanshad

Khan, Mr.S. Rashid Hussain, Mr.Ali Hassan and other non

teaching staff of the Department of Commerce,A.M.U,,

Aligarh,for their helping attitude.I express my sincere

thanks to the entire staff of Maulana Azad Library A.M.U.,

Aligarh,for their help they gave me during the course of data

collection.! also owe a lot to my Mother,brothers and sisters

for their encouragement and support

February, 1992. (FAHE^'uSMAN SIDDIQUI)

Department of Commerce Aligarh Muslim University ALIGARH.

LIST OF TABLES

60

LIST OF TABLES Table No. Title Page No,

1.1 Production of Automobiles ^ 1.2 Some Important Ratios (in percent). ^ 2.1 Li:.censed and Installed Capacity and ^'^

Production of Veicles. 2.2 Changing Pattern of Production

of Automobiles. 3.1 Growth of Production in Automobile ^^

Industry (1966-1990) 3.2 Trends in Production and Sales of High ^9

Commercial Vehicles and Light Commercial Vehicles.

3.3 Trends in Production and Sales of ^5 Two Wheelers.

3.4 Companywise Marketshare of SO Two Wheelers.

3.5 Two Wheelers Sales Share (Percent) ^^ 3.6 Sales Performance in Automobile Industry. 55 3.7 Automobile Industry - Import and 59

Export (1980-81 to 1987-88). 3.8 Projecion of Demand for Vehicles. ^9^ 4.1 Growth of Car Production. jj" 4.2 Growth Among Car Manufactures for --^

1980-81 to 1990-91. 4.3 Sale Performance in Car Sector. -''0 4.4 Installed Capacity, Production and 12 2

Capacity Utilisation Among Car Manufactueres.

4.5 Research and Development Expenditure -2 5 of Passanger Car Units.

4.6 Research and Development Staff of 125 Passanger Car Units.

4.7 Car Manufacturers : Summary of Import 12 8 and Export.

4.8 Car Sector : Financial Performance. -^2 4.9 Car Sector : Selected Ratio Percentages. 39

§ HAPTERI

GROWTH OF AUTOMOBILE INDUSTRY - A CONCEPTUAL

FRAME WORK

In this chapter, it is proposed to outline the

objectives, hypothesis and plan of the study. A brief review

of the literature on the subject is also made. In a way, this

chapter sets the tone for the rest of this work.

The automobile industry belongs to the group of

industries called engineering industry. It has tremendous

potential for generating employment both direct and indirect

for promoting high grade skills for building entrepreneurship

and for stimulating the development and in production of

modern and sophisticated technologies. It plays a vital role

in the economic development of the country besides being of

strategic importance for the country's defence and security

needs.

Since independence our Government was interested in

fostering growth of the domestic automobile industry. In this

regard custom duty on certain components was raised, import

of complete vehicles was banned and local manufacturing was

encouraged. The industry also enjoyed protection from the

Government through restrictions on the import of complete

vehicles. In 1952 the Government replaced its policy by more

sturdy and comprehensive approach to the industry. The Tariff

Commission (TC) in its first report in 1953 recommended

assembly of vehicles in the country by the firm having a

manufacturing programme while in the second report (1956)

recommended high priority to be accorded to the production of

commercial vehicles rather than passenger cars. In its two

separate reports in (1968), one on the "Continuation of

Protection" and the second on "Fixation of Fair Selling

Prices of Automobiles" the Tariff Commission advocated

continuation of protection. In fact, the Indian Automobile

Industry has not grown as it should have till the Third Plan

period. The Fourth Plan period has given a crucial role to

the industry in the overall economic growth considering its

high employment potential. The Indian Automobile Industry had

an uneventful progress till the eighties but has made

substantial and rapid growth after 1980 as the liberalisation

and broad-banding policies proved to be strong stimulants.

The automobile policy announced by the Government in January

1985 was a landmark in the history of the automobile industry

in India which had been plagued by stagnant growth for the

past many decades.

Objectives of the Study:

The main objectives of the present study are as follows:-

i) To study the growth pattern of Indian Automobile

Industry and to make a comprehensive study of different

sectors of the automobile industry and their net

contributions towards the growth of the industry.

ii) To study the structure of the assembling segment of the

industry, the pricing behaviour of the firms, and their

technological capability.

iii) To assess the role of Government policies in shaping

the structure and performance of the industry.

iv) To assess how the existing structure is affected by

liberalisation as announced from year to year.

V) To study the main causes of the sickness of this

industry and to suggest remedial measures.

Hypothesis: The study proposes to test the following

hypotheses:

i) That significant growth took place after 1970 and

whatever structural changes that had come about in

Indian Automobile Industry had taken place after 1980.

ii) The Government policies have played an important role

in determining the initial structure, growth, and

performance of the automobile industry in India.

iii) The various incentives and concessions presently

offered by the Government play only a marginal role in

the development of the industry as the Government

policies are responsible for the continuous price

hiking in the automobile industry.

iv) The automotive components and ancillary industry in

India has made big strides in the last couple of year

in connectio with the phased manufacturing progra:3une.

v) The policy of free import of technology have an

adverse impact on domestic research and development.

Methodology Adopted:

For collecting data the present study has made use of a

combination of methods such as collection of the secondary

data with the help of journals, papers, periodicals,

documents and records of different companies. The major

source of information in the present study is The Hindu:

Survey of Indian Industry (different issues) and annual

reports of Automative Industry in India, facts & figures and

Annual Reports of Association of Indian Autonobile

manufacturers. In addition to these, a number of executives

and managerial personnel involved in the production and

distribution in the automobile sector have been approached

and interviewed for eliciting information as a primary source

so as to arrive at conclusions and final opinion on the

structural changes and growth in the automobile industry. The

work force and the technical experts have also been

interviewed for enriching the study with their opinion and

statements on the subject.

Period of Analysis

The study broadly covers the period 1971 to 1990. The

rationale for examining the various aspects of Indian

automobile industry broadly since 1971 is based on three

considerations.

Firstly, whatever growth occured in the Indian

automobile industry in the first two plan periods was only

marginal. It is in the subsequent plan periods that shows

some growth in the industry. However, the automobile industry

shows significant growth from Fourth Plan period on-words.

The growth in the Fourth Plan period is the result of

Government attitude which had changed suddenly in late

sixties. This would recognise the importance of this

industry. It was during this period that a number of

committees were appointed which looked into different aspects

of the industry and recommended a number of concrete steps to

protect and develop the automobile industry. Due to the

recommendations of various Committees and the changed view of

the Government a number of structural changes took place in

the industry in 1971.

Secondly, the year 1969-70 was a very bad year for the

automobile industry in India. Labour unrest hit two major

manufacturers. The sizeable loss of production at two plants

resulted in a meagre rise in the sales turnover of the

industry and profits declined steeply. The combined sales of

five leading automobiles manufacturers (i.e. Ashok Leyland,

Hindustan Motors, Mahindra & Mahindra, Premier Automobiles

and Telco) rose by only three percent in 1969-70 and the pre

tax profits declined by roughly one third. The industry

staged a recovery in 1970-71. An analysis of the working

results of these companies for 1970-71 reveals that atleast

on the production front they were able to put up a better

show as compared to the preceding year. Table 1.1 reveals

that over the year the output of commercial vehicles rose by

19.5 percent that of Jeep by 10.5 percent and that of

passenger car by 7.1 percent.

TABLE 1.1

Production of Automobiles

1969-70 1970-71

Commercial Vehicles 30,688 36,666

Jeeps 9,205 10,168

Cars 34,333 36,781

Source:- Economic Times, 26 January;, 1973.

The poor financial health of the automobile industry in

1969-70 and the recovery in 1970-71 is clearly evident from

Table 1.2 given below:

TABLE 1.2

Some Important Ratios (In Percent)

1968-69 1969-70 1970-71 1. Pre tax profits 8.85 7.44 7.89

(including interest) to Net Sales.

2. Pre-tax profit 9.29 7.54 10.04

(including interest) to capital funds.

3. Pre-tax profit 11.61 7.60 12.03 (including interest)

to owned funds.

4. After tax profit to owned funds 8.03 5.86 7.22

5. Borrowed funds to capital funds 59.72 61.87 60.2 5

Source: Same as table No.1.1

Thirdly, it is proposed to make a comparative study of

the two decades because the major policy changes in the

automobile industry took place in early seventies and

eighties.

Limitations of the Study

The important limitations of the study are:-

i) The fact that the present study is based on secondary

sources of information reduces the degree of

reliability as normally attributed to such studies.

However, an attempt has been made to obtain the maximun

possible information from the Government reports, NACER

Studies, annual reports of the various companies,

publication of Automobile Manufacturers Association and

The Hindu : Survey of Indian Industry (various issues).

ii) The present study is not a comparative study with soKie

other industry in the engineering sector which would

give a more lucid picture of the performance of the

industry.

PrauneworJc of the Study

The study is divided into 5 chapters:

Chapter 1 presents the objectives of the study and is devoted

to review the available literature on the subject

Chapter 2 deals with the evolution and the development of the

automobile industry in India in the light of the Government

policies.

Chapter 3 analyses the structural changes that were brought

about in the industry during the period and also examines the

productivity and growth in different sectors of the industry.

Chapter 4 takes up the all important question of the role of

the Government policy in influencing the structure and

performance of the industry in the regulatory environment.

Chapter 5 summarizes the findings and conclusions of the

study and provides suggestions for solving the very many

problems associated with the industry.

A Survey of Literature on the Subject

In this section it is proposed to discuss the contents

and main thrusts of the various studies made earlier on the

subject. A publication entitled "Industrial Growth in India :

Stagnation since the mid Sixties" by Isher Ahluwalia

published in 1985. has after an extensive empirical

scrutiny, identified three principal factors for poor

performance of Indian industry. These are:

i) Low investment in infrastructural sector such as power

communication and transport and in efficient use of

resources in these sectors,

ii) Slow growth in the agricultural sector with its

concomitant lack of demand of industrial products fron

that sector, and

iii) The regulatory control regime or permit raj

encompassing both domestic controls and trade policy

measures.

There have been a number of causes for the poor

performance of the Indian industry since the mid sixties.

Some of the important contributions'^ made m this regard are

those of Chakravarty (1974), Desi (1981), Nayyar (1978),

Patnaik (1981), Raj (1976), Rangarajan (1981), Srinivasan and

Narayana (1977) and Shetty (1978). The main thrust of the

above studies is: Bureaucratic inefficiency and too many

controls hindred the process of industrial growth in the

country, slow rate of agricultural growth acted as a brake on

achieving high rates of industrial growth. Some studies have

stressed the link between the fall in public investment and

industrial growth. Narrowness of the market and lack of

domestic demand have also been held responsible for slow down

in the rate of industrial growth since mid sixties. But now

there are some indications that the slow down in industrial

growth has been arrested. Since our objective is to study

structural changes and productivity growth in the Indian

13

automobile industry, we have not focussed on studies dealing

with industrial growth in India in detail. For our purpose of

the study it is a fact that the automobile industry is one of

the most investigated and researched industry. Many expert

Committees and panels have been appointed by the Government

in the past which have recommended to the Government to have

a positive automobile policy in view of its national

strategic importance.

The first such enquiry Committee-^ on the autcnobile

industry by Tariff Commission was appointed in 1952 on a

reference from the Government. The Government soughr the

advice of the Commission on certain specific points such as

the manufacturing programme of the existing manufacturers,

integration/coordination between assemblers and manufacturers

steps necessary for the growth of the automobile ancillary

industry in India, future trend of import of vehicles ere. In

the Report submitted to the Government in 1953 the Comnission

recommended that only such of those firms as had a phased

programme for the progressive manufacture of conplete

vehicles in the country should be allowed to functicr. and

that pure assemblers who had no such programme be asked to

terminate their operations as assemblers of vehicles.

The second enquiry Committee was set up in 1956,' under

the Chairmanship of K.R. Damle to examiane the various issues

such as the fair ex works prices and selling prices of

, I

various types of motor vehicles manufactured in the country

as well as a formula for revision of price from time to time

and also examine the question of dealers commission etc. The

following are the important recommendations made by the

Commissionn in its Report submitted in October, 1956.

1. The Commission decided to leave the automobile

manufacturers free to raise their prices from time

according to changes in costs subject to the following

conditions:

(a) A month's notice of any variation will be given to

Government so that if the change proposed is prima

facie unreasonable,the Government may intervene in the

matter.

(b) The net dealer price (i.e. the ex factory price charged

to the dealer) should not exceed the ex-works costs by

more than 10 percent.

2. The Commission has recommended that the maximum "mark

up" on the ex-factory price to cover dealers commission

should be Rs.lOOO per vehicle or 10 percent of the ex-

factory price whichever is less for passenger cars, and

jeeps and Rs. 1000 per vehicle or 7.5 percent of the

ex-factory price whichever is less for trucks, buses

and other commercial vehicles.

3. The Commission has examined at some length the manner

in which the automobile industry should develop to meet

12

the country's requirements. It has made the following

recommendations in this connection:

(a) Priority should be given to the manufacturers of

commercial vehicles rather than passenger cars.

(b) In the case of commercial vehicles, the maximum demand

will be for diesel vehicles and instead of trying to

discourage this trend every effort should be made to

meet the demand.

(c) It would be definitely undesirable to introduce any

more passenger cars for manufacture in the country.

(d) Additional capacity required for commercial vehicles

should be installed in existing units rather than new

ones.

4. The Commission recommended that the industry should be

given protection for a period of 10 years, (ending 31st

December 1967).

5. The manufacturers should give warranties to guarantee

all the parts fitted into their vehicles.

6. Each manufacturer should set up adequate training and

designing facilities.

7. Each firm should establish sufficient capacity for

manufacture of individual components and should be

under obligation to use indiginous materials within a

specified time limit.

J. Efforts to advance the programme of manufacture of such

13

essential components as engine, transmission, axels

etc.

In 1959 Government of India appointed an adhoc

Committee on Automobile industry under the Chairmanship of

L.K. Jha.^ This Committee submitted its report to the

Government in January, 1960. The Committee considered the

progress made by the industry as satisfactory on the whole

and particularly in the last few few years preceding its

report. It observed that the rate of progress made by

individual manufacturers has not been uniform and highlighted

certain difficulties conforting the industry in this context.

As regard the low cost car, the Committee after examining the

various proposals received had offered its general

observations on the issue and to the Government to take final

decision.

A publication entitled "Taxation and Price Structure of

Automobile Industry" by NACER^ published in 1967 examines the

structure of the selling prices of the automobile products.

The findings of this study are:

(a) While a seven fold increase has been recorded in last

ten years, the present production of passenger cars and

commercial vehicles in this country is practically

negligible in the wider context, as it form less than

0.35 percent of the world's output.

(b) Both the cost of production and selling prices of

automobiles are 60 to 70 percent higher in India than

in many other countries with an established automobile

industry. The higher cost of production is traceable

mainly to the higher costs of raw materials and

components prevailing in this country as well as to

lower scales of operation.

(c) The higher cost is also due to high taxation and

duties.

(d) Despite the increased production of both complete

vehicles and ancillary items within the country, ex-

factory prices have not only come down over the years

but have, in fact, gone up.

In 1968,^ the Tariff Commission Report on "Continuation

of Protection to the Automobile Industry" gave the following

important recommendations:

i) As the existing units do not hold out hopes of

reduction in costs there is no alternative but to allow

new entrants who promise to do so.

ii) While issuing licences for expansion of capacity care

should be taken to see that the capacity is well

balanced and is capable of economic production,

iii) Government should specify the licensed capacities of

each of the Units in the automobile industry,

iv) The implementation of the recommendation made by the

Tariff Commission in their last two Reports (1952 &

1956) has not been taken up seriously, yet most of

these handicaps not only persist but some of them have

been further accentuated by an increased burden of

taxation. The Commission believed that concerete and

imaginative steps have to be taken by the automobile

industry,

v) That no new unit in the ancillary industry should be

licensed at present till the existing efficient units

become economically viable,

vi) In regard to warranties what is required is a

determination of the minimum period of usage or mileage

run during which defects could reasonably be expected

to show up. The period of warranty should not be less

than this minimum period,

vii) Where defects are admitted under warranty claims and

the labour charges should be borne by the

manufacturers.

viii) The automobile industry has to remain under protection

untill such times as it can stand on its own legs. The

industry has not yet matured although it has had its

begining nearly two decades ago. There is no practical

alternative but to let the industry continue under the

present scheme of protection.

The Tariff Commission Report, 1968,^ on "The Fixation

of Fair Selling Prices of the Automobiles" has come to the

1 (

conclusion that the high prices of vehicles were due mostly

to the existing multiple taxes on the automobiles at

different stages of production. It has been stressed that if

the burden of taxation is reduced, there would be significant

reduction in the prices of automobiles. Price control has

prevented the industry from securing additional funds through

higher prices which could have been ploughed back for the

expansion of the industry. The recent expansion of the

automobile industry has been mostly on the basis of

borrowings which is not in the interest of the country as

major portion of the gross profits is locked up by interests

payments leaving very little for ploughing back. Tariff

Commission Report on "The Fair Selling Prices of Automobile

Ancillaries" has recommended the following:

i) As the ancillary industry has developed, it is

recommended that the automobile manufacturers should

confine themselves to the production of essential items

only,

ii) Considering the export potential the automobile

ancillary industry, the T.C. is of the opinion that as

and when collaboration agreements come up for renewal,

there should be some compulsion to remove restrictive

clauses which hinder exports from India,

iii) No further expansion of the existing capacity to

manufacture ancillary items by the vehicle

manufacturers should be permitted and no licences for

any replacement of the machinery for the same should be

issued wherever the ancillary industry can supply these

items to them,

iv) The automobile ancillary units should introduce quality

control,

v) Automobile manufacturers should reduce the prices for

the spare parts sold by them to the same level as those

charged by the ancillary manufacturers.

A study entitled "Demand For Passenger Cars" by NACER-'-

in 1971 indicated that the demand for passenger car arises

from three sources:

(a) Demand from persons in need of a personalised

transportation. In this type of demand is dependent on

the supernumerary component of the disposabale income

of the buyer and the price of the vehicle. The price of

complementary inputs like petrol and taxes in this case

though important in the determination of the intensity

of use are not considered as variables exercising any

significant influence on demand.

(b) Demand from business establishments and other public

institutions. The institutional demand for cars is

independent of income level as expenditure on car will

form a part of production expenses.

(c) Demand for public transport purposes (taxis). The

demand for taxis appears to be related to the size of

the urban population, price of the vehicle, prices of

the complementary inputs and the availability of

alternative modes of transport.

In "The Motor Vehicle Industry in India"-'--'- by D. Narayan

published in 1989, the author examines the attitude of the

Indian firms to technology development and explain its role

in the growth of the motor vehicle industry. The important

findings of the study are:

i) The story of motor vehicle industry in India is one of

import substituting industrialisation. The process was

initiated by the setting up of two assembly plants in

mid forties and continued till the early sixties as

regard four wheelers. In the case of two wheelers most

of the assembly plants were established in the sixties

and seventies. The indiginisation programme

necessitated a complete backward integration which

although began in the early fifties gained momentum in

the sixties,

ii) The structure of the assembling segment of the motor

vehicle industry at one level is governed by the

regulatory policy, at a more fundamental level the

crucial factor is technology. It is the technological

capability of the firms in particular segments of the

industry v/hich has shaped the market bringing new

entries in the post liberalisation era. The spate of

entries in a broad sense including diversification is

governed either by the strength of the firms own

technology or that of its collaborator,

iii) The structure of the ancillary sector was oligopolistic

in the early seventies. However, over the last 12

years, with the steady growth of output and especially

with the economic liberalisations of the early eighties

the oligopolistic structure was making way for

competitive conditions. This had come about because of

the design specifities of the parts and components

involved and the multiple collaborations called for by

the requirements of the several new kind of vehicles.

The competitive conditions have in turn resulted in the

lowering of the profit margins of the firms in the

ancillary sector,

iv) Government policy has played an important role in

determining the initial structure, growth and

performance of the automobile industry in India.

^ /- An article entitled "Automobile Industry: 1971-72

Recovery Phase"-'- published in The Economic Times on January

26, 1973, concludes that the automobile industry has another

encouraging year in 1971-72 with the total output picking up,

sales and profits showed good improvement during the year.

The overall improved results have been more due to the good

performance of car making units rather than those engaged in

the Manufacture of commercial vehicles or scooters. M.N.

BAGI,^-^ in his article entitled "Automobile Service Industry"

published in 1973, sought to review the extent and pattern of

growth of the service industry at large, in the perspective

of the conditions and the business climate under which it has

grown. He finds that:

i) The automobile service industry has grown through a

period of continuing short supply of vehicles and

continuing limited supply of original quality spare

parts,

ii) The authorised service concept with the dealers has

thus, generally remained limited, to establishing

certain physical facilities as advised by the

manufactureras and work being done technically. The

service facilities of the franchised dealers are

generally adequate to meet the obligations of the new

vehicle free services and the warranty service, but

vary considerably between dealer to dealer,

iii) The non franchised sector of the service industry has

grown and kept pace with the potential business

available but in the main, as small individually owned

shops, lacking the composite planning as an industry,

iv) The obsolence life of the vehicle in the country is

very large.

v) The engineering and management education facilities in

the country have all through lacked an emphasis on the

applied education and training for the service side of

the automobile industry,

vi) The automobile service industry would today have an

estimated employment, specifically in the area of

service and repair of over 100,000 people and a gross

turnover of about Rs.250 crores from service and repair

sales.

Arun Firodia et.al^ in their paper entitled "Two-

Wheeler Scene X-rayed" published in 1987, have looked into

factors affecting the growth and development of the two

wheeler industry. They have attempted to evaluate the

performance of the two wheeler industry, taking into account

the issues like capacity utilization, role of Modvat, long

term implication of foreign collaboration. Their findings

are:

i) The Government liberalised the policy of industrial

licensing on the understanding that it would be for

the individual entrepreneur concerned to decide about

the market and viability of the project. While it is a

fact that utilisation of installed capacity in two

wheeler segment is not a satisfactory level,

ii) The net advantage due to MODVAT to the automobile

industry has been marginal.

iii) The foreign collaboration in the automobile industry

should help in giving improved fuel efficiency of the

vehicles and updating of technology of products and

improvement in the manufacturing technology, both in

the automobile and the ancillaries industry.

S.R. Kasbekar-'-^ in his article entitled "Auto Industry

Comes Off Age" published in 1981 has looked into different

aspects of the industry. It concludes that:

i) The Indian automobile industry has managed to come out

of the recession-ary phase which gripped it during the

two years of the worst oil crisis from 1973 to 1975. A

high cost of production coupled with uncertainity

hanging over the oil crunch like a dark cloud had hit

this industry for quite some time,

ii) The Indian automobile industry is almost over three

decades old, some of the most basic problems continue

to plague it. The designing in terms of safety,

comfort, durability road holding appearance or speed

cry for a lot of improvement,

iii) The major reason behind all these defects is the poor

growth of R & D in automobile industry,

iv) High taxes and the high cost of raw material and

components are the two basic factors responsible for

high automobile prices in India.

"Car Industry : Some Issues and Alternatives" by P.R.

23

Rao,-'- throws ample light on some of the important issues

relating to car industry. The Indian passenger car industry-

is very sick. The main reasons are obsolete machinery,

negligible efforts of R & D, high rate of taxes, low labour

productivity, strained industrial relations and uneconomic

levels of production. In the light of these difficulties the

prospects for car exports from India may not be bright.

The study of the prospects for self reliance and

indigenisation in the automobile industry (T, Hamaguchi

1985)^ concludes that the liberalisation policy in respect

of the automobiles sector should be oriented more towards the

development of automobile ancillary industry in the long run.

Care should be taken to ensure that the concessional import

tarifffs with respect to automobile ancillary items and spare

do not pose a threat to the domestic automobile ancillary

industries.

Secondly, the definition of project import now applies

only to establishment of a new unit or a substantial capacity

expansion and is unlikely to be helpful to automobile

ancillary units which have already attained a certain degree

of skill and productive capacity. For them marginal expansion

or technological upgradation may be sufficient, but they may

be baulked by the high tariffs on imported raw materials and

capital goods not falling within the scope of project

imports.

Finally, the policy of reservation of certain

automobile ancillary items for the small scale sector needs

. to be modified and the criteria for reservation should be

based on considerations of scale of production and

technology.

Rajaram Das Gupta-'- in his paper entitled

"Liberalisation of Automobile Industry Policy and Demand for

Commercial Vehicles" published in 1986, attempts to estimate

demand for different categories of commercial vehicles upto

the end of eighties. The author contends that the official

demand forecasts are exaggerated because the assumptions

about growth of traffic on which they are based are

unrealistic. In the light of his demand projection, the

author argues that the current policies of licensing a number

of new units is likely to result in under utilisation of

capacity and consequent loss of economies of scale. A

preferable policy would be to increase capacity in the

existing units would achieve greater efficiency and introduce

some competition in the industry.

A study entitled "Two Wheelers on Growth Path" was

carried out by N.N. Sachitan and-*- in 1984, wherein he looks

into the radical changes that has taken place in the two

wheeler industry in early eighties. Its findings are:

i) In the past two decades, new class of consumer has come

into being who can afford something more sophisticated

than a bicycle but whose affluence has not yet reached

the level needed to purchase and maintain a car. This

class favours the two wheeler,

ii) During early stages entrepreneurs were reluctant to

invest in two wheeler industry due to number of reasons

such as it was capital intensive industry and the

production cost was volume sensitive, the Government

was obsessed with regulating the size of an individual

producer, licensed capacities were ridiculously low,

over production was frowned upon and expansions

discouraged,

iii) The Government attitude changed radically after 1980,

as it recognize the advantages of economies of scale,

iv) In order to encourage the induction of modern

automotive technology the Government liberalised its

technology import policy, eased the rerstrictions on

foreign collaboration and import of critical components

and reduced duties and taxes on fuel efficient

vehicles. This made a favourable impression on the

World's leading makers of two wheelers, particularly

the Japanese companies. As a result number of well

known manufacturer abroad to offer technical and even

financial collaboration to the Indian companies.

V) The new collaboration ventures which are~really a

generation ahead in technology from what Indian

consumers have. They incorporate such features as

infinitely variable transmission, electronic ignition,

push button start option, separate oil pumps for 2

stroke engines, multijet carburettors, built in coil

for directional flashers, sealed beam head lamp etc.

vi) The problem that manufacturers of new models are facing

in maintaining quality in the obsolescence of the

automobile ancillary industry in the country.

A publication entitled "Automobile Sector : Room for

Guarded Optimism" by P.A. Seshan,^^ examines the growth in

production of the automobile industry during 1980-1985.

The important conclusions are:

i) The Sixth Plan has witnessed a metamorphic change in

the complexion of the automobile industry. During the

period the actual rise in medium and heavy commercial

vehicles was 10.1 percent with the output being 72964

vehicles in 1985 against 48652 vehicles in 1980. In

light commercial vehicles the output increased to 32668

units in 1985 from 19659 units in 1980 shows an average

increase of 13.2 percent yearly,

ii) There has been a spectacular rise in production of

passenger car the output figure rose 1.03 lakh in 1985

from 30538 units in 1980 shows an average annual rate

of 47.2 percent. So even a moderate rise in -demand by

30 percent annually will necessitate an output of 2.5 '

?7

lakh units in the last year of the Seventh Plan,

iii) The development of the two wheelers sector have been

truly spectacular. The output all types of two wheelers

has risen by nearly 3 3 percent yearly (i.e. output of

two wheelers touched the figure of 10.98 lakh units in

1985 against 4.18 lakh units in 1981). The output of

scooter shows an increase of 19.3 percent annually. The

output of moped shows a rise of 63.6 percent and motor

cycles shows a rise of 27.5 percent yearly. In view of

the continuing popularity of fuel efficient vehicles

for personal transportation in the middle and lower

income group it is expected that the demand for two

wheelers will continue to grow at a fast rate and the

output of all types may have to be around 2 5 lakh units

by 1989-90.

An article entitled "Basic Scheme of MODVAT is Good" by

R.C. Bhargava, •'- published in 1987. Author examines the

impact of the MODVAT on automobile industry. He finds that

the basic scheme of MODVAT is good as it is designed to

prevent the cascading effect of excise duties. However, the

actual benefits from MODVAT are much lower than the increase

in cost arising from the higher excise duty, as well as the

Central Sales Tax which has now to be paid as a result of

levy of excise on parts which were exempted from such duty.

Therefore, in terms of bringing down the price MOADVAT is a

non startor.

R.N. Aggarwal's^^ study (1988) attempts to pinpoint the

main causes of the sickness of this industry and suggested

remedial measures. The major conclusions are:

i) Cost of vehicles can be reduced through cutting of

taxes and excise rates and also by gaining from

economies of scale in production.

ii) Import substitution has not helped the consumers in

terms of price and quality of vehicles,

iii) Price control and protection policy has lead to a

significant fall in the quality of vehicles in terms of

efficiency, pollution and safety standards,

iv) Small size of the market has been identified as the

basic problem of the industry in the. sense that it has

given rise to many other problems.

V) Other bottle necks are found as the absence of credit

facilities, infrastructure, foreign exchange and lack

of continuous modernisation and development of

technology.

A study entitled "Productivity Trends in Automobile

Industry" was carried out by NPC Research Section in 1988. -

The objective of the study is mainly to analyse the

performance of the industry examines its growth with respect

to some of the vital parameters. Their findings are:

i) The automobile industry is of strategic importance in

the context of the country's economic development and

its defence and security needs. Its importance has

grown over the years and from a simple CKD assembler it

has now acquired the status of a full fledged

automobile producer. The scale of operation has,

however, rexnained small which has seriously handicapped

its efforts to compete in the world market,

ii) The quality and cost of products are still below the

international standards primarily because of uneconomic

scale of operations which preclude the possibility of

introducing automation in its assembly and

manufacturing units,

iii) Though India has been exporting automobile for the past

three decades, it still remains a marginal exporter.

The position is unlikely to change very much in the

near future as most of the automobile manufacturers

continue to be low output high cost units and cannot

stand in competition with the long established

automobile manufacture elsewhere in the world,

iv) There has been a steep fall in capacity utilisation

from 1984 in almost all sectors of the auto industry.

The entry of Maruti Udyog with a small fuel efficient

car has provided some respite to the car sector but the

situation in the auto industry as a whole remains

unsatisfactory.

30

v) Productivity in the industry in general is on the low

side. Some individual units have, however, performed

better than the others. To reach international

standards the industry has yet to go a long way.

S.V. Shridore^^ in his article entitled "Growth

maintained despite tax burden" published in 1989, has

critically examined the tax structure relating to Indian auto

industry. The main conclusions are:

i) The Indian Automobile Industry, which leads the

industrial activity of the country is sufficiently

grown, diversified and upgraded to become a lead sector

in the process of modernisation of the entire

engineering industry. The capacity of the industry to

produce modern high performance vehicles has been

established and proved,

ii) The problems and challenges facing the industry are

mainly of economic nature with various financial and

commercial ramifications,

iii) The Government has taken several measures to boost the

industry, its efforts lag much behind the requirement

due to the high volatile duty structure with annual and

mid year increase in customs and excise duty continuous

appreciation of foreign currency against rupee and

increased input costs have made a vehicle manufacturer

struggle for finacial viability. The tax burden has

31

crippled the industry.

In "Automobile Industry in India" by P. Arunachalam

published in 1990,^^ the author first examines the

historical development of Indian automobile industry. He

finds that the industry grown after government changes his

policy in early eighties. Making use of the best technique

available to them due to the new tie-ups. Finally, the author

is of the view that the present tax structure of the

automobile industry need immediate modifications so the

prices of vehicles may come down.

A publication entitled "Technological boom in

automobile industry" analysed by A.K. Verma.^^ The author

emphasis the role of the Government which inspired the

manufacturers to enter into new tie up with various leading

producers of automobiles in the world in early eighties.

Further, he examines the growth and problems of the different

sectors of the automobile industry and analyses the

structural changes that have taken place in these sectors.

Raju and Sanathanan in their paper entitled "Two-

wheeler Revolution in India" published in 1990,^^ have looked

into the factors affecting the growth and development of two

wheeler industry. The paper emphasis the fact that the

explosion in demand for two wheelers has occured due to

variety of reasons such as its cater the need of different

strata of people in society, craze among middle class and

high fuel prices. Further, the process of liberalisation in

early eighties changed the entire character of the two

wheeler industry. Finally, the author analyses the production

trend in the two wheeler industry. Production of two wheelers

has increased from 12.11 lakhs in 1971 to 15.97 lakhs in

1989. The share composition of scooters, moped; and motor

cycles has also changed during the period studied.

J.S. Mathur^^ have attempts to assess the growth

pattern of automobile industry in India. Author presented the

data on the production of different categories of vehicles.

He ; found that in the past 30 years production of cars and

geeps have increased 8 times, commercial vehicles 10 times

while two wheelers have increased a phenomenol 115 times. In

his view lack of credit facilities, high taxation, high cost

of production are some of the major problem which need

immediate attention.

V.V. Naik in his article entitled "Auto Sector : Export

performance and import intensity" published in 1991,^^

examines the export performance and the effects of

liberalisation policy on the automobile industry. Author is

of the view that in the present constext of forex crunch,

when the Government is hard pressed to import even essential

goods, the export performance of all the sectors is of

paramout significance. The study concludes that the export

performance of the automobile industry should came under care

scrutiny in view of the fact that this industry not only

consumes petroleum products, but also has been consuming

foreign exchange by way of large scale imports. The exports

by the auto industry during 1988-89 showed a growth of 90

percent over the previous year. This growth look impressive

but the percentage of auto export to engineering exports is

negligible. The liberalisation policy has not helped the

country in the generation of foreign exchange. The automobile

industry rather spent more foreign exchange in meeting

indigeneous demand these include, raw material, components,

remittances particularly in case of premium vehicles. It is

suggested in the article that as a remedy it is necessary to

save foreign exchange by imposing drastic import cuts and

slaping a temporary luxury tax on premium vehicles.

S.D. Naik in his paper entitled "End of the Fast Lane"

published in 1991. Author focusses attention on structural

changes in the industry during eighties. The important

observations are:

i) Till the begining of the 1980's the automobile industry

in India was characterised by small scale operation,

technological obsolescence and absence of any

competition. The changes that have taken place in the

country's automobile industry during eighties have led

to the emergence of a fairly competitive market for

automobiles.

ii) It is suggested in the paper that the Government should

recommend R & D collaborations to upgrade older

models. Author has warned that without a considerable

increase in R & D the industry will keep falling

behind,

iii) The future appears rather uncertain with rising prices

of vehicles as also diesel and petrol. There is an

imperative need to reduce costs.

The Indian automobile industry has now reached a stage

where it should be in a position to draw up long term

corporate plans aimed at developing indigeneous capabilities

and continuing the pursuit of excellence.

The problem and prospects in automobile industry

analysed by S.K. Iyer. The important findings are stated

below:

i) Till the beginning of 1980's the automobile industry

was characterised by small scale operations,

technological obsolescence and absence of any

competition,

ii) The component industry made significant progress during

eighties through over 400 collaborations with leading

auto component manufacturers abroad,

iii) The Government earns substantial revenue from the

automobile industry by way of import duty, excise duty,

sales tax, octroi etc.

iv) The remarkable growth of automobile industry during

eighties was possible only due to the liberal financial

assistance rendered by the financial institutions both

directly and indirectly,

v) The future of automobile industry will depend upon the

further availability of petroleum/diesel and their

prices.

Sahetiya Srichand (1991)"^^ in his article attempts to

assess the production and sales trends in the commercial

vehicles in the year 1990-91. In view of the author,

production and sales of commercial vehicles are regarded as

important yardstick in guaging the health of the economy.

The production target for commercial vehicles during 1990-91

was almost achieved despite several odds. Against the

targeted production of commercial vehicles in 1990-91 of 1.5

lakh, the actual achievement was 1.44 lakh. Total sales of

LCV went up by 14.8 percent in 1990-91 over the previous

year.

It is observed in the above mentioned studies that the

Government policies has played an important role in the

growth and development of the automobile industry. The

industry had an uneventful progress till the eighties, but

has made substantial and rapid growth after 1980 as the

liberalisation and broad-banding policies proved to be a

strong stimulant for the growth of the industry.

The next chapter will focus on the impact of regulatory

policy of the Government on the pattern of growth and

investment in the automobile industry.

REFERENCES

1. Ahluwalia, I.J.; Industrial Growth in India; Stagnation since the mid sixties, O.U.P. 1985 p.2.

2.(a) Chakravarty S, Reflections on the Growth Process in the Indian Economy. Administrative Staff College of India, Hyderabad, 1974.

(b) Desai. A, Factors Underlying the Slow Growth of Indian Industry, Economic and Political Weekly Annual, 1981.

(c) Nayyar D, Industrial Development in India. Some reflection on Growth and Stagnation, E.P.W. Annual No. 1978.

(d) Raj K.N. Growth and Stagnation in Indian Industrial Developnent. EPW Annual No. 1976.

(e) Rangarajan, C., "Industrial Growth : Another Look, EPW, Annual No. 1982.

(f) Srinivasan T.N. and Narayana N.S.S. Economic Performance since Third Plan and its Implications for policy, EPW, Annual No. 1977.

(g) Shetty S.L., Structural Retrogression in the Indian Economy since the mid sixties, EPW, Annual No. 1978.

3. Report of the Tariff Commission on the Automobile Industry, Government of India, Ministry of Commerce and Industry, 1953.

4. Report of the Tariff Commission on the Automobile Industry, Bombay, 1956.

5. Dynamic Automobile Policy Needed, Economic Times, July 1971.

6. NACER; Taxation and price structure of Automobile Industry, New Delhi, 1967.

7. Report continuance of Protection to the Automobile Industry, Government of India, Tariff Commisision, Bombay, 1968.

3. Report on the Fixation of Fair Selling Prices of the Automobiles, Ibid.

9. Report on The Fair Selling Prices of Automobiles Ancillaries, Ibid, 1968.

10. NACER; Demand for Passenger Cars, New Delhi, 1971.

11. Narayana. D, The Motor Vehicle Industry in India, Oxford & IBH Publishing Co. Pvt. Ltd., New Delhi, 1989.

12. Automobile Industry : 1971-72 Recovery Phase, The Economic Times, January 26, 1973.

13. Bagi M.N; Automobile Service Industry, The Financial Express, August 2, 1973.

14. Arun Firodia, Munjal K.R. and J.H. Shah, Two Wheeler Scene X-rayed, The Economic Times, October 8, 1987.

15. Kasbekar S.R; Auto Industry Comes Off Age, The Economic Times, October 24, 1981.

16. Rao P.R; Car Industry : Some Issues and Alternatives, Ibid, November 25, 1981.

17. Hamaguchi. T; Prospects for Self-Reliance and Indigenisation in Automobile Industry, EPW, Vol. XX No. 35, August 31, 1985. Bombay, pp. M 115-122.

18. Rajaram Das Gupta, Liberalisation of Automobile Industry Policy and Demand for Commercial Vehicles, EPW, Vol. XXI, No. 8, February 22, 1986. Bombay pp. M2-8.

19. Sachitanand N.N., Two Wheelers on Growth Path; The Hindu Survey of Indian Industry, 1984, pp. 163-66.

20. Seshan P.A., Automobile Sector : Room for Guarded Optimism, Ibid, 1985, pp. ,215-19.

21. Bhargava R.C. "Basic Scheme of MODVAT is Good", The Economic Times, New Delhi, October 8, 1987.

22. Aggarwal R.N.; Indian Automobile Industry : Problems and Prospects, The Indian Economic Journal, Vol. 36, October - December 1988, pp. 50-61.

23. NPC, Productivity Trends in Automobile Industry, Productivity, vol. 29, No.3, October-December 1983, pp. 327-140.

24. Shridore S.V.; Growth maintained despite tax burden, The Economic Times, New Delhi, June 8, 1989.

25. Arunachalaia P.; Automobile Industry in India, Monthly Commentary, December 1990, pp. 45-47.

26. Verma A.K.; Technological Boom in automobile industry. The Hindustan Times, New Delhi, July 11, 1990.

27. Raju K.V. & V. Sanathanan, Two Wheeler Revolution in India, Op.cit., pp. 51-53.

28. Mathur J.S.; Automobile Industry in India - Retrospect and Prospect, Southern Economist, Vol. 29, January l, 1991, pp. 28-30.

29. Naik V.V.; Auto Sector : Export Performance and Import Inatensity, The Economic Times, New Delhi, June 6, 1991.

30. Naik S.D.; "End of the Fast Lane", Ibid, p.12.

31. Iyer S.K., The Problem and Prospects in Automobile Industry, Financial Express, New Delhi, October 4, 1991.

32. Sahetiya Srichand., Demand linked with growth Prospects, op.cit. p.13.

^HAPTER-III

EVOLUTION AND GROWTH OF ADTOMOBILE INDUSTRY

IN INDIA

The preceeding chapter is of an introductory nature,

which gives a complete outline of the study. The present

chapter sheds some light on the impact of regulatory policy

of the Government on the evolution and growth of the

automobile industry. Industrialisation plays an important

role in the economic development of a country. It changes the

environment, the quality and pattern of life and is necessary

for socio-economic advancement of the country. Within the

industrial sector, the engineering industry plays an

important role in the development of the economy, its

contribution to exports, its role as a major employer, its

role as a supplier of goods, and services has rightly earned

for it the title of "engine of growth". In terms of value

added, its share is as high as 33.2 percent. In terms of

investment, as muCh as 28.4 percent of the total investment

is in industry in the engineering sector. Its weight in the

index of industrial production is as high as 32.2 percent and

it provides employment to 29.7 percent of the workers

employed in all industries. The engineering industry

constitutes more than 30 percent share, in terms of value of

output of all industry. The R&D expenditure in engineering

industry is as high as 65.9 percent of total expenditure in

-11

all the industries. The engineering industry has also

contributed to exports. India's engineering exports is one of

the top foreign exchange earners and account for 11.9 percent

of the total export in 1989-90.^ As far as infrastructure is

concerned the engineering industry plays a vital role, by

manufacturing railway wagons, heavy commercial vehicles,

ships etc. which were essential for improvement of

infrastructural facilities.

Evolution and Development of the Automobile Industry:

The Indian automobile industry which leads the

industrial activity in the engineering sector is sufficiently

grown, diversified and technologically upgraded to become a

significant segment of the engineering industry of the

country. So far as the evolution of automobile in the world

is concerned it is well known that unlike other major

inventions the original idea of the automobile could not be

attributed to any one individual. It is said that Nicolas

Joseph Cugnot of Lorraine was the constructor of the first

true automobile in_ 19 6 9.. This was a huge steam-powered

tricycle and ran for 20 minutes per hour, while carrying four

people. The first passenger car based on internal combustion

engine was built by a Britisher in 1827.-^ The four stroke

principle upon which most modern automobile engines worked,

was discovered in 1862 by a French.^ But the honour of early

pioneership in automobile industry goes to Henry Ford and

Durant General Motors in 1908.^

The origin of the Indian automobile industry can be

traced to the year 1942, when the Hindustan Motors was

established in Baroda.^ In fact, long before this, imported

cars in India according to archival sources were first seen

in 1898. Upto almost the end of World War I complete motor

vehicles were imported either directly or through agents in

India. It was in early 1920's that local assembly of

vehicles, from components and parts imported in completely

knocked down (c.k.d) condition was started in a few units set

up in Bombay, Madras and Calcutta. Till World War II, all the

motor vehicles in India were imported. After 1947, the

history of automobiles in the country changed completely. It

was in 1949, that the first partially manufactured car rolled

out of the assembly line of Hindustan Motors Limited. The

establishment of Hindustan Motors Ltd. (HML) was followed by

Premier Automobiles Ltd. in 1944 with its car units in Bombay

and Standard Motor Product of India in Madras.^ As usual the

initial years of the industry were of the years of strains,

stresses and all sorts of difficulties. During this period

the automobile industry of the country consisted of only

importers, assemblers, etc. who were just in the assembly

line. The manufacture of motor vehicles was not taken uptill

1953, when the Government approved the recommendations of

Tariff Commission on the automobile industry. Permission was

43

given to the Hindustan Motors Ltd. to operate as automobile

manufacturers. Besides these five companies with

manufacturing programmes there also existed several pure

assemblers all of which had tie up with foreign

manufacturers. They are? General Motor India, Bombay, Ford

Motor Company of India Ltd. Bombay, Addison and Co. Ltd.,

Madras, Mahindra and Mahindra Ltd., Bombay, Dewar's Garage

and Engineering Works, Calcutta, Peninsular Motor Corporation

Ltd., Calcutta, and French Motor Car Co. Ltd., Bombay.^In

1956 Bajaj Tempo, Ashok Leyland (1957) and Tata Engineering &

Locomotive Company (TELCO) in 1962, took up the production of

commercial vehicles, Mahindra and Mahindra was promoted in

1965 in the Jeep line.-*- In two wheelers group Enfield India,

Bajaj Auto, Escorts and Jawa were the prominent units but the

breath taking development took place in the 80's. During this

period, the major groups of automobile plying Indian roads

can be categorised as commercial vehicles, cars and two

wheelers. Till eighties the progress of the automobile

industry was uneventful. The industary was accorded only a

marginal status in the scheme of industrial development of

the country. It was, of course, recognised even in the

fifties that the consumption of motor vehicles in India was

much below the potential demand for a country. In the wake of

this. Government allowed the setting up of two units for the

manufacture of commercial vehicles i.e. Hindustan Motors and

h h

Premier Automobiles with foreign collaboration in the mid-

fifties. In 1953 the Tariff Commission in its first report

recommended that firms which have a manufacturing programme

should be allowed to assemble vehicles in the country. •'• In

its second report (1956) the Tariff Commission recommended

that high priority should be given to the production of

commercial vehicles rather than to passenger cars. The Fourth

Plan assigned an important role to the industry in the

overall econonic growth considering its high employment

potential. A rise in the car output and impressive increases

in the production of trucks, scooters are all parts of the

Fourth Plan. The causes for the industry's tardy growth and

its high cost structure and the poor quality of the vehicles.

There was a point in the argument that much of the high cost

of Indian vehicles was accounted for by the incidence of

taxation to the tune of about 4.6 percent. The dependence on

too many and too small ancillary units has also contributed

to the increase in vehicle prices. The price control policy

of the Government has badly affected the industry. So during

the Fourth Plan period the Government decided to assist the

industry by renoving the price control.

In January 1975 Government decided that industrial

undertakings which hold industrial licences could apply for

the endorsement of their licenses allowing for the maximum

utilisation of plant and machinery. In August 1975, 15

engineering products which include commercial vehicles,

tractors, Automobile ancillary Machine Tools, textile

machinery etc. were allowed for automatic growth of capacity,

these segments were allowed to increase their licensed

capacity by 5 percent a year and upto a maximum of 2 5 percent

in five years. Any increase in capacity under this facility

was over and above the normal permissible limit of 2 5 percent

in production over the licenced capacity. The production of

vehicles is licenced. Licencing of capacity involved not only

estimation of the total demand but also its distribution by

types of vehicles given the nation priorities and number of

manufacturers. At the very outset preference in licensing of

capacity was given to commercial vehicles as passenger cars

were identified as a luxury item. As regards individual firns

some relaxation in licensed output levels had been permitted

mainly in recognition of the fact that installed capacities

exceeded licensed capacities. Between 1975 and 1980 through

the provision of "regularisation of excess capacity" firms in

the commercial vehicles, scooters and ancillaries segments

were allowed to produce in excess of licensed capacities

provided no additional investment in machinery was reguired.

This provision was renewed in 1980 for two wheelers, three

wheelers and commercial vehicles. The guestion of capacity

licensing has two aspects:

i) Licensing capacities in existing lines of production.

ii) Rigidity in shifting from one product to another within

a broad product group.

As regards capacity licensing, it is evident from Table

No. 3.1 that installed capacities were significantly lower

than licensed capacities, and production of all types of

vehicles were also significantly lower than the installed

capacities all through the period. Thus starting from

licensed capacities of 51,400 for car, 98,000 for commercial

vehicles and 7,77,000 for two wheelers in December 1975 the

capacities in December 1985 were 1,85,000 for cars, 3,43,000

for commercial vehicles and 34,72,000 for two wheelers.

Between 1975 and 1985 licensed capacities increased at the

same rate i.e. 250 percent for both cars and commercial

vehicles. Thus capacity licensing was not a barrier to

growth.

TABLE NO. 2.1

Licensed and Installed capacity and Production of vehicles

Licensed Actual(at start of plan) Capacity Capacity Production

Second Plan (1956-60)

Automobiles

Third Plan (1961-66)

38,000 25,000

Commercial Vehicles Passenger Cars Jeeps

Fourth Plan (1968-69 to 1972-73)

[Commercial Vehicles Passenger Cars] Two Wheelers

Fifth Plan (1974-79) (as on Dec.1975)

28,000 20,000 5,500

57,600 1,49,000

Commercial vehicles Passenger Cars Two Wheelers

98,000 73,400 51,400 47,400

7,77,000 2,00,000

28,000 20,000 5,500

Sixth Plan (1980-85) (as on Dec.1981)

Commercial Vehicles Passenger Cars Jeeps Two Wheelers

1,57,450 84,000 54,000 52,000 15,000 13,000

12,33,000 4,93,000

Seventh Plan (1984-85 to 1989-90) (as on Dec.1985)

Commercial Vehicles Passenger Cars Jeeps Two Wheelers

3,43,000 1,20,000 1,85,000 93,000 27,000 30,000

34,72,000 11,00,000

35,600 84,600

48,000 43,000

1,84,000

57,400 35,000 12,500

3,07,000

96,800 74,000 25,200

9,18,000

Source: Plan Documents (various issues) ACMA, Automotive Industry of India, Facts and Figures (various issues)

THE POLICY CHANGES AND LIBERALISATION IN EIGHTIES :

The eighties have been a period of change for the

automobile industry. Several steps were taken modernise the

industry. Following are the important steps that have an

effect on the automobile industry:

i) A special scheme for setting up 100% export oriented

units was introduced in 1981 with facilities for duty

free import of capital good/raw material/components

without clearance from indigenous angle and with no

insistence on dilution of foreign equity.

ii) In April 1982 scheme of re-endorsement of capacities

was announced under this scheme all license units which

have achieved 94 percent of its licensed capacity could

be re-endorsed with reference to the extent of the

highest production achieved during any of the previous

5 years plus one third thereafter. In 198 6, the scheme

was made available to units that utilised 80 percent of

their licensed capacity,

iii) By raising the investment limit in respect of exemption

from licensing from Rs. 3 crores to Rs. 5 crores in

April 1983, the area of delicensed sector has been

considerably enlarged,

iv) Investment limit for small scale and ancillary

industrial undertakings has been raised from Rs. 2 0

lakhs and Rs. 2 5 lakh to Rs. 35 lakhs and Rs. 45 lakhs

respectively.

v) With a view to optimise utilization of capacity and

encouraging large volumes of production and to provide

flexibility to the manufacturers to adjust their

product mix a scheme of broad banding was introduced in

1983 and was extended during the year 1985 and 1986.

The broad banding scheme was introduced in automobile

industry in January 1985. Under this scheme,

manufacturers holding industrial licenses for

manufacture of passenger cars, jeeps, commercial

vehicles and two wheelers. In January 1986, this was

modified to include three wheelers upto 350cc engine.

Manufacturers can freely convert their individual

licences in any of the two groups-motorised four

wheelers or motorised two wheelers and three wheelers

upto 350CC engine,

vi) In March 1985, the Government announced the delicensing

of twenty five broad categories of industries which

includes Automotive ancillaries, Machine tools,

Electronic components and others. For these industries

only Registration with secretariat for Industrial

Approval is required,

vii) In view of the escalation in project costs the limit

for MRTP Companies which was earlier fixed at Rs. 2 0

crores has been raised to Rs. 100 crores in March,

1985.

viii) In May, 1985 27 industries which include two/three/four

wheelers. Automotive components, spare and ancillaries

and others were exempted from section 21 and 22 of the

MRTP Act.

ix) In December, 1985 delicensing was extended to MRTP and

FERA Companies, 22 industries were delicensed.

X) The Union Budget of 1986-87 brought about a sweeping

changes in the system of excise taxation. A scheme of

MODVAT was introduced in the budget.

IMPACT OF MOTOR VEHICLE (AMENDMENT) ACT, 1988:

The Act provides a number of significant changes and

improvements over the earlier provisions. The basic objective

of the Act is to provide pollutionless environment and

maximum safety to consumers in such a way that the growth of

the industry will not suffer. To attain these objective a

number of changes we brought about in the Act. As, the

maximum life of vehicles is fixed in case of trucks, cars

and two wheelers are 20, 15 and 10 years respectively. The

stricter carbon nonoxide emission rules are being brought

into force. This means that the manufacturers will have to

ensure that the CO emission of their vehicles does not exceed

4.5 percent by volume. Pollution fines increase from Rs.50 to

Rs. 1000. Side indicators and wearing of helmet is made

compulsory. The other silent feature of the Act are the

reduction of the minimum age for obtaining a two wheeler

driving license from the present 18 to 16 years. Light

vehicle and two wheeler licences will now be valid till the

holders are 20 to 40 years whichever is earlier.The learner's

licences will be valid for the entire country. The mandatory

third party insurance will be for the vehicle and not for the

owner. The compensation limit from Rs. 15000 to Rs. 2 5000 in

case of death, and Rs. 7500 to Rs. 12000 in respect to

permanent disability. The Act also stipulates that all trucks

and goods transport vehicles should display four registration

number plates one on each sides of the vehicles.

But despite the liberalisation of licensing, the

automobile units will have to obtain Government approval for

any new foreign collaborations. The Government would like the

commercial vehicles and new cars to be rapidly indigenised.

The heavy commercial units took advantage of the new

opportunities and implemented expansion schemes. The heavy

commercial units Ashok Leyland and the TELCO implemented a

number of expansion schemes. The TELCO doubled its capacity

to 54480 units and established a new unit in Pune. Ashok

Leyland started some new units in Hosur in Tamil Nadu,

Bhandra in Maharashtra and Alwar in Rajasthan. •'-• Mahindra and

Mahindra also expanded its capacity. The Hindustan Motor and

the Premier Automobiles too entered the commercial vehicle

sector through their entry did not make much headway. Similar

developments took place in light commercial vehicles sector.

There was euphoria when four entirely new enterprises namely

the DCM, the Toyota, the Allwyn Nissan, the Eicher Motors and

the Swaraj Mazda were promoted with Japanese financial and

technical participation. Each of these units had an annual

capacity of 1000 units. The volume of investment on

modernisation, expansion and new schemes was over Rs. 1000

crores.-'-'* Such heavy investment in concentrated manner in

less than 5 years did not take place at any time in the

earlier history of the industry. Some major developments also

took place in the passenger car sector. The first passenger

car plant of India was established on the outskirts of

Calcutta in the early 194 0s and in the next few years two

more plants came up at Bombay and Madras. •'• But in subsequent

years there was no induction of new technology in the

passenger car sector and production stagnated. The idea of

manufacturing "peoples" car (small and low priced) was first

developed in the early 1960s but this project was not given

serious consideration till the 1970s.- ^ It took nearly three

decades for the passenger car industry to take its next step

forward. In the early 1980s as a result of the oil crisis

the automotive industry all over the world had to look

inwards and reorient itself to the changes in the product

designs. So new mandufacturing process technologies were

3 J

evolved. These consequently led to an increased emphasis on

weight reduction, optimum product design, appropriate quality

and fuel efficiency. So the Government decided to took upto

the manufacturer of peoples' car in public sector with

Japanese knowhow and financial participation and the Maruti

Udyog Limited was incorporated as a public enterprise company

administered by the Government of India on 24th February,

1981.^^ Taking the advantage of the liberalised import policy

other manufacturers have also launched new improved models

with foreign assistance. The Hindustan Motors took up the

manufacture of the Contessa Classic fitted with Isuzu engine

of Japan. Premier Automobiles too adopted a similar

approach and a new model 118NE fitted with an engine of

Nissan of Japan came of the assembly line alongwith the

earlier version.17 The Standard Motor Product also took to

the production of the Standard 2000 (the Indian version of

Rover of UK).^° Other auto units like the TELCO, Escorts and

Dolphin desired to take up car manufacture with Japanese and

French collaboration. But the Government did not allov/ any

new project as it was felt that the field was getting over

crowded. The two-wheeler segment has seen numerous entries as

well as some model changes. But the progress of the two

wheeler industry over a long period was not impressive with

no spectacular growth of output as it was not accorded

priority status by the Government. The Government attitude

z^

changed radically after 1980. Not only did it recognise the

advantages of econonies of scale but also the fact that the

models being made in the country were hopeless and outdated.

There was a long waiting period for delivery of vehicles. The

Government recognized the need to satisfy the growing demand

and the consumer was not getting the benefit of modern

automotive technology in internal combustion engine

technology outside India. The Government liberalised its

technology import policy and eased the restrictions on

foreign collaboration and import of critical components and

reduced duties and taxes on fuel efficient vehicles. So with

the new open door policy on technology imports, especially

the easing of restrictions on manufacturing equipment and kit

imports, there is enthusiasm among almost every well known

manufacturer abroad to offer technical and financial

collaboration to the Indian companies. The prominent ones are

Ind-Suzuki (Motor Cycle) with Suzuki of Japan, Escorts (Motor

Cycles)-with Yamaha of Japan, Bajaj (Motor Cycles) with

Kawasaki of Japan, Hero with Honda of Japan. In Scooters

Kinetic with Honda of Japan, Lohia Machines and A.P. scooters

with Piaggio of Italy, Kelvinator (Mopeds) with Garelli of

Italy, Chamundi Mopeds with Peugeoto of France, Mopeds India

with Motobecan of France and Enfield India (Moped & Motor

Cycles) with Zundapp of West Germany.^^

structure of Automobile Industry in India:

Uptill now we were discussing the evolution and growth

of automobile industry in India. In the pages that follow we

will devote ourselves to discussing the changing structure of

the automobile industry in the country. It has been observed

that the automobile industry has made tremendous progress

during the last 50 years. In the Table No. 2.2 the progress

of the Indian automobile industry is presented for the period

from 1950 to 1990. The data set out in Table No. 2.2 reveal

that the total production of vehicles during the year 1990

was 23,50,231 units which showed an increase of 57155.43

percent over 1950 figure, with the growth rate of 1428.89

percent per annum, the output increased at a high rate in

1985-90. The total number of units went upto 2350231 units in

1990 against 1405433 units in 1985. It will be evident from

Table No. 2.2 that there has been more than eleven times

increase in production of automobiles in the country between

1970 and 1990.

The two wheeler industry shows the high rate of growth

in the industry. The total production of two wheelers in the

country in 1990 was 1890522 units as against a production of

16878 units in 1960. The industry registered an increase of

11201.10 percent between I960 and 1990. The production

spurted from 417602 in 1980 to 1125606 in 1990 showing a rise

of 269.54 percent. The growth in the two wheeler industry is

of continuous and steady in nature since 1970. It is observed

in Figure 1 that the percent share in total of two wheeler

industry is increasing day by day. In 1960 its share was 24

percent which rose to more than 80 percent in 1990. The

significant feature of two wheeler industry is that its share

is also increasing as its production. The major shift in

share percent was observed in 1980 as it was 50 percent in

1970 which goes to nearly 75 percent in 1980. The growth of

Indian two wheeler industry in last few years is due to a

number of reasons such as, new open door policy of the

Government, the population explosion, growth in urban

population and high fuel prices.

The passenger car sector of the Indian automobile

industry showed faster growth in the sixties and eighties,

the period in between being one of relative stagnation. It is

clear from Table No. 2.2 that the total production of

passenger car increased from 2221 units in 1950 to 176609

units in 1990 showing an overall increase of 7851.78 percent

with rate of growth of 157 percent annually. This gives the

impression that the production of passenger car is very low

as compared to two wheeler sector of the automobile industry.

It is also evident from Table No. 2.2 that the operations of

the passenger car producers in the fifties were dictated by

the slow growth in demand for cars. During the period 1960-80

this sector of the industry could not expand impressively

1950 1960

11 CARS COMMERCIAL VEHICLES JEEPS TWO WHEELERS THREE WHEELERS

FIG. 1

59

because of the rigid controls over prices. There was a rise

in 1960 when the annual production rose to 19097 units from

2221 units in 1950. This was the impact of plan schemes and

use of cars for public transport as well. The seventies

witnessed a setback with enormous rise in price of gasoline

and an increase in the cost of vehicles. The output of 1980

was even lower at 30538 units as against 35205 units in 1970.

This was mainly due to the sudden hike in the oil prices all

over the world. The year 1985 can be considered a watershed

for the Indian passenger car industry when for the first time

in its history the total production of cars per annum crossed

the one lakh mark. The Maruti Udyog Limited was responsible

for this big push. As regards percent share of car industry,

it is observed from the Figure 1 that is declining. It

constituted 54 percent in 1950 which came down to 5.5 percent

in 1980. But after 1980 it showed some increase so in 1990

its share reached 7.5 percent which could not be treated as

good. Moving over to the commercial vehicle (CVs) segment the

data set out in Table No. 2.2 indicates that the output of

commercial vehicles increased at a high rate betweeen 1985-

90. The total number of units went up from 101228 units in

1985 to 145628 units in 1990 showing an overall rise of 43.87

percent with growth rate of 8.78 percent per annum. It is

also evident from the Table No. 2.2 that production of

commercial vehicles increased from 1891 units in 1950 to

59

145628 units in 1990 showing an overall rise of 7905.94

percent with growth rate of 158.12 percent per annum. It is

interesting to note that in Figure 1 the percent share in the

total of commercial vehicles is declining day by day. It

constituted 46 percent share in 1950 which care dov.Ti to 6.2

percent in 1990. If we look at the figure of Jeep's

production, it would be evident that the production increased

from 5501 units in 1960 to 41944 units in 1990 showing an

overall rise of 662.48 percent with growth rate of 16.56

percent per annum. The percent share of Jeep in total was

very minor. It did not even cross the figure of 5 percent.

Its share in 1960 was 7.9 which came down to 1.8 percent in

1990. The pattern of growth of three wheelers has somewhat

similar trend with that of Jeeps. Its production is increased

from 469 units in 1960 to 95528 units in 1990. But its

percentage share in total shows an upward trend. It was 0.7

percent in 1960 which rose to 4 percent in 1990. One thing is

common among all categories except two wheeler that the rate

of production is increasing but the share in total is on

decline which means that the two wheeler industry is

capturing the market. In conclusion it can be stated that the

history of the automobile industry in India is of a very

recent origin. Though the country was having workshops where

assembling was done on a large scale, the production of cars

etc has started in the country quite recently. The

Governmental policies have played an important role in the

growth and development of the automobile industry. The

industry had an uneventful progress till the eighties, but

has made substantial and rapid progress after 1980 as the

liberalisation and broad-banding policies proved to be a

strong stimulant for the growth of the industry. The next

chapter will analyses the structural changes in the

automobile industry; that occur due to policy measures

enforced in eighties. It also examines the role of different

sectors in the structural change that have come about.

TABLE NO. 2.2

Changing Pattern of Production of Automobiles

A - Output (No. of Vehicles) B - Percentage share in total

Category/ 1950

Yea A B

1960

A B

1970

A B

1980 1985 1990

Jeeps

Cars

Commercial

Vehicles

Two

Wheelers

Three

Wheelers

--

2221

1891

--

--

--

54

46

•-

--

5501 7.9

19097 27.5

27518 39.6

16878 24.3

469 0.7

9334

35205

40972

113047

4229

4.6

17.4

20.2

55.7

2.1

15068

30538

68311

417602

26519

2.7

5.5

12.2

74.8

4.8

26876

102456

101228

1125606

49267

1.9

7.3

7.2

80.0

3.6

41944

176609

145628

1890522

95528

1.8

7.5

6.2

80.5

4.0

Total: 4112 100 69463 100 202787 100 558038 100 1405433 100 2350231 100

Source: ACMA, Facts and Figures 1989-90. New Delhi

£1

REFERENCES;

1. Monthly Commentary, September 1991, New D e l h i , p . 117.

2 . A h l u w a l i a K i shwar , A u t o m o b i l e s : C e l e b r a t i n g a Centenary , The Times of I n d i a , New D e l h i , J anua ry 18, 1986.

3 . Economic Times, New De lh i , June 8, 1989, p . 7 .

4. Ibid.

5. The Hindustan Times, New Delhi, Septenber 9, 1989, p. 16

6. Kothari's Year Book on Business and Industry, 1988, p.A17.

7. Srivastava, S.K., Economics of Transport, S. Chand Co. Pvt. Ltd., New Delhi, 1971, p.273.

8. The Hindu Survey of Indian Industry, 1987, p.199.

9. Kathuria Sanjay, Commercial Vehicles Industry in India : A Case History 1928-87, EPW, October 18, 1987,Bombay,pp.9-23 .

10. Srivastava S.K., Economic of Transport, op. cit., pp. 273-275.

11. Kothari's Year Book, op. cit., p.A17.

12. Ibid.

13. Ibid, p.19.

14. Kothari's Industrial Directory of India, 1988-89, p.727.

15. Date, Vidyadhar, Automobiles : History of the Industry in India, The Economic Times, June 8,'1939, New Delhi, p.7.

16. Sinha, B.M.; What Price Maruti, The Illustrated Weekly of India, September 19, 1982, pp. 28-29.

17. Kothari's Year Book op. cit., 1988 p. A19.

18. The Hindu Survey of Indian Industry, 1?87, pp. 199-201.

C.<i

19. Ibid, pp. 199-201.

20. Sachitan and N.N., Two Wheelers on Growth Path., The Hindu Survey of Indian Industry, 1984, p.163.

IpHAPTER'in]

THE STRUCTURAL CHANGE IN THE INDIAN AUTOMOBILE INDUSTRY — AN APPRAISAL

In the preceeding chapter, the evolution and growth of

automobile industry in India was examined in the light of

Government policies and programmes. The present chapter will

focus on a study of the structural change in the automobile

industry in recent years. The various aspects studied in this

chapter include the parameter of production and productivity

in the automobile industry, sales of the industry, structural

changes in the commercial vehicles sector and two wheeler

sector, export and import performance of the industry,

pricing pattern in the industry and the future projections

for the industry vis-a-vis the above mentioned parameters.

Growth and Structure are inter-related aspects of a

phenomenon.^ A cause and effect relationship may be expected

between them. Industrial growth is expected to bring about a

significant change in the industrial economy of a country.

Hence a study of the growth pattern of automobile industry

may be expected to throw ample light on structural changes

that occur in the industry. In order to substantiate this

point the following discussion is made under different

headings.

Analysis of the Pattern of Production in Automobile Industry:

The changing structure of Indian automobile industry

from time to time as a result of growth can be seen from the

e-i

data presented in Table 3.1 and in the Fig. 2.

It is evident from Table No. 3.1 that on the whole

there has been more than three fold increase in production of

automobiles in the country between 1981 and 1990. The total

production during the period 1976-80 was 2141646 vehicles

which showed an increase of 266.78 percent over 1966-70 and

the production in 1990 was 2350231 vehicles which showed an

increase of nearly 350 percent over 1981. This shows that

major change took place in the industry in the 80's. The

changes that took place upto eighties were limited to

particular sector from time to time. The changes that took

place between 1971 to.1980 were mainly confined to commercial

vehicles and two wheeler sector. These changes are due to the

efforts that have taken place in the Fourth plan to boost

commercial vehicle and two wheeler sector. It is clear from

Table No. 3.1 that the changes in eighties are of significant

nature when the highest increase over the previous years was

observed in 1985 i.e. more than 30 percent. This was the

direct result of Governmental attitude of change and

liberalisation in its policy. It was a year in which car

sector crossed the mark of lakh for the first time in the

industry. The overall picture of the automobile industry in

this particular year looks to be very imprerssive. But one

thing was very clear from the table that steady growth was

not observed in the industry the rise and fall in the

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industry is the result of a particular sector which sometime

showed improvement and at other times it pinpointed a

decline.

At present, there are five car manufacturing units in

the country. They are: The Hindustan Motors, the Premier the

Automobiles Limited, the Standard Motors Limited, the Maruti

Udyog Limited and the Sipani Automobiles Limited. But the

Standard Motors Limited was closed during the last two years

and the Sipani Automobiles Limited had a negligible share in

total production of passenger car which declined from 168627

vehicles in 1966-70 to 163768 vehicles in 1976-80 showing a

decline of nearly 3 percent. It is also clear from the table

that its share in total during 1966-70 to 1976-80 declined

continuously. It accounts for 21 percent in 1966-70 which

came down to 7.64 percent in 1976-80. This indicates that the

period between 1966 to 1980 was not good for the car

industry. But since 1981 car sector shows a continuous rising

trend. The production during the year 1990 was 176609 which

showed an increase of 319 percent over 1981. It is observed

in Table No. 3.1 that 1985 and 1990 are very crucial from

industry's growth point during the year 1985 the car sector

showed the highest increase over the previous year i.e. an

increase of more than 60 percent over a previous year. But

its share in total generally lies between 5 to 8 percent

during 1981 to 1990. The year 1990 shows a nominal decline in

I it <

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16

• CARS o TWOWHEELERS X COMM.VEHICLE A JEEPS A THREE WHEELERS

1981 1982 1983 1984 1985 1985 1987 1988 1989 1990

FIG.2, Y EAR

63

production figures but this nominal decline may be an

alarming sign for car sector. This decline was mainly due to

continuous rising trend in the prices of passenger cars. The

performance of car sector is discussed at length in the next

chapter.

Table 3.1 reveals that the production of commercial

vehicles during the year 1981 was 89752 vehicles which rose

to 145628 vehicles in 1990 showing an increase of nore 62

percent. The production of commercial vehicles increased from

178966 vehicles in 1966-70 to 269905 vehicles in 1976-80

showing an increase of nearly 51 percent. There are a number

of ups and downs which can be observed from the Table in

commercial vehicles like passenger car sector it also shows

the same pattern and composition in total share. Table 3.2

gives details of the composition of commercial vehicles

output and sales of commercial vehicles during 1971 to 1990.

The data set out in Table 3.2 and in Fig. 3 reveal that

the output of Medium and havy commercial vehicles increased

from 169833 units in 1971-75 to 207716 units in 1976-80

showing a rise of 22.30 percent. But the production of

Medium and heavy commercial vehicles has risen to 63103 units

in 1990 against 65234 units in 1981 showing a rise of 35

percent with the growth rate of 3.5 percent per annun. In

the year 1980 the Medium and heavy commercial vehicles sector

crossed the market of 2 lakhs and the peak was touched in

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70

1990 by producing 88103 units in a year. On the sales side in

the year 1989, 66814 units were sold out against the 64516

units in 1981 showing an increase of 3.5 percent with growth

rate of .35 percent per annum. This shows that the growth

rate in respect of sales in much below the production. The

years between 1982 to 1987 was also important from the sales

point of view of Medium & heavy commercial vehicles because

number of times sales decline over the previous year. This

declining trend in Medium & heavy commercial vehicles during

the period 1982-87 was due to the credit squeeze which was

introduced by the Government in July 1981. In a sector where

credit is all important the terms and conditions of credit

and prevalent interest structure plays a highly sensitive

role in determining the demand prospects.

In the initial years after the inception of the

automobile industry, production of commercial vehicles was on

light commercial vehicles sector. The Ashok Leyland in 1950

and especially TELCO in 1954, altered the balance

dramatically in favour of MH commercial vehicles. During the

period 1971-75, Medium & heavy commercial vehicles accounted

for 81 percent of commercial vehicles output and during 1976-

80 it came down to 77 percent. The eighties witnessed the

first decline in Medium & heavy commercial vehicles shares to

72 percent in 1981, 65.2 percent in 1985 and 60.4 percent in

1990, resulting from fresh licensing in light commercial

_ l

X

> LL.

o a Hi CD

z z

10000

9000 -

8000

7000-

6000-

5000-

4000-

3000-

2000

• MHCV (PROD. X LCV (PROD.) o MHCV(SALE) A LCV (SALE)

X 1981 1982 1983

F I G . 3

1984 1985 1986

Y EAR

1987 1988 1989 1990

72

vehicles. The TELCO has also diversified into light

commercial vehicles. Coupled with possibility increasing

efficiency of the railways, which affects the demand for

long-haul, it is likely that the share of light commercial

vehicles will grow further. Similar developments took place

in light commercial vehicles sector. There was euphoria when

four entirely new enterprises namely DCM-Toyota, Allwyn

Nissan, Eicher Motors and Swaraj Mazda were promoted with

Japanese financial and technical participation. Each of these

units had an annual capacity of 10000 units. The volume of

investment on modernisation expansion and new schemes was at

over Rs. 1000 crores.^ Such heavy investment in concentrated

manner in less than 5 years did not take place at any time in

the earlier history of the industry.

As can be seen from Table No. 3.2 that there has been

an increase in the production of light commercial vehicles in

1971-80 showing rise of 54.72 percent with a growth rate of

5.47 percent per annum. During eighties there has been an

impressive increase in the growth of light commercial

vehicles the production of light commercial vehicles rose to

57525 units in 1990 against 24518 units in 1981 showing an

increase of 134.62 percent with growth rate of 13.46 percent

per annum. It is observed in the table that the annual

production in 1976-80 was 12438 units. But this figure rose

to 24518 units in 1981 which was nearly two times of annual

7 3

production during the period 1976-80. Since then there was a

continuous rise in the output of light commercial vehicles

which shows that light commercial vehicles will be in greater

demand for movement of goods in urban and rural areas and for

passenger traffic also. But a marginal decline was evident in

1983 and 1989. This was possible due to hike in oil prices

and absence of enough market as there was a mushroom growth

of new automobile units. Similar trends was also evident in

the sales performance of light commercial vehicles. But one

thing is very clear from the table that sales lacking behind

the production which is not a very healthy sign for the

growth of the industry. There are two main factors which have

led to the current slump in the demand for commercial

vehicles they are high rising cost of inputs and heavy tax

burdens. Tardy efforts at indigenisation, low productivity

and indifferent vehicle quality are some of the other factors

which have further aggravated the problem of sluggish demand.

Moving over to two wheeler sector, more than 15 times

increase in production was observed between 1971 to 1990.

During the early stages of the two wheeler industry

Government's attitude for foreign collaborations and import

of new technology was not encouraging and consequently this

led to a wide gap in demand and supply. But during the

begining of 1980's as a result of the new industrial policy

government took a lenient view towards the two wheeler

7 4

industry. In 1981 Government of India allowed foreign

collaborations for fuel efficient vehicles upto lOOcc

engines.

It is evident from Table 3.1 that the production of two

wheeler has increased from 499103 units in 1981 to 1890522

units in 1990 showing a rise of 278.78 percent with a growth

rate of 27.87 percent per annum. The period between 1966-80

shows a rise of 291.79 percent with a growth rate of 19.45

percent per annum. It was observed that the production of two

wheelers has increased to 1890522 units in 1990 against

113047 units in 1970 showing an overall rise of 1572.33

percent with a rate of growth of 78.62 percent per annum. The

production was highest in 1985 in comparison to previous year

showing an increase of 32.2 percent over previous year. This

sharp increase was due to the Government's liberalised

technology import policy. This changed the entire facet of

the industry. The hopelessely outdated designs and

manufacturing processes were being replaced by most modern

ones. In two wheeler sector, there are mainly three segments

viz., scooters, motor cycles and mopeds.

SCOOTERS; Significant changes were observed in scooters

segment. This segment was dominated by only two units viz.,

Automobile Products India and Bajaj Auto Limited in the 60's.

Till liberalisation regime was introduced, Bajaj Auto regend

supreme in the scooter market. It is clear from Table 3.3 and

75

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76

Figure 4 that the production and sales trend indicate

fluctuations, though during 80's substantial growth was

evident. The production of scooters has increased from 58392

units in 1970 to 983443 units in 1990 showing an over all

rise of 1584.20 percent with rate of growth of 79.2 percent

per annum. The peak was touched in the year 1985 showing a

rise of 42.1 percent over previous year. This was mainly due

to the fact that more units came in the line of production.

The years 1987 and 1988 shows a decline in the growth rate of

production could be attributed to the stoppage of production

by two companies and strike in the other. On the sales side

it indicated the increase ofr 308.14 percent over 1980 with a

growth rate of 34.23 percent per annum. The peak was touched

in 1986 which shows a rise of 41.6 percent over previous year

this was due to the fact that the large demand which scooter

segment was not able to fulfil during the preliberalisation

period and with the proliferation of new units, offering

technologically superior products. Decline in sales during

1987 has been sudden which was mainly attributed to the slump

in the two wheeler market.

MOTOR CYCLES; Similar motor cycles production was stepped to

478528 units in 1990 from 42968 units in 1970 showing an

overall rise of 1013.68 percent with rate of growth of 50.68

percent per annum. The output was increased to 983443 units

in 1990 from 848492 units in 1989 showing a rise of 15.90

10

.-

• SCOOTER ( P R O D ) X MOTOR CYCLE (PROD.) o MOPED (PROD.)

- 5

o I UJ >

JL 1980

FIG.4

1981 1982 1983 1984 1985

Y E A R

1986 1987 1988 1989 1990

78

percent. Production picked up in 1985 showing a rise of 41.5

percent over previous year but register a fall in 1986,

During 1987 demand and sales registered negative growth. This

was due .to the slump in the the two wheelers market. The

sales of motor cycles shows an overall rise of 305.93 percent

with a growth rate of 33.99 percent per annum.

MOPEDS: Mopeds segment shows highly erratic pattern of growth

in production and sales. The boom in production and sales

witnessed in late 70's and early 80's, tapered off and by

1986, the moped segment faced slump and registered negative

growth. As Table 3.3 and Figure 5 indicates that the mopeds

production was raised to 428551 units in 1990 against 11687

units in 1970 showing an overall rise of 3566.90 percent with

rate of growth of 178.34 percent per annum. The boom in this

segment was observed in the year 1983 showing an increase of

54.8 percent over previous year. There was a drop in

production by 1.2 percent in 1986 against an increase of 20.8

percent in 1985 over a previous year. But a declining trends

was due to the availability of lOOcc motor cycles and 150cc

scooters, due to their performance characteristics viz.,

higher speed, fuel efficiency and transport pay load. The

80's witnessed fast growing rate in production and during

1980-86 the segment posted annual compound growth rate of

19.4 percent. However, sales figure indicates an overall rise

of 266.62 percent. The peak was touched in the year 1981

79

which shows an increase of 75.8 percent over a previous year

this was due to the fact that many new models came up with

foreign technology as Government liberalised its policy in

1980. But since 1984 this sector shows continuous decline in

their demand due to reason that there is decline in

popularity of 50cc vehicles with higher operating costs and

rise in prices.

Market Composition in Two Wheeler Sector:

In the scooter segment till the seventies the market

was more or less equally share between Automobile Products

and Bajaj Auto Limited. In seventies Bajaj Auto Limited

established its lead over manufacturer. Bajaj Auto Limited

and Maharashtra Scooter Limited holding over 60 percent of

the market, the rest being shared equally by Automobile

Products and Scooters India. It is evident from Table No. 3.4

and from Figure 6 that by early eighties Scooter India

Limited share has reduced to nearly 17 percent and

Automobiles Products India Limited accounts for less than 10

percent and the mid eighties witnessed the elimination of

both. But the share percent in market of Bajaj Auto Limited

has increased from 55.5 percent in 1980-81 to 60.06 percent

in 1990-91. But Bajaj Auto Limited touch the peak in 1986-87.

Maharashtra Scooter share has increased from 12.1 percent in

1980-81 to 18.2 percent in 1986-87 but since than it shows

decline. Similarly Lohia Machines Limited share has increased

63

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SCOOTERS

o o o

• •

BAJAJ AUTO MAH. SCOOTERS LML SCOOTERSdNOIAlLTO

J OTHERS

55.5 V.

15.5*/.

1980-81

62.9 V.

14.4 V.

18,2 V.

1986-87

58.97 V.

10.34 V.'

18 .16Vr—=^ 12.53V.

1988-89

60.06 V.

11.31V.

17.21V. 1.42 V.

1990-91

FIG. 5

MOTORCYCLES

X

"-" V °o» ^*4 T-T

ESCORTS SAJAJ HERO HONDA ENFIELD JAWA TVS OTHER

1980 1986-87

1988-89 1990-91

FIG.6

MOPED Po»

KINETIC ENGINEERS TVS SUZUKI MAJESTIC AUTO OTHERS

4 3*/.

2V.

47 V.

13*/

1980 1986-87

41.06'/. 38.15 V.

13.32V.r

8 .58 V.

" • ° ^ * ' ' 16.8 3 - ; S ^ -

27.65 V.

FIG. 7

from 14.4 percent in 1986-87 to 17.21 percent in 1990-91.

There is a clear trend of decline in share of old

companies in the motor cycle segment (i.e. in Enfield and

Jawa Limited) . Even Escorts which has a virtual hold on the

motor cycle market has seen decline in its share with the

entry of new firms. Between 1960-80 period three producers

namely Enfield India, Escorts and Ideal Jawa share the market

on a 25:40:35 basis. It is clear from Table No. 3.4 and from

Figure 7 that the early eighties witnessed the scooters gaint

Bajaj Auto entering in this segment and capturing 14 percent

of the market. The mid eighties, with the entry of Ind-Suzuki

and Hero Honda, saw the plummeting of the share of Enfield

India, Jawa and Escorts. Enfield India and Jawa hit very

badly it share reduced to less than 5 percent. But 1990-91

shows three main producers namely Escorts which accounts

nearly 3 3 percent this was due to the new model, the next was

Bajaj nearly 26 percent and Hero Honda more than 25 percent

and rest will come under other.

The moped segment had numerous producers turning out

fewer number of vehicles till the mid seventies. It is

evident from the Table 3.4 and Figure 8 that in 1980 market

was mainly shared by Kinetic Engineering and Majestic Auto

and others new a small share in comparison to these

producers. By the mid eighties the position was changed and

market was share by Kinetic Engineering, TVS-Suzuki Limited

£5

and Majestic Auto on a 47:3:13 basis Majestic Auto loosing

its share to TVS-Suzuki Limited. Much changes was taken place

in 1990-91.

Two Wheeler Sales Share:

Table No. 3.5 reveal that the market share of scooters

in sales has increased from 44.92 percent in 1980 to 48.5

percent in 1989. The Table 3.5 indicates that the position of

scooter segment in two wheeler sector is much better than

other segments.

But the market share of motor cycles in sales has

declined from 27.1 percent in 1980 to 23.9 percent in 1989.

There was a continuous decline upto 1984. But its share

position always remain below whatever it was in 1980. The

position show some improvement in 1988. The share of moped

segment also showed decline. The market share of mopeds in

sales has declined from 27.98 percent in 1980 to 25.90

percent in 1989. But it touched peak in 1984 having more than

44 percent share. But after that a continuous downward trend

was observed the growth in sales in moped segment between

1983-85 was due to the fact that many new models came up with

latest technology. The change that occur in sales share was

due to the fact that in each segment number of new

manufacturers came in the line of production. But the period

and time was different in each segment which cause up and

down in the sales share. To make this analysis more

Table 3.5

Two Hheleers Sales Share (Percentage)

Category Years

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

Scooters

44.92

38.01

41.68

36.10

35.52

37.45

43.40

44.10

42.10

48.50

Motorcycles

27.10

23.26

21.89

20.55

20.30

21.90

23.40

21.80

26.30

23.90

Mopeds

27.98

27.98

36.43

43.35

44.09

40.61

33,20

32.57

29.47

25.90

Source : Monthly Commentary Dec, 1990, New Delhi. Automan 91, Bombay.

87

scientific, chi square test of significance is applied to

show that each segment has independent in nature.

Case I: Between Scooters and Motor Cycles:

We set the null hypothesis that the sales of scooters

is not affected by the sales of motor cycles i.e. Scooter and

Motor cycles sales are independent in nature. The calculated

value of y^ for 9d.f at 5% level of significance is .9505.

Table value of "Yf for 9d.f at 5% levlel of significance is

16.919.

The calculated value of \ ) ^ is .9505 which/much less

than the table value we accept our hypothesis i.e. there is

no significant difference between the share percent in sales

of scooters and motor cycles. Whatever changes that have

taken place in sales share is just because of chance.

Case II: Between Motor Cycles and Mopeds:

We set the null hypothesis that the sales of motor

cycles is not affected by the sales of mopeds i.e. Motor

cycles and Mopeds sales are independent in nature.

Comparing the calculated and table value of /C for 9d.f

at 5% level of significance we find that the calculated value

is less than the table value. We accept our hypothesis i.e.

the difference is considered as insignificant between the

sale share percent of motor cycle and moped. (Calculation on

next page).

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Case III : Between Scooters and Mopeds:

We set the null hypothesis that the sales of scooters

and sales of mopeds are independent.

Comparing the calculated and table value of /(^ for

9d.f at 5% level of significance we find that the calculated

value is less than the table value. We accept our hypothesis

i.e. the difference is considered as insignificant between

the sale share percent of scooter and moped. (Calculation on

next page).

INTERPRETATION:

After analysis it is clear that the sales share of

scooters, motor cycles and mopeds are independent i.e. that

the sale of one segment will not effect the sale of other

segment. If such things has happened it was just by chance

but it has no scientific relation between them. There are a

number of factor which cause ups and downs the sales share of

three segments. Firstly cost of the vehicle played an

important role next fuel efficiency of the vehicle, thirdly

finances schemes available for a particular segment and

finally the capacity to carry the load. As it looks

apparently in Table No. 3.5 that the scooters and mopeds have

some effect on each other but actually the position was not

such. The boom in moped segment was due to the fact as the

Government of India liberalised its policy in 1980 for lOOcc

fuel efficient vehicles. Mopeds segment was the first which

91

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availa this opportunity. Number of foreign collaboration were

held up in this segment as a result of which in early 80's

market was over flooded with different models having latest

technology. As mopeds are easy to handle a young age

customers came heavily to encash this opportunity. Due to

this a new class of customer came into picture which wants

more than bicycle but less than a geared vehicle. But as cost

of mopeds are increasing day by day the sales also reduced in

the same manner.

The changes in motor cycle segment was due to the fact

that there are a number of new manufacturers emerged in this

segment with sophisticated models. The changes occur was due

to that some mandufacturers faces slump and other time some

another manufacturer faces slump. The changes was due to the

reason that demand shifts within the segments from

manufacturer to manufacturer.

The changes in scooter segment was not much

significant. Whatever the changes was occurred just because

scooter segment came lately with new models with better

technology. Consumers are fed up awith the old models. They

wait for the new models as manufacturers modified their model

the sales share again retain the same position.

The most significant result of these changes was the

emergence of a buyer's market in the place of a sellers

market. Manufacturers going in for state of the art

93

technology, started giving several options to buyers in terms

of models, quality, price etc. In tense competition has been

ushered in and the long waiting list dominated two wheeler

industry. Established market where compelled to to in for

increased advertising to retain their market share. In the

process many units were squeezed out by sheertechnological

reasons and consumer resistance. At present there are 4 3

manufacturers in the country licensed to make two wheeler but

only 23 of them are active units with a licensed capacity of

5 million pre annum. While the installed capacity is 2.3

million. 3 Against this the production 1.82 million a

noticeable shift in the buying habits of customers is

observed. As cu;stomer would like to own their two wheeler

today and pay for the same in convenient instalments. The

overall picture of the two wheeler industry is one of

continuous growth. That technology which is inducted in two

wheeler sector in India is at per with what is being sold in

the developed countries. It is of course difficult to predict

whether this sector of the industry will grow at speed as in

eighties it will face an early slump because lax structure

has already crippled the industry very badly.

Three Wheelers; Bajaj Auto Limited, Automobile Products of

India Limited and Scooters India Limited are the producers.

Total production of Three wheelers was 95.528 units during

1990 which was more than 384 percent compared to production

:-4

of 1981. The sector shows a growth rate of 38.46 percent per

annum. The production touched its peak in 1982 which showed

an inrease of 23.16 percent over previous year. Generally

three wheelers accounts nearly 4 percent share in total.

There are no significant changes taken place in this

industry.

Jeep; Presently there are two major units producing jeeps in

the country, viz. Mahindra and Mahindra Ltd. and Maruti Udyog

Ltd. The total production of Jeeps which was 17029 units in

1981 increased to 41944 undits in 1990 recording a rise of

24 6.30 percent with a growth rate of 24.63 percent per annum.

Its touched the peak in 1985 as the Maruti Udyog Limited

introduced its Gypsy. But demand reduced in very next year

this was due Maruti Udyog Limited introduced its Van also. It

seems from the table that Jeep sector has a little domestic

market in comparison with other sectors.

Analysis of Sales in Auto Industry:

Table 3.6 presents the sales figures of different

sector of the auto industry. The sales in car sector has

increased from 33584 units in 1970 to 177409 units in 1989

showing a rise of 428.25 percent with a growth rate of 21.42

percent. It is clear from table No. 3.6 that its sales has

increased from 40887 unit in 1981 to 17740 units in 1989

showing a rise of 333.90 percent with growth rate of 37.18

percent per annum. The car sector touched its peak in 1985

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showing a rise of 64.53 percent over a previous years. Such a

by rise was possible only due to the Maruti Udyog Limited.

But the year 1986 shows a marginal rise, in the year 1987

another significant changes was observed in the table showing

an increase of 42.80 percent over a previous year. This was

due to the fact that the Premier Automobiles Limited and

Hindustan Motors introduced their new models with a foreign

tie up. But since than no major changes was observed.

Further, it is observed that the volumes of sales are

increasing but their percent is declining which was not a

healthy sign for the industry. The period 1976-80 shows a

negative growth as compared to that of 1971-75 this due to

the reason that this sector was neglected since begining and

car treated as luxury item till 1980 by the Indian

Government. The negative growth was due to the fact that

customers were fed up with the old models and high prices.

There are a number of evidence in Table 3.6 which shows

the erratic pattern of sales growth in commercial vehicle

sector. The sales figure in 1989 was 110325 units against

88017 units in 1981 which shows a rise of 25.34 percent with

a growth rate of 2.82 percent per annum. The negative growth

in commercial vehicles during 1986 was due to the fact that

in the year 1985 market was over loaded with light commercial

vehicles due to the liberalisation package but the year 1986

was very bad as number of units were closed the market of

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1981 1982 1983 1984 1985 1986 1987 1988 1989

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light commercial vehicles very limited. The growth in 1988

was result of that the consumers more relying on commercial

vehicles on transportation purposes. It is clear from Table

No. 3.6 that the sales of two wheelers has increased from

474413 units in 1981 to 1750597 units in 1989 shoving a rise

of 269 percent with a growth rate of 29.89 percent per annum.

The year 1983 shows a maximum rise with nearly 3 0 percent

over previous year. This was only due to sales of moped has

increased rapidly during this period. The year 1987 shows

only a marginal increase in sales this was due to the moped

segment. As this segment faces slump during this period.

Import and Export Performance:

As in all developing countries, the automobile industry

in India was established via process of technical

collaboration with leading international firms. India was

importing assembled vehicles to a large extent until 1954,

exports of vehicles began on a modest scale only in the

sixties. The India auto industry came up primarily as an

import substitute and began operation on a low key. Table 3.7

and Fig. 8 shows imports of different kinds of vehicles. In

1981-82, the automobile imports amounted to Rs.58254

thousands which rose to Rs.197383 thousand in 1987-88 showing

a rise of 238.83 percent. In 1986-87 recorded highest rise

over a previous year showing a rise of more than 80 percent.

This rise was due to the fact that there was a sharp rise in

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101

car and Jeeps, trucks and chasis with engines as Government

liberalised its policy. But year 1987-88 shows a negative

growth in import as its come down to 37.25 percent over

previous year. The major changes occurred after 1985 was a

result of changes taken in place in policy of the industry.

The cars and jeep import has rise from Rs.8858 thousand in

1981-82 to Rs. 58461 thousand in 1987-88 showing a rise of

559.98 percent. But period between 1981-82 to 1986-87 shows

much higher rise i.e. it show a rise of 83 6.34 percent.

Trucks shows a rise of 135.30 percent during the same period.

The chasis with engines imports has fallen from Rs.4804

thousands in 1981-82 to Rs. 1953 thousand in 1987-88 shows a

decline of 59.34 percent. But the period between 1981-82 to

1986-87 shows a rise of 232.47 percent. The period between

1986-87 to 1987-88 shows a decline of 87.77 percent. The

Buses import has decline from Rs. 2931 thousands in 1981-82

to Rs.713 thousands in 1987-88, this period shows a decline

of 75.67 percent. The motor cycles, scooters and mopeds

segments imports has increase in the ratio of 208:63:2032

percent respectively. This all shows that whatever changes

taken place in Import of vehicles has took place in 1986-87.

But after that a decline in import was observed. Exports are

an important indicator of the development and maturity of an

industry. Exports of automobiles have came down during 1987-

88 except in the case of chasis with engines which shows an

:c2

increase of 99.76 percent over previous year. If the present

trend continues, India likely to be eliminated from the world

automobile export market. Table 3.7 shows that the overall

figures of export shows a decline from Rs.825226 thousands in

1981-82 to Rs. 573053 thousands, in 1987-88 i.e. 30.55

percent. The car and jeeps, trucks, scooters and buses shows

a decline of 32.97, 39.19, 50.46 and 63 percent respectively

during 1981-82 to 1987-88. The motor cycle segment shows a

rise of 1183.17 percent during the same period similar trend

was also evident in moped segment.

It is found that export shows a strange story between

1981-82 to 1987-88. During the same periods imports are

increasing continuously but export are declining day by day

if this trend will continue India will not be in a position

to get benefit from imported technology. The industry finds

it hard to make a heavy investment for the sake of exports

especially when about 95 percent of its products are sold

mainly indigenously. It is learnt that in many countries

neither the Exim Bank credit nor the Indian Government lines

of credit are not being utilised due to various reasons such

as higher rates compared to that in other countries, terms

and conditions and the agents commission not being properly

covered by the lines of credit in lieu of after sales

services,

Pattern of Pricing in Indian Automobile Industry:

The pricing is a significant aspect of the automobile

industry where the consumers are severely affected. According

to producers, one third of the price is under their own

control, one third is due to ancillary and small scale sector

from which parts and components are taken and another third

is due to various duties and levies. The automobile industry

is very highly priced which basically is due to a very high

incidence of taxation on the industry. It is noted that on

automobile spare parts, Excise Duty levied is 21 percent and

in case of inter state sales covered under the CST a rate of

4 percent is levied under the "C" form over and above this,

the local tax is 12 percent and Octroi Duty ranges between 2

to 4 percent. The total taxes levied on the automobile

industry work out to approximately 50 percent. Further the

recent hike in the excise duty of cars has aggravated the

problem of high prices.

Research and Development Efforts:

Research and Development work is in its infancy in

Indian industries. It is not only time consuming but

expensive and uncertain. At present the manufacturers in the

automobile industry generally depend on their foreign

counterparts for new technology and innovations, the import

of which is permitted by Government despite their adverse

impact on the balance of payments. Much has not been done in

1 <" /I

the Research and Development area in Indian automobile

industry. The major efforts has only been done in care sector

that has been discussed in next chapter which is devoted on

car sector. The other major changes that occur in automobile

industry are summed up as:

i) One vehicle manufacturer, whose volume of production at

one time was not enough to undertake expensive pressing

of frame side members, changed the basic design of the

vehicle to accept cold rolled straight parallel frames,

through a completely indigenous Research and

Development collaboration between vehicle manufacturer

and the ancillary manufacturer,

ii) Another manufacturer has through his own Research and

Development efforts developed an uprated rear axle with

pressed and welded axle castings thereby increasing the

carrying capacity,

iii) Two ancillary manufacturers have developed on their own

manufacturing techniques for cast iron inserts in

pistons for carrying top rings and for hardening bore

liners, resulting in dramatic reduction of oil

consumption,

iv) Leaf spring designs have been altered.

v) Combustion chamber design and fuel injection equipments

are being constantly reviewed to improve fuel economy.

105

vi) Constant improvements to filter design have been

brought about as a result of collaboration between

filter and vehicle manufacturers,

vii) Radiators designs have changes from time to time.

But low production volumes and low increase in

production are the major factor which hindered the Research

and Development efforts in seventies in the auto industry.

However, individuals in commercial vehicle sector and two

wheeler sectors has done some efforts in Research and

Development. The two giants of the Indian automobile

industry, namely, Bajaj Auto Limited and TELCO are without a

foreign collaboration in their own original lines of

production after the expiry of their initial collaborations.

Bajaj Auto Limited by updating its technology continuously

was able to consolidate its position in that market segment.

The Bajaj Auto experience needs to be highlighted because

over the years its production volume has reached levels

comparable to those of the largest producers in the world

like Honda. It research efforts have improved the fuel

efficiency considerably. It also developed indigenous design

capability as it is able to introduce motor cycles of 50cc

and 80cc capacities and a scooter of lOOcc capacity.

Similarly TELCO only collaboration was with Nachi Fugi Koshi

for the knowhow and training on CNC machines. This is

inmarked contrast with all the other firms in the industry

106

many of whose very existence was linked to the periodic

technical collaboration they had entered into either to make

new engines body panels or entire new vehicles.

Present Position:

At present Indian automobile industry is noving towards

slump. It is expected that the next two years will be a time

of much trial and tribulation for the industry. A number of

manufacturers had been forced to cut back their production as

the demands are in the doldrums. The cars sector and two

wheeler sector hit very badly due to continuous increase in

prices, higher cost of imports the credit squeeze and lower

depreciation benefits.

Sales of passenger cars of all makes together dropped

by 12 percent in last two months. In the first six months

Hindustan Motors has experienced a 25% decline in the sales

of its car when compared to the corresponding period last

year. In October it shows a drop of 41%. The sales of Premier

Automobiles Limited during the same period was shrunk by 7%

and in October it shows a decline of 32%. The Maruti Udyog

Limited also not able to escape from the present slump, for

instance in October this year Maruti Udyog Limited nanaged to

sell on 6679 cars against 8587. This slump was niainly due to

two main reasons the devaluation of rupee and increase in

excise duty. The scene is not that bleak in two wheelers but

the indicators are that this sector too is going to toe the

:c7

decline line. Sales of motor cycles have slumped 6% and of

scooters 8% against a growth of 23% and 10% respectively in

the first six month of 1991. The hardest hit in bikes is

Escorts which showed a decline of 24%. In scooter, the

negative growth is mainly the contribution of Lohia Machines

Limited which has increased a sales decline of 41%. The third

category in two wheelers mopeds whose sales volumes which

shrunk last year too, decline further. The major loss in this

segment was Kinetic Engineering (25%) and Kelvinator (53%) .

In Jeeps production has plummeted 34% while sales have gone

down by around 10%. Both the key players Mahindra & Mahindra

and Maruti Udyog Limited have been equally effected. Though

experts differ in their views on the reasons for specific

declines in sales. They all seem to agree on one point, the

crunch has come because of the broader economic malaise. The

working group on road transport for the Eighth Plan has made

demand projections for Indian automobile industry as shown in

Table given below:

TABLE NO. 3.8

PROJECTION OF DEMAND FOR VEHICLES

Year Passenger LCV M/HCVs Two Three Car Wheelers Wheelers

1991-92 1992-93 1993-94

220 240 260

80 90

105

85 90 95

2100 2300 2500

115 130 150

1994-95 2000 A.D.

Average annual

280 450

9.0

simple growth rate % during 8th Plan

115 175

15.0

100 125

5.8

2700 4500

9.0

170 250

14.5

Source: Automan, 1991, Bombay

To conclude it may be observed that the history of

growth of the automobile industry in the country showed an

encouraging spurt in the 1980's while the earlier three

decades after independence witnessed a sluggish development.

The total production of automobiles in 1950 was around 4000

but 1980 it had grown to around half a million. By 1989 it

exceeded the level of two millions. Two wheelers were at the

top with a production of 1.75 million in 1989, car were way

behind at 1,77,190 units, commercial vehicles at 97586units,

three wheelers at 83,294 units and Jeeps at 37803 units. The

future growth of this industry is uncertain because of the

difficult economic position especially due to the balance of

payments crunch and the oil crisis.

It can also be observed that the passenger car industry

has been in existence for nearly half a century, the pace of

technology upgradation has been painfully slow untill the

early 80's when Maruti Udyog Limited started its production.

Whatever changes occurred in car sector was due to the

inception of the Maruti Udyog Limited and liberalisation

policy of 1985 of the Government. This is a significant

109

development in the automobile industry and hence the next

chapter is devoted to a detail and comparative study of the

performance of some leading units in the car sector. The

study will automatically bring about certain characteristic

features of the structural growth of the industry in recent

years.

lie

REFERENCES:

1. Surendar V. Indian Industries, B.R. Publishing Corporation, New Delhi, 1986, p.57.

2. Kothari's Year Book on Business and Industry, 1988, pA-19.

3. Financial Express, Investment Week Guide, February 26-March 4, 1990, Bombay, p.10.

IpHAPTER-Iv]

INDIAN CAR INDUSTRY: A CASE OF COMPARATIVE GROWTH

In the preceding chapter a discussion has been made on

the growth and performance of the automobile industry with

the help of different indicators. It has also dealt with the

role of commercial vehicles and two wheelers sectors of tne

industry in the total growth of automobile industry. The

present chapter has been devoted to examine and analyse the

growth of car sector of the industry. It will evaluate the

working efficiency and performance of the three different

units of the car sector namely the premier automobile Ltd,the

Hundistan Motors Ltd. and the Maruti Udhyog Ltd.The

passenger car industry owes its start to the foundation of

the General Motors as an assembly plant at Bombay in 1928. •'•

The next stage came with the starting of the three Indian

companies for assembly of cars from CKD packs in forties.

However, the industry can really be considered to have

started in 1953, when the Government of India decided to

allow only projects with phased mandufacturing programmes.^

The pace of technology upgradation in this sector has been

painfully slow untill the early 80's mostly due to the reason

that in a market in which competition did not exist, and in

view of the low turnover. The two manufacturers (i.e. HM &

PAL) in the country were indifferent to the need for modern

technology and were reluctant to invest and engage in

112

development work. Production volumes were low and no effort

was made to enlarge the same which would have raised

resources to advance technology in design and manufacturing

process. The government restrictions on licensing and price

control acted as catalystic agent. In early 80's as a result

of the oil crisis the automotive industry world over had to

look inwards and reorient itself to the changes in the

product designs. As a consequence, new manufacturing process

technologies were evolved. These ultimately led to an

increased emphasis on weight reduction, optimum product

design, appropriate quality and fuel efficiency. So the

Government decided to introduce an additional manufacturing

facility in the public sector to produce a modern car, with

Japanese know how and financial participation. The Maruti

Udyog Limited was incorporated as a public enterprise company

administered by the Government of India on 24th February,

1981. Taking the advantage of the general liberalization

policy the other two manufacturers have also launched new

improved models with foreign assistance. The Hindustan Motors

entered into collaboration with ISUZU of Japan in 1983 for

manufacture of fuel efficient engines, transmissions and

axles and introduced the Contessa Classic fitted with ISUZU

engine in 1986.' The Premier Automobiles Ltd. entered into an

agreement with Fiat in 1981 to manufacture an upgraded car

with Fiat 124 body. In 1984 PAL entered into a collaboration

agreement with Nissan Motor Company for their engine and

transmission for mounting on their cars. This car was

broughtout as Premier 118 NE in 1986. Premier also took over

the diesel engine collaboration of Walchandnagar Industries

with FNM of Italy for manufacturing a diesel engine for a

diesel powered car. The car was brought out ;in 1989.° It is

essential that any enterprise, whether established in the

public or in the private sector should run efficiently,

otherwise the very purpose of its existence and cotinuation

is jeopardised. The term efficiency, however is subject to a

variety of interpretations. It has been rightly stated that

"like so many terms having a very large and in determinable

connotation, the term efficiency is so wide and porous that

there is little interpretation that can successfully

resist."' Efficiency is basically an input-output

relationship and hence the efficiency of any business^

enterprises can be judged- from several angles namely

production, contribution to Research and Development

financial performance in terms of profitability, liquidity,

activity and leverage with the help of various accounting

ratios. The efficiency of the HM, PAL and MUL will,

therefore, be discussed in the pages that follow in terms of

these parameters and efficiency.

Production

With the induction of Maruti Udyog Limited some

114

major changes were brought about in car production in just

about six years. The most remarkable fact is that inspite of

vast expansion of production and marketing it is still a

seller's market for the passenger car industry. Table No. 4.1

given below shows the trends in production of passenger cars

during 1948 to 1990.

TABLE NO. 4.1

Growth of Car Production

Year Average Annual Production increase or Production (Numbers) decrease over previous

period (%)

1948-50 3,089 1951-55 4,611 49.27 1956-60 12,949 180.82 1961-65 21,743 67.91 1966-70 33,725 55.10 1971-75 35,230 4.46 1976-80 32,754 7.02 1981-85 59,268 80.95 1986-90 1,55,648 162.62

Source: ACMA, Automotive Industry of India Facts and Figures 1989-90, New Delhi.

Note : The figures are depicted in Fig. 9.

It is seen in Table No. 4.1 that initially in fifties

the rate of growth was very high (upto 180%) but in sixties

the rate came down to around 60%. There was a serious set

back in seventies due to an enormous rise in price of

gasoline and an increase in the cost of vehicles. The average

output in 1976-80 was even lower at 32,754 units as against

180

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33,725 units in 1966-70. During eighties there was a quantum

jump in car production. The average annual production in

1986-90 being much higher than that in 1976-80. The reasons

for this sudden increased demand were as under: .pmO

i) Availability of latest models of cars of

international standard,

ii) Steady growth in the economy,

iii) Better availability,

iv) Better fuel consumption.

The table given below compares the achievements of the

main producers in Indian passenger car industry in the last

10 years and the group 10 shows the production trend of three

companies. It is evident from Table No. 4.2 that there has

been a steady increase in the production of passenger cars

during the last 10 years. The growth was specially high in

1985 and 1986 when MUL was building up production to 1 lakh

vehicles per year. The compounded growth rate during these 10

years has been about 20%. It is seen that the Hindustan

Motors Ltd. was not able to take much advantage of

liberalisation as its production has even not crossed 30

thousand cars per year. Its production rose to as high as

28,730 units in 1989-90 against 22,017 units in 1980-81

showing a rise of 30.49 percent. With the average growth rate

of 3.50 percent per year.

In 19S5-86 production of cars was adversely affected

117

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due to power shortage. Production of cars further declined in

1986-87 as inventory components were damaged in a fire. But

in case of PAL its production increased from 9301 units in

1980-81 to 42,925 units in 1990-91 showing a rise of 361.50

percent over 1980-81. The year 1983-84 and 1984-85 are very

important for PAL as its production has increased by 46

percent and 37 percent over a previous year respectively.

This sudden increase was as a result of Government policy of

liberalisation. But since than no major development was

observed in PAL except that its production was reduced in

1986-87. But on the other hand the MUL has shown tremendous

growth as its production increased to 1,12,827 units in 1990-

91 against 844 units in 1983-84 showing a rise of 13268.12

percent. A landmark was achieved in 1989-90 as it has crossed

the mark of 1 lakh cars per year. The growth in the post 1981

period was made possible due to the inception of the MUL. The

movement in market share of passenger car sector showed

inclination towards Maruti since 1984. Before that the

Hindustan Motors Ltd, was having the bigger share in the

market. But as Government liberalised the policy, the share

percentage in 1984-85 favoured the Premier Automobiles Ltd.

it was due to the fact the PAL made necessary modifications

in the existing model. But since then the MUL is responsible

for holding more than 55 percent share in market. The decline

in 1988-89 was because the PAL and HML introduced their new

* 120

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• HINDUSTAN MOTORS X PR. AUTOMOBILES o MARUTI UOYOG LTD

1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91

FIG.10 Y E A R

120

models. But the share percent of HML reduced to 14 percent in

1990-91 as against 70 percent in 1980-81. Similarly the share

percent of PAL also came down to 24 percent in 1990-91

against 48 percent in 1982-83. But the share percent of MUL

increased from 30 percent in 1984-85 to 62 percent 1990-91.

It is also observed from Table No. 4.2 that the Hindustan

Motors Ltd. and Premier Automobiles Ltd. are not to make full

use of liberalised policy because no major changes in

production was observed. On the other hand the MUL

continuously increased its production figures.

Sales; The performance of sales of cars has been depicted

below in Table No. 4.3.

TABLE No. 4.3

Sale Performance

Average Sales increased over Year Annual Sale previous period %

1966-70 33,584 ^^ 1971-75 35,112 4.55 1976-80 32,231 -8.20 1981-85 58,289 80.85 1986-89 1,47,678 153.35

Source : Same as Table 4.1

It is clear from the table that the sales of cars

increased to 1,47,678 units during the period ;1986-B9

against 33,584 units in 1966-70 which comes out to an

increase of 339.73 percent showing a growth rate of 14.15

percent per annum. But the growth in percent over previous

121

period has gone up to 153.35 percent in 1986-89 against 4.55

percent in 1966-70. The higher growth rate in sales duriang

1981-85 was the result of the fact that the masses had became

fed up with existing models having obsolete technology. As

new technology appeared the consumers jumped into the market

to buy new models. The period 1976-80 showed a decrease in

the sales on account of oil crisis.

Capacity Utilization

It is an indicator of the health of an industry. Table

4.4 shows the trends in installed capacity, production and

capacity utilization for 3 manufacturers in the car sector of

the industry from 1985 onwards. (The trends in capacity

utilization is also shown in Fig. 11) . It is evident from

Table No. 4.4 that a common feature of HM & PAL is their

relatively small scale of operations in comparison to MUL.

There has been impressive increase in the level of capacity

utilization in all the three manufacturers from 1986-87

onwards. The trend in production has been on the rise during

the period. The table shows that the trend in the HM was not

very impressive as it generally worked below 50 percent of

capacity utilisation. But MUL is considered as a leader in

this aspect as it works above 80 percent and showing a

continuous rising trend in the year 1986-87. It is observed

that the capacity utilisation of all the manufacturers

declined due to the expansion of plant and HM & MUL has

122

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• HINDUSTAN MOTORS (PROD.) f MUL (PROD.) • PR. AUTO. (PROD.) A HINDUSTAN MOTORS (CAP. UTIL.) o MUL (CAP.UTIL.) A PR.AUTO (CAP.UTIL)

FIG.11

1985-86 1986-87 1987-88 1988-89

Y EAR

1989-90

124

raised their installed capacity also. This all indicates that

during the period under review there has been considerable

improvement in the overall capacity utilisation scene.

Research and Development Activities:

In the long run the progress of a company depends upon

its research and development activities. The twin objectives

of profitability and cost reduction in an enterprise can be

achieved by making vigorous and constant efforts to search

and develop new techniques and technologies by the units

irrespective of their ownership whether in the hands of the

state or not. Those who are associated with the industry on a

day to day basis are aware that Research and Development is a

continuing process which does not call for publicity.

Unfortunately most of the changes that have been taken place

will not be visible from outside the vehicle. The main

development work carried out by Research and Development in

the three car manufacturers units are summed up as under:

(a) Development of modified models.

(b) Improved performance of existing engines, fuel

consumption, pollution, reduction, increased components

life etc.

(c) Improvement in vehicle components and systems such as

suspension, brakes, radiators, gear boxes and axles

etc.

(d) Indigenising of imported components for better quality

.25

and lower cost etc.

(e) Value engineering and cost reduction and product

improvement exercises for vendor items.

(f) Service feed back analysis for modifications for more

reliability, reduced maintenance improved performance

etc. The Table No. 4.5 given below shows the Research

and Development expenditure in the three car

manufacturing units taken for study here:-.pa

Table No.4.5

Research and Development Expenditure of Passanger • Car Units

HML

PAL

MUL

1984-85

88 (0.7)

1985-86

161.46 (0.342)

1986-87

85.62 (0.352)

215.08 (0.88)

91.94 (0.15)

1987-88

104.19 (0.241)

214.35 (0.66)

83.37 (0.10)

1988-89

105 (0.200)

324 (0.71)

57 (0.06)

Source: Sa*vie as Table 4.4 (Figures in bracket shows Research and Development expenditure as percentage of turnover.)

It is evident from the above table that the Research

and Development expenditure in the above three units as a

percentage of total turnover are very low which shows that

these companies are not seriously interested in their

Research and Development activities. If we look at the

expenditure figures it gives mixed impressions. In PAL the

expenditure on Research and Development is increasing yearly

but the amount which was spent on Research and Development

was sufficiently enough. The MUL is spending less amount on R

& D as it has still not made its mind to develop its vehicles

on indigenous contents. As it is a public sector enterprise,

much is expected from it as a social obligaton towards the

country to develop its own R & D activities instead of

relying on foreign contents. The picture of R & D will become

clearer in our minds if we look at the table given below with

the details of the R & D staff with these three units.

TABLE No. 4.6

Research and Development Staff of Passenger Car Units

S.No. Unit Name R & D Strength Covered area SQI-TTR

212 5,083

252 2,574

66

Source: As in Table 4.1

The table clearly shows that these units are not paying

proper attention to their R & D section especially the MUL

which is not able to develop a separate R & D section. It is

needed in the interest of consumer as well as for the country

as a whole to divert more funds in R & D section and recruit

more personnel for R & D Department which can indigenous the

vehicles more speedily.

1 .

2 .

3 .

HML

PAL

MUL

12-

Export and Import Performance:

Exports are essential for the attainment of development

of a country's economy so that it could finance its imports

conveniently. Table 4.7 shows the growth of export and import

in the car manufacturing units between 1986-87 to 1988-89.

It is evident from Table No. 4.7 that the total

earnings by these manufacturers has risen to Rs. 2,856 lakhs

against Rs. 787 lakhs in 1986-87 showing a rise of 263

percent and during the same period the figures of imports and

remittances have came down from Rs. 34,312 lakhs to Rs.

32,462 lakhs which shows a decline of 5.4 percent. Table 4.7

reveals that the contribution of the MUL in the total imports

and remittances during the period 1986-87 to 1988-89 was

always about 70 percent and in the year 1986-87 its share was

77.95 percent of the total imports and remittances. If we

compare the figures of imports and exports of the MUL with

other units then we come to the conclusion that it is due to

the MUL that the car industry is responsible for huge import

and remittances because its export share in the total was as

high as 50 percent in 1988-89. It is needed that Government

must interfere to stop such practice and the MUL must give

high priority to indigenise its vehicles immediately. The

position of the HM is much better than the PAL and MUL as it

contributes a good amount of export. Its figures increased

from Rs. 708 lakhs in 1986-87 to Rs. 1,098 lakhs in 1988-89

1 2 8

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FIG.12 Y E A R

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1986-87 1987-88 1988-89 1989-90

YEAR FIG.13

131

which shows a rise of 55.08 percent but its import and

remittances shows a rise of 19.4 percent during the same

period. Its export's share in the total was nearly 90 percent

in 1986-87 which came down to 38.4 percent in 1988-89. This

decline was due to the MUL. As far as PAL is concerned, its

figures do not show significant movement in both export and

import. It is needed that this unit must take necessary steps

to boost its export which is the need of the day. These

trends can be seen in Fig. 12 & 13.

Financial Performance Analysis:

A sound company is one which has good profitability and

a sound financial position in the sense that it should be

able to carry on its work smoothly and should meet all its

obligations without strain. The performance can be viewed

with the help of the trends in annual accounts and the

working alongwith financial ratios from 1981 to 1989 in car

manufacturing units which is given in Tables No. 4.8 and 4.9.

It is evident from Table No. 4.8 that the total assets of the

HM has increased from Rs. 1,023.56 millions in 1981 to Rs.

4,165.70 millions in 1989 showing an increase of 406.98

percent with a growth rate of 45.22 percent per annum and in

the PAL the increase was 671.46 percent with a growth rate of

74.60 percent during the same period. A Similar trend was

observed in the total liabilities in the HM during the same

period but in the PAL the total liabilities have increased

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from Rs. 365.74 million in 1981 to Rs. 2,067.23 million in

1989 which shows an increase of 565.2 percent with rate of

62.80 percent per annum. This indicates that the PAL was in a

better position to meet its liabilities than the HM.

Similarly the net worth of the HM has increased from Rs.

243.82 millions in 1981 to Rs. 1,045.70 millions in 1989

showing an overall increase of 328.88 percent with a growth

rate of 36.54 percent per annum. During the same period the

PAL shows an increase of 847.32 percent with a growth rate of

94.14 percent per annum. The increase was the highest in the

year 1985 which shows an increase of 305 percent over

previous year which indicates that the company is all set for

the expansion programme and in the MUL 438.33 percent

increase was observed between 1984 to 1989 with a growth rate

of 73 percent per annum. The years 1986 and 1987 shows

significant changes these are due to the expansion programme

in the MUL.

It is apparent from Table No. 4.8 that the working

capital of the PAL has increased from Rs. 83.06 million to

Rs. 329.06 million which shows an increase of 296.17 percent

with a growth rate of 32.90 percent per annum. But in 1983

there v/as a sudden decline in the working capital. This

decline was the result of a strike in the company due to

which current liabilities have increased more rapidly in

1983. The MUL has shown an increase of 1,056.21 percent with

J. J ^

a growth rate of 176.03 per annum. The growth rate over

previous year in the MUL on working capital is increasing day

by day which shows that the company is moving towards a very

sound base. But the HM shows a different pattern in working

capital performance as its figures came down to Rs.2.52

million in 1989 from Rs. 198.09 million in 1981. This shows a

decrease of 98.72 percent with the highest in 1989 which

shows a decrease of 97 percent over the previous year. This

sudden decrease was due to the fact that current liabilities

of the company increased very rapidly since 1986 in respect

of current assets but company management not pay proper

attention to check the measures. Because a huge amount was

spent on the expansion of company with act analysing its

effects properly. The position is further deteriorated due to

power shortage at the production plant in 1986.

The Table manifest that the inventory of the HM has

increased to Rs. 1,315.92 millions in 1989 against Rs. 549.44

million in 1981 which shows an overall increase of 139.50

percent with a growth rate of 15.50 percent per annum. In

1987 the position of inventory shows a marginal increase over

the previous year. This was due to the fact that the

inventory components were damaged in a fire. Both the PAL and

Maruti Udyog Limited shows a continuous increase in the

inventory with a growth rate of 19.80 percent and 61.57

percent per annum respectively. This indicates that the

1.5-

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• HML o PAL X MUL

J I I I I L J L 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

FI&.U YEAR

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Maruti Udyog Limited shows a higher growth rate. This was due

to the fact that the company is producing more than one lakh

vehicles per year which is nearly more than three times with

the Hindustan Motors and the Premier Automobiles Limited.

The analysis of Table No.4.8 would reveal that there

has been an impressive improvement in the quantum of gross

profit in the Maruti Udyog Limited which shows an increase

from Rs. 22.8 million in 1984 to Rs. 589.1 million in 1989

with a growth rate of 413.96 percent per annum. The Hindustan

Motors and Premier Automobiles Limited shows an overall

increase of 30.7 percent and 113.23 percent respectively with

a growth rate of 3.41 percent and 12.08 percent per annun

respectively. The Hindustan Motors shows little growth in

gross profit due to the reasons discussed earlier while

discussing the trends of total assets, working capital and

inventory.

The pre-tax profit in the Maruti Udyog Limited has also

increased from Rs. 17 million in 1984 to Rs. 589.1 millions

in 1989 showing an overall rise of 33.65 percent. A

remarkable improvement was shown in the year 1988 when the

pre-tax profit was increased to Rs. 264.4 millions against

Rs. 102.3 millions in 1987 showing a rise of 158.45 percent.

A sharp decline was observed in the figures of pre-tax profit

in the year 1985, In the Premier Automobiles Limited the pre­

tax profit has increased from Rs. 80.39 millions in 1981 to

1.3

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• HML X PAL o MUL

1981 1982

F1G.15

_L _L ± _L 1983 1984 1985 1986

YEAR

1987 1988 1989 1990

123

Rs. 171 millions in 1989 showing an overall rise of 116.10

percent with a growth rate of 12.90 per annum. A decline was

observed in the Hindustan Motors where the px-e-tax profit has

declined to Rs. 48.33 million in 1989 as against Rs. 66.80

million in 1981. But the year 1982 shows a remarkable

improvement in the pre-tax profit in both the units i.e. the

Premier Automobiles Limited and the Hindustan Motors. But in

1987 Hindustan Motors and Premier Automobiles Limited shows a

sharp decline the pre-tax profit this was due to the fact

that more emphasis was laid on the expansion of the plants.

The similar trend was also seen in the net profit. The sales

figure of the Hindustan Motors and the Premier Automobiles

Limited shows an overall increase of 121.05 percent and

334.41 percent respectively with growth rate of 13.45 percent

and 37.15 percent per annum respectively.

Table No. 4.9 shows the financial ratios of three major

car manufacturing companies of the country. It is clear from

the table that the Maruti Udyog Limited has better position

than the Hindustan Motors and the Premier Automobiles Limited

in meeting out his current liabilities. The figure of current

ratio in the Maruti Udyog Limited was 1.14 in 1984 which rose

to 2.07 in 1989 which is said to be a satisfactory as it was

nearly 2:1. The position of the Hindustan Motors and the

Premier Automobiles Limited was not satisfactory as per the

results of the current ratios. The ratio of the Hindustan

139

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Motors was 1.32:1 in 1981 which came down to 1:1 in 1989. The

current ratio of the Premier Automobiles Limited was 1.27:1

in 1981 which came down to 1.19:1 in 1989 which indicates

that both the firms were not in a position to meet its

current liabilities effectively. Similar results were also

evident in the case of quick ratio. In the Maruti Udyog

Limited the figure of quick ratio was 1.12:1 in 198 5 which

rise to 1.27:1 in 1989 and that of the Hindustan Motors was

42:1 in 1981 and 43:1 in 1989 and in case of the Premier

Automobiles Limited it was .22:1 in 1981 that rose to .67:1

in 1989. This indicates that the financial position of the

Hindustan Motors and the Premier Automobiles Limited are not

satisfactory because they are unable to meet their

commitments as they occur in the short term.

It is apparent from table No. 4.9 that price earning

ratio of the Hindustan Motors as better than in the Premier

Automobiles Limaaited. The Price Earning ratio of the

Hindustan Motors was 4 in 1981 which rose to 13.80 in 1987

but price earning ratio of the Premier Automobiles Limited

was 2.24 in 1981 which rose to 8.51 in 1989. The investors

are more satisfied with the case of the Hindustan Motors

that there will be a clear chance that future earnings per

share will increase. But the position of the Premier

Automobile Limited has improved impressively during last two

year as its figures increased from 3.96 to 8.51.

3 O UJ

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55

50

45

40

3 5 -

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2 5 -

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• HML o PAL X MUL

X _L A 1961 1962 1963 1964 1965 1986 1987 1968 1969 1990

FIG.16 YEAR

The percentage of net worth to total assets in the

Hindustan Motors increased to 26 in 1989 as against 24 in

1981 the highest was observed as 45 in 1985. The percentage

of networth to total assets in case of the Premier

Automobiles Limited more smooth trend rather than Hindustan

Motors in start with 28 in 1981 and it was 39 in 1989. It is

clear fron Table 4.9 that so far as net profit ratio is

concerned the position of the Premier Automobiles Limited was

better than that of the Hindustan Motors. Net income of both

companies has increased in the year 1982. But in 1987 the net

income of both the companies has declined. The percentage of

the Hindustan Motors declined with high rate than that of the

Premier Automobiles Limited. Generally the percentage of the

Premier Automobiles Limited is higher than that of Hindustan

Motors. Therefore, the Premier Automobiles Limited appears to

be better.

In case of return of capital employed the position of

the Hindustan Motors and the Premier Automobiles Limited was

satisfactory in early years. But during the second half of

the eighties the percentage of the Hindustan Motors declined

more sharply than that of the Premier Automobiles Limited.

But the percentage of the Maruti Udyog Limited is increasing

day by day. As per return on capital employed the performance

of the Prenier Automobiles Limited and the Maruti Udyog

Limited are more or less the same and both are better than

^5

10

• HML X PAL o MUL

X J_ 1981 1982 1983

FIG. 17

198A 1985 1986

YEAR

1987 1988 1989 1990

144

the Hindustan Motors. (The performance of these three

manufacturers are depicted in Fig. 14, 15, 16, 17 and 18 with

respect to accounting ratios).

All these indicate that till early eighties much has

not been done in this sector so no impressive performance was

observed upto eighties but as a result of radical changes in

Government attitude towards this sector and with the opening

of a modern car company drastic changes in the structure of

the industry were seen. But lack of proper attention on

Research and Development and commitment to boost export was

not done as per promise. So more effects are required in

Research and Development area. It is time now to develop a

indigenous vehicle rather to depend upon the imported

technology. If these three manufacturers will not take up the

issue of Research and Development and export seriously, then

they will be unable to keep pace with other producers in the

international market. The Premier Automobiles Limited and the

Hindustan Motors have not even utilised their capacity fully.

As regard financial performance the Maruti Udyog

Limited has better performance than Premier Automobiles

Limited and Hindustan Motors but it is not proper to say that

Maruti Udyog Limited is working very impressively because it

has not even completed a decade. The year 1986 and 1987 are

very important for car industry as a number of expansion

programmes were taken up by different firm which effect the

145

financial position of the companies. But the position of the

Premier Automobiles Limited is better than Hindustan Motors

there number of reasons which are responsible for the poor

performance of Hindustan Motors after 1985 they include,

power shortage in the production plant, fire damaged a good

quantity of components and Government decision to stop the

purchase of Ambassador vehicles are some of them.

In conclusion it may be observed that our discussion in

this chapter has highlighted the managerial and financial

performance of the three major car producers of the country.

A number of indicators like production, capacity utilisation,

export and import, research and development, financial

structure and ratio analysis were taken to be the parameters

for analysing the growth of the sector and various

conclusions were drawn on the basis of data available as

shown by different tables and graphs in the chapter. In the

next chapter, our endeavour will be to present the main

problems of the industry as a whole which retard its growth

on sound lines. The chapter will also come out with concrete

suggestions spelling out the ways and means to overcome the

stated problems and difficulties in the way of its structural

growth.

4 5 -

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J_ J_ 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

FIG. 18 Y E A R

147

REFERENCES :

1. Date, Vidyadhar, Automobiles: History of the Industry in India, Economic Tines, June 8, 1989, New Delhi, p.7.

2. Report of the Tariff Commission on the Automobile Industry, 1953.

3. Public Enterprises Survey Annual Report, Volume 2, 1983-84, New Delhi, p.135.

4. Kothari'^s Year Book on Business and Industry, 1988, P.A17.

5. Ibid., p.A19. .

6. The Hindu Survey of Indian Industry, 1989, p.197.

7. Prakash, Jagdish, Rao, N and Shukla, M.B; Administration of Public Enterprises in India, Himalaya Publishing House New Delhi, 1987, p.253.

^

HAPTER-V

FINDINGS AND CONCLUSIONS

In the preceeding chapter the pattern of growth of the

car sector has been discussed at length. The purpose of this

chapter is to synthesize the various aspects of growth and

structure of Indian automobile industry has analysed in the

foregoing chapters so as to provide an integrated view of the

findings and conclusions of this study. While dealing with

the main problems of the automobile industry the chapter

brings out the suggestions and remedial measures for putting

the industry on right lines. Broad conclusions that emerge

from the study in terms of structural growth, productivity

and the role of the Government policies have been summarised

in this chapter.

The Indian automobile industry which leads the

industrial activity in the engineering sector is sufficiently

grown, diversified and technologically upgraded to become a

significant segment of the engineering industry of the

country. So far as the evolution of automobile in the world

is concerned it is well-known that unlike other major

inventions the original idea of the automobile could not be

attributed to any one individual.

The origin of the automobile industry in India can be

traced back to 1942. Till the beginning of the eighties the

automobile industry was characterised by small scale

operations, technological obsolence and absence of any

149

competition. Due to these reasons the industry was accorded

only a marginal status in the scheme of industrial

development of the country. It was of course, recognised even

in the fifties that the use of motor vehicles in India was

much below the potential demand for a country. In fact untill

the early seventies their number was about half of the

personal transport vehicles. Since then the structure of the

industry has changed significantly. By the end of seventies

personal transport vehicles increased to three times the

commercial vehicles and more than eight times by the end of

eighties. The eighties have been a period of change for the

automobile industry, several steps were taken in modernising

the industry. The most significant which revolutionalised the

Indian automobile industry, was the broad banding scheme and

liberalisation process which introduced in 1985. Further in

May 1985, the entire automobile industry was exempted from

Section 21 & 22 of the MRTP Act. These policies proved to be

a strong stimulant for the growth of the industry on modern

lines.

It has been observed that the automobile industry has

made tremendous progress during last 50 years. The total

production of vehicles during 1990 was 2350231 units against

212939 units in 1971 which showed an increase of 1003.71

percent. There has been more than eleven times increase in

production in between 1950-90. During the same period it

150

showed a compound growth rate of 12 percent . The total

number of units went up to 2350231 in 1990 against 1439455 in

1985 showing a compound growth rate of 8.5 percent. The two

wheeler industry showed a high rate of growth in the

industry. The total production of two wheelers in the country

in 1990 was 1890522 units against the production of 16879

units in 1990. The industry registered an increase of

11201.10 percent between 1960-90. The production spurted from

417602 units in 1980 to 1125606 in 1990 showing a rise of

2 69.54 percent. The growth in the two wheeler industry is of

continuous and steady in nature since 1970. The significant

feature of two wheeler industry is that its share percent in

total also increases as its production. The major shift in

share percent was observed in 1980 as it was 50 percent in

1970 which goes to 75 percent in 1980. The growth in Indian

two wheeler industry in last few years is due to a number of

reasons, such as, new open door policy of the Government, the

population explosion, growth in urban population and high

fuel prices.

The passenger car sector of the industry showed a very

fast growth in the sixties and eighties, the period in

between being one of relative stagnation. The total

production of passenger cars increased from 2221 units in

1950 to 176609 units in 1990 showing a rise of 7851.78

percent with growth rate of 157 percent per annum. This gives

the impression that the production of passenger car is very

low as compared to two wheeler sector. The operations of the

passenger car producers in the 50's were dictated by the slow

growth in demand for cars. During the period 1960-80 this

sector of the industry could not expand impressively because

of the rigid control over the prices. But the production of

commercial vehicles increased from 1891 units in 1950 to

145628 units in 1980 showing an increase of 7905.94 percent

with the growth rate of 158.12 percent per annum. It is

interesting to note that the share percent in total of

commercial vehicles was declining day by day. It constituted

4 6 percent share in 1950 which came down to 6.2 percent in

1990. If we look at the figure of Jeeps production then it is

observed that the production increased from 5501 units in

1960 to 41944 units in 1990 showing an increase of 662.48

percent with growth rate of 16.56 percent per annum. The

pattern of growth of three wheeler has some what similar

trend as that of Jeeps. Its production increased from 4 69

units in 1960 to 9508 units in 1990.

With the induction of the Maruti Udyog Limited major

changes were brought about in car production in just about

six years. It is seen that initially in fifties the rate of

growth was very high (upto 180%) but in sixties the rate came

down to around 60%. There was a serious setback in seventies

due to an enormous rise in price of gasolene and an increase

152

in the cost of vehicles. The average output in 1976-80 was

even lowered at 32754 units as against 33725 units in 1966-

70. During eighties there was quantum jum in car production.

The steady increase in the production of passenger cars in

eighties was result of the Maruti Udyog Limited. It is

observed that the Hindustan Motors was not able to take much

advantage of liberalisationf as its production has even not

crossed 30 thousand cars per year. Its production rose to as

high as 28730 units in 1989-90 against 22017 units in 1980-81

showing a rise of 30.49 percent with an average growth rate

of 3.50 percent per year. But in case of the Premier

Automobile Limited its production increased from 93 01 units

in 1980-81 to 42925 units in 1990-91 showing a rise of 361.50

percent. But on the other hand the Maruti Udyog Limited has

shown tremendous growth as its production increased to 112827

units in 1990-91 against 844 units in 1983-84 showing a rise

of 13268.12 percent Alandmark was achieved in 1989-90 as the

Maruti Udyog Limited crossed the mark of 1 lakh cars per

year.

The trends in capacity utilisation in car sector shows

that the Hindustan Motors and Premier Automobile Limited have

a relatively small scale of operations in comparison to the

Maruti Udyog Limited. There has been an impressive increase

in the level of capacity utilisation in all the three

manufacturers from 1986-87 onwards. The trends in the

153

Hindustan Motors was not very impressive as it generally

worked below 50 percent of capacity utilisation. But the

Maruti Udyog Limited is considered as a leader in this aspect

as it works above 80 percent. Number of developments were

carried in Research and Development by these three car

manufacturers but whatever the efforts they have done is far

from the expectations. It is observed that the three car

units are not paying proper attention to their Research and

Development area especially the Maruti Udyog Limited which is

not able to develop a separate Research and Development

Department. It is needed in the interest of consumer as well

as for the country as a whole to divert more funds in the

Research and Development section.

It is observed that the total foreign exchange earnings

by these manufacturers has risen to Rs. 2856 lakh against Rs.

5787 lakhs in 1986-87 showing a rise of 263 percent, during

the same period the figures of imports and remittances have

come down from Rs. 34 312 lakh to Rs. 324 62 lakhs which shows

a decline of 5.4 percent. The contribution by the Maruti

Udyog Limited in imports and remittances during the period

1986-87 to 1988-89 was always about 70 percent. If we compare

the figures of imports and export of the Maruti Udyog Liniited

with other units then we came to the conclusion that whatever

changes occurred it was due to the Maruti Udyog Limited.

154

The total assets of the Hindustan Motors has increased

from Rs. 1023.57 millions in 1981 to Rs. 4165.70 millions in

1989 showing a rise of 406.98 percent. In the Premier

Automobiles Limited the increase was 671.46 percent during

the same period. Similar trend was observed in the total

liabilities in the Hindustan Motors during the same period

but in the Premier Automobiles Limited the total liabilities

have increased from Rs.365.74 millions in 1981 to Rs. 2067.23

millions in 1989. This indicates that the Premier Automobiles

Limited was in a better position to meet its liabilities than

the Hindustan Motors. Similarly the net worth of the

Hindustan Motors has increased from Rs. 243-82 millions in

1981 to Rs. 1045.70 millions in 1989 during the same period

the Premier Automobiles Limited shows an increase of 847.32

percent. In the Maruti Udyog Limted 438.33 percent increase

was observed between 1984 to 1989. The working capital of the

Premier Automobiles Limited has increased from Rs.83.06

millions to Rs. 329.06 million. The Maruti Udyog Limited has

shows an increase of 1056.21 percent. But the Hindustan

Motors shows a different pattern in working capital

performance as its figures came down to Rs. 2.52 millions in

1989 from Rs,189.09 millions in 1981. The inventory of the

Hindustan Motors has increased to Rs. 1315.92 millions in

1989 against Rs.549.44 millions in 1981. The Premier

Automobiles Limited and Maruti Udyog Limited shows continuous

155

rise in the inventory. There has been an impressive

improvement in the quantum of gross profit in the Maruti

Udyog Limited it was Rs. 589.10 millions in 1989 against Rs.

22.8 million in 1984. The Hindustan Motors and Premier

Automobiles Limited shows an increase of 3 0.7 percent and

113.23 percent respectively. The pretax profit in the Maruti

Udyog Limited has also increased from Rs. 17 millions in 1984

to Rs. 589.10 million in 1989. In the Premier Automobiles

Limited the pretax profit has increased from Rs. 80.39

millions in 1981 to Rs. 171 millions in 1989. A decline was

observed in the Hindustan Motors where the pretax profit has

declined to Rs.48.33 millions in 1989 against Rs. 66.80

millions in 1981.

The financial ratios of the three major car

manufacturing companies of the country show that the Maruti

Udyog Limited has better financial position their those of

the Hindustan Motors and the Premier Automobiles Limited. The

figure of current ratio in the Maruti Udyog Limited was 1:14

in 1984 which rose to 2.07 in 1989. The ratio of the

Hindustan Motors was 1.32:1 in 1981 which came down to 1:1 in

1989. The current ratio of the Premier Automobiles Limited

was 1.27:1 in 1981 which came down to 1.19:1 in 1989. This

shows that the position of the Hindustan Motors and Premier

Automobiles Limited was not very satisfactory. Similar

results were also evident in the case of quick ratio. In the

156

Maruti Udyog Limited the figure was 1.12:1 in 12985 which

rose to 1.27:1 in 1989 and that of the Hindustan Motors was

42:1 in 1981 and .43:1 in 1989 and in case of Premier

Automobiles Limited it was .22:1 in 1981 that rose to .67:1

in 1989. All these indicates that till early 80's much has

not been done in this sector on financial fronts.

It is observed that as a whole there has been more than

three fold increase in the production of automobiles in the

country between 1981 to 1990. The total production during the

period 1976-80 was 2141646 units which showed an increase of

266.78 percent over 1966-70 and the production between 1981-

90 showed an increase of nearly 350 percent. This shows that

the major changes took place in the industry in eighties. The

changes that took place upto eighties were limited to

particular sector that has changed from time to time. The

changes took place between 1971 to 1980 were mainly confined

to commercial vehicles and two wheeler sector. The changes in

eighties are of significant nature when the highest increase

over the previous year was observed in 1985. This was the

direct result of the Government attitude of change and

liberalisation in its policy. It was a year in which car

sector crossed the mark of lakh. It is noticed that the

steady growth was not observed in the industry the rise and

fall in the industry is the result of a particular sector

which some time showed improvement and in other times it

157

pinpointed a decline. The production of commercial vehicles

during the year 1981 was 89752 vehicles which rose to 145628

vehicles in 1990 showing an increase of more than 62 percent.

But the production of commercial vehicles shows an increase

of nearly 15 percent during 1976-80. The output of Medium &

heavy commercial vehicles has increased from 1698 3 3 units in

1971-75 to 207716 units in 1976-80 showing a rise of 22.30

percent. But the production of Medium & heavy commercial

vehicles has risen to 88103 units in 1990 against 65234 units

in 1981 showing a rise of 35 percent. The peak was touched in

1990 by producing 88103 units in a year. On the sale side in

the year 1989, 66814 units were sold out against the 64516

units in 1981 showing an increase of 3.5 percent. This shows

that the growth rate in respect of sales is much below the

production. The decline in sales is observed during the

period 1982-87. This was due to the credit squeeze which was

introduced by the Government in July 1981. Similar

developments took place in light commercial vehicles. There

has been an increase in the production of light commercial

vehicles in 1976-80 showing a rise of 54.72 percent. But the

period between 1981-90 showing an increase of 134.62 percent.

It is also observed that the annual production in 1976-80 was

two times less than that of 1981 which shows the figure of

24518 units.

158

In the two wheeler sector more than 15 times increase

in production was observed between 1971-1990. The production

of two wheelers has increased to 1890522 units in 1990

against 113047 units in 1970. The production was highest in

1985 in comparison to previous year showing an increase of

32.2 percent. Significant changes were observed in scooter

segment. The production of scooter has increased from 58392

units in 1970 to 983443 units in 1990 showing an overall rise

of 1584.20 percent. The peak was touched in the year 1985

showing a rise of 42.1 percent over previous year this was

due to the fact that the large demand which scooter segment

was not able to fulfill during the preliberalisation period.

In the scooter segment till the seventies the market was more

or less equally share between Automobile Products and Bajaj

Auto Limited. It is observed that in early eighties the

Scooter India Limited's share has been reduced to nearly 17

percent while the Automobile Products of India accounts for

less than 10 percent and the mid eighties witnessed the

elimination of both. The market share of scooters in sales

has increased from 44.92 percent in 1980 to 48.5 percent in

1989. Similarly motor cycles production to 478528 units in

1990 from 42968 units in 1970 showing an increase of 1013.6

percent. During 1987 denand and sales registered negative

growth. This was due to the slump in the two wheeler market.

There is a clear trend of decline in share of old companies

15S

in the motor cycle segment. Between 1960-80 period three

producers namely Enfield India, Escorts and Ideal Jawa share

in the market are on a 25:40:35 basis respectively. But 1990-

91 shows three main producers namely Escorts which account

nearly 33 percent the next was Bajaj nearly 26 percent and

Hero Honda occupies more than 25 percent. The market share of

motor cycles in sales has declined from 27.1 percent in 1980

to 23.9 percent in 1989. Mopeds segment shows highly erratic

pattern of growth in production and sales. The boom in

production and sales witnessed in late seventies and early

eighties. The moped production was raised to 428551 units in

1990 against 11687 units in 1970 showing an increase of

3566.90 percent. The boom in this segment was observed in the

year 1983 showing a rise of 54.8 percent over previous year.

However, sales figure indicates an overall rise of 266.62

percent. The peak was touched in 1981 which shows an increase

of 75.8 percent over a previous year. The moped segment had

numerous producers turning out fewer number of vehicles till

the mid seventies. In 1980 market was mainly shared by

Kinetic Engineering and Majestic Auto. The mid eighties the

position was changed and market was shared by Kinetic

Engineering, TVS-Suzuki and Majestic Auto on a 47:3:13 basis.

The market share of mopeds in sales has declined from 27.98

percent in 1984 to 25,90 percent in 1989. The most

significant result of these changes was the energence of a

16C

buyers market in the place of a sellers market. A noticeable

shift in buying habits of customers is observed. As customers

would like to own their two wheeler today and pay for the

same in convenient instalments. The overall picture of the

two wheeler sector is one of continuous growth.

As in all developing countries, the automobile industry

in India was established via process of technical

collaboration India was importing assembled vehicles to a

large extent untill 1954. In 1981-82 the automobile imports

amounted to Rs. 58254 thousands which rose to Rs. 197383

thousand in 1987-88 showing a rise of 238.83 percent. The

major changes in import of vehicles has took place in 198 6-87

but after that a decline in import was evident. It is found

that exports figures declining continuously. It is observed

that the overall figures of exports of vehicles shows a

decline from Rs. 825226 thousands in 1981-82 to Rs.573053

thousands in 1987-88. Except chasis with engines all other

shows a decline in between 1981-82 to 1987-88. But motor

cycle segment shows a rise of 1183.17 percent during the same

period.

The pricing is a significant aspect of the automobile

industry where the customers are severely affected. The

producers are of the view that the one third of the price is

under their control, one third is due to ancillary and small

scale sector from which parts and components are taken and

16;

another third is due to various duties and levies. The

automobile industry is very highly priced which basically due

to a very high incidence of taxation on the industry. The

total taxes levied on the automobile industry work out to

approximately 50 to 60 percent.

At present the manufacturers in the automobile industry

generally depend on their foreign counterparts. But much has

not been done in the Research and Development area. The major

efforts has only been done in car sector. However,

individuals in commercial vehicle and two wheeler sector have

done some efforts in Research and Development. But low

production volumes and low increase in production are the

major factors which hindered the Research and Development

efforts in seventies and even in early eighties. At present

Indian automobile industry is moving towards slump. It is

expected that the next two years will be a time of much trial

and tribulation for the industry. A number of manufacturers

had been forced to cut back their production as the demands

are in the doldrums. The car sector and two wheeler sector

has been hit very badly on account of continuous increase in

prices, high duties on imports of assembly parts the credit

squeeze and low depreciation benefits.

Thus it can be stressed that automobile and ancillary

industries are passing through a crucial phase of growth

where modernisation, expansion and diversification are taking

162

place on an unprecedented scale. The induction of new

technology into the industry as developed by Japan and

European countries of the West and the promotion of new

projects with technical assistance as provided by these

collaborations is resulting in the creation of new

capacities. These new happenings have thrown new and serious

challenges to the industry. However, some of the policy

issues like levels of indigenisation, selling prices of

vehicles, quality/durability standards, economy of operation,

technology upgradation, policy of taxation etc. which have

come up time and again ever the past few years still remain

unresolved. Government is very much concerned with these

problems of the industry.

Mot©r vehicle is a complex and sophisticated product.

There are about 10000 parts and components which go to make a

complete vehicle, some of these parts are produced by the

vehicle manufacturers then while other parts are supplied by

the ancillary industries. The industry has to depend on a

range of ancillary industries for raw materials and inputs.

This is a major problen which manufacturers are facing in

keeping the standard of q-ality. In fact, as far as quality is

concerned, there has beer, a steady deterioration. Most of the

designs are imported ones. The available materials and other

items do not confirm to the quality specifications called for

in the imported designs. The designs are not fully oriented

and developed after substituted indegenous materials for

adequate environmental test to prove the pilots endurance. In

addition to this the process of indigenisation has affected

in the price and quality of vehicles. At present due to the

lack of research and development activity indigenisation

leads to an increase in price and deterioration in quality.

The engine designers and other agencies meant for ancillaries

like fuel injection pump, fuel filters, radiators, oil punps,

fuel pumps, shockers etc. have not helped in the direction of

variety rationalisation. Thus heavy investment in machinery,

research and development and high quality of management skill

which are required in automobile and ancillary industries to

produce good vehicles based on fuel economy, safety and

pollution standard have become essential. It is therefore

required that in the industry outdated and inefficient

technology has to be replaced by fuel efficient and modern

technology. For which the import of machinery and technology

is required but all this would add to the cost of production

but can be reduced significantly through economies of scale

and other policy measures, such as, a system of rewarding in

house research and development is introduced into the policy.

Proper feed back from users to producers is very necessary

this would help in initiating the immediate alterations in

the vehicle. Heavy investment in research and development

seems essential for the continuous upgradation of technology.

164

Regarding the Government policies for automobiles, the

industry presents a strange story of development. It is our

hypothesis that the Government policies in regard to this

industry specially the price controls and regulations, import

substitution, taxation and protection have been inconsistent

with the objective of a well organised development of the

industry. The industry has remained controlled and protected

in the sense the foreign capital investment was not allowed

and thus the industry was kept away from foreign competition.

The consumers were compelled to buy the poor quality vehicles

at demanded prices. No manufacturer was allowed to enter or

exit the industry. No change in the model, and no foreign

collaboration was allowed without the Government's prior

approval. All this has resulted in the continuation of

outdated technology and stagnation in the industry. These

factors also seriously affected the working and the growth

prospects of the industry. Taxation in our country has been

viewed as a means of bringing about changes in the level and

distribution of income and wealth.

The automobile industry is an outstanding example of

multipled taxation as a result of levies at different stages

of manufacturing process. Each of the different types of

vehicles produced in India comprises thousands of individual

components a wide variety of indigenous and imported

materials and stores are consuned. These inputs attract tax

165

and thereafter the complete vehicle is taxed by different

authorities. The aggregate tax borne by the final user of the

vehicle is the sum of (i) taxes on inputs consumed by the

automobile industry (tax in manufacture) and (ii) taxes on

the vehicles (consumer tax). The high volatile tax structure

with annual and mid year increase in customs and excise duty,

devaluation of rupee and increasing input costs have made the

manufacturer struggle for financial viability. The tax burden

has crippled the industry. Taxation has been identified as a

significant source of industry's sickness. The cost of

automobiles shows high degree of incidence of taxation. Tax

rate varies between 44 to 60 percent depending upon the type

of vehicles. High prices of vehicles owing mainly due to the

high tax rates have lead to a decline in the demand for

vehicles. It is suggested that the Governmnent should bring

about a comprehensive and clear cut policy in which special

concessions will be given to those enterprises which work 100

percent capacity utilisation and 100 percent indigenisation

link with Research and Development efforts. The Government

must reduce duties and taxes in regard to import of necessary

machinery in a view to modernise and develop the auto

ancillary industry. Broad-banding did not bring about much of

a change as it would benefit only those firms which have many

production lines for the manufacture of various ;types of

vehicles. As regard import of technology the Government

166

policy does not seem to be clear cut. For instance passenger

car sector and other sector shows disparity. The general

environment of free import of technology would have an

adverse impact on domestic research and development. As long

as the technical-cum-financial agreements are in operation it

is unlikely that much research and development would be

carried out in such firms. It is therefore, suggested that

the foreign collaborations will be permitted only in those

firms which had a good record of research and development.

The automobile industry shows a slow rate of

indigenisation. Because of foreign exchange constraints the

Union Government is looking at the terms of technical

collaboration and indegenisation more strictly. All the other

problems are directly or indirectly linked with the problem

of indigenisation. The indigenisation targets were not

achieved because the Indian auto ancillary industries was not

in a position to supply the products in conformity with

specifications. Manufacturing quality component is linked

with the quality of raw materials used, technology employed,

machines, tools and dies needed for modern manufacturing

process. Since all the raw materials needed cannot be

indigenously produced, so import of capital goods and raw

material not indigenously produced is a necessity. It is

suggested that the Government would frame fiscal policies

keeping in view the need for making these units available at

:67

reasonble prices. Secondly the manufacturers make use of the

land at its disposal to develop ancillary units for as many

as parts possible. Thirdly, the manufacturers invest their

own capital in auto ancillary industry to have a joint

venture with the leading ancillary manufacturers. As far as

foreign collaboration is concerned it is required that the

foreign collaborations should be allowed with the condition

of buy back arrangements or third country exports. It is also

required that the Government should encourage improvements in

methods and equipment of fuel efficiency testing.

The development of the auto industry largely depends

upon the suppliers and vendors development. The manufacturers

has been facing difficulties in locating and selecting

suitable vendors. An often materials and parts delivered

directly to the assembly line without inspection, storage and

inventory accumulation. Under these circumstances an

assessment of the vendors company as a whole and not just the

part which was being purchased became crucial. The emphasis

is given only on the quality of the product if strict

criteria is maintained by the manufacturers in all areas to

select vendors, no vendor would able to qualify. The vendors

fail to supply the component timely with quality

specifications. Because they are reluctant to invest huge

amount in research and development area. This resulted in the

low productivity this make the manufacturers in the tight

.68

position as manufacturers have to depend upon three or four

suppliers for a single product. It is suggested that the

Government sould come up with concrete steps to develop auto

ancillary industry of the country. More emphasis should be

given on research and development for which Government must

give some additional incentives there who came forward to

develop this industry. The manufacturers are also required to

spend huge amounts in research and development in auto

ancillary motor. The Government should invite big business

houses to invest its capital in the industry for they should

be given income tax rebate etc. The policy of raising of the

foreign equity participation to 51 percent through which the

Maruti Udyog Limited has been privatised, had an adverse

effect on the auto industry. If automobile industry is not

excluded from this policy, it seems that a time will come

soon when these foreign companies have complete hold on the

Indian automobile industry. The entire industry will be

controlled and regulated by these foreign giants. Because on

one end they are increasing their participation in the

industry and on the other hand they are in a position to sell

out their outdated technology to us as it was done earlier in

the case of the Maruti Udyog Limited itself. As there is no

buy back clauses in any of their collaborations agreements.

It is also very clear that the policy of import of technology

in this industry itself come in the way of research and

169

development. There are several small enterprises in the

unorganised sector which produce spurious spares account for

around 20 percent of the entire replacement. Of these spares

tie rods, the rod ends and pistons are critical items which

affect the performance of the engine and the safety of the

driver and passenger. The unorganised sector takes the

advantage of excise concessions and also play on the

consumer's weakness for foreign brand names. Most of the

manufacturers in this sector just collect the worn out parts,

remetal them and sell them off as genuine ones in attractive

packages at low prices. It is suggested that to make

plagiarisation and violating the trade marks a cognizable

offence as in the case of the drugs and pharmaceutical

industry and rationalise excise duty structure in such a way

that the substandard manufacturers do not get a price

advantage. Government should bring spare parts under ISI and

give the quality mark after thorough checking by Government

agency. Besides the Government policies, there have been many

economic factors coming into the way of steady growth of the

industry. Some significant factors include, non-availability

of finance at cheaper rate of interest to buy vehicle. In

view of increasing needs of credit facilities it is required

that there should be liberal institutional financing in this

field. The commercial banks have to play a significant role

in this regard. Likewise the L.I.C, Industrial Finance

17C

Corporation of India, State Financial Corporations etc.

should also extend credit facilities to the industry. Despite

several problems, the industry is trying hard to update its

technology, modernise its products and expand production

facilities. In fact, some manufacturers have already made

good progress towards this end. Some new units are also

striving to enter the field. All these facts give an

indication of a bright future of the automobile industry.

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