TEJEESH CHANDRA

(1226113139)
AUTOMOBILE INDUSTRY
SUMMARY
The automobile industry in India is one of the largest industries and a key sector of the economy.
The year 2012 comes to an end, the Indian automobiles industry witnessed a moderation in
demand in 2012, after the double-digit growth in sales recorded in the preceding three years.
Weak macroeconomic sentiment coupled with subdued consumer confidence pulled down sales,
particularly in the latter half of the year. Domestic automobile sales grew by 6.6% in 2012 (JanNov), as compared to growth of 14-31% during 2009-2011. In the current macro environment,
both domestically and globally, we are cautiously optimistic about the Indian automobile
industrys prospects in the near term. As a result, achieving high growth rates is likely to be a
major concern for the industry in 2013. Since independence to the FY 2012-13 automobile
industry in India has grown reasonably well, more developments took place only after 1993. The
FDI in India was started with changes in industrial policy (named as New Industrial Policy
NIP).The last two decades of the 20th Century witnessed a dramatic world-wide increase in
Foreign Direct Investment (FDI) The first phase is during early 80s to 1995, The second phase
is from 1995 to 2002, The third phase (2002 onwards).The 12th Five Year Plan: Automotive
sector as an engine to propel manufacturing to a high growth trajectory
INTRODUCTION
The Indian economy has been witnessing one of the most severe slowdowns in several years.
During the April-June 2013 quarter, India's GDP increased merely by 4.4%. This is the slowest
growth rate since 2009. The slowdown in the economy coupled with high fuel prices and interest
rates have had an adverse impact on the growth of the Indian auto industry. In order to beat the
slowdown, auto makers have been focusing on the overseas markets to boost exports. . The
Automotive Mission Plan (AMP) 2006-2016 aims at doubling the contribution of the automotive
sector in GDP by taking the turnover to 145 USD in 2016 with special emphasis on export of
small cars, MUVs, two & three wheelers and auto components

TWO WHEELER SEGMENT

The motorcycles segment, which accounts for over 70% of industry volumes, remains the
primary weak spot. Motorcycle volumes had been flat in 2012-13 and continue to remain so in
the current fiscal. The scooters segment, which accounts for ~24% of industry volumes, has
motored along at a brisk pace expanding by 16.6% YoY in 6m 2013-14 on the heels of 14.2%
growth recorded in 2012-13.

Indias per capita real GDP growth at 8.6% (CAGR) had

contributed substantially towards raising the standard of living of households, which in turn had

been one of the key drivers of growth for the countrys automobile industry. But over the last
two years, inflationary conditions, firm interest rates and rising petrol prices have adversely
impacted disposable incomes causing a consumption squeeze. For the domestic 2W industry to
revert closer to its historical growth trend line any time soon, the number of target households
need to expand. This in turn would depend on the pace of Indias economic growth recovery that
could (a) boost personal disposable incomes and resultant consumption growth, (b) pull up the
un-penetrated households from a low income segment to the next higher income segment, (c)
further enable increase in the number multiple two-wheeler households, enabling penetration
supported rise in 2W demand.
[Indian Two-Wheeler Industry October 2013.]

COMMERCIAL VECHILES
The industry has long-term growth potential, subject to the economy accelerating back to 7%
8% GDP growth per annum and the Government expediting policies that support growth of
manufacturing and infrastructure development. Slowdown in the economy, mining industry
activity and delays in infrastructure projects create uncertainty in demand for goods carriers.
Policies such as deregulation of fuel prices and the new bus-body building code drive OEMs to
introduce compatible products and adopt process-oriented bus-body manufacturing. Global
OEMs increase localization levels, adapt products to meet local needs and look at establishing
India as an export hub. Global OEMs will also be looking to make their alliances with domestic
players successful, to leverage the latters understanding of the local market and their distribution
infrastructure . Global suppliers increase localization to be cost-competitive, while domestic
suppliers improve the quality and features of their products. Suppliers diversifying to related
sectors, such as the off-road CV industry, the railways and defense, to reduce exposure to
uncertain CV demand.
[Mega trends shaping the Indian commercial vehicle industry February 2013]

WORLD EXIM IN AUTOMOBILE INDUSTRY

The Government of India has provided incentives to various sectors including automobile sector
under Focus Product Scheme. Incentive is granted in the form of duty credit scrip @2% or 5% of
FOB value of export. The Automotive Mission Plan (AMP) 2006-2016 aims at doubling the

contribution of the automotive sector in GDP by taking the turnover to 145 USD in 2016 with
special emphasis on export of small cars, MUVs, two & three wheelers and auto components
Year: 2012-13 (Apr- May) Export of Auto Industry: 1937.78 Total export:48613.29 (%) of
Auto Industry w.r.t. Total Export: 3.99
Year: 2013-14 (Apr- May) Export of Auto Industry: 1810.99 Total export:47498.50 (%) of
Auto Industry w.r.t. Total Export: 3.81
In Nov 2012(up to Nov), all the segments, barring three-wheelers recorded higher exports.
Growth in exports of two-wheelers, which account for over 65% of automobile exports, slumped
to 1% in 2012 (up to Nov), from 31% in 2011. Vehicle exports have been on a downhill drive
since mid-2012. The situation is not likely to witness a sudden turnaround, particularly with the
uncertainty looming in the global economy. Moreover, with Sri Lanka recently announcing steep
increase in import tariffs and excise duties, it is likely to have an adverse impact on Indias
automobile exports, as Sri Lanka is one of the important export destinations for the industry.
India is emerging as an export hub of global auto firms not just for small cars but also for big
cars such as mid-size sedans and utility vehicles (UVs). Export of big vehicles has been on the
rise as an increasing number of global brands are now selling India-built sedans and UVs in other
markets. During April-November 2013, exports of sedans reported a growth of 29 per cent at
77,987 units when compared with 60,512 units in a year-ago period. Europes largest car maker
Volkswagen has also been selling Made in India Vento across three continents. Currently,
Renault is the largest UV exporter from India, followed by Ford and Mahindra & Mahindra.
Both Renault and Ford have drawn up major export plans for their premium compact SUVs
Duster and EcoSport, respectively. Chennai-built Ford EcoSport is being sold in 10 markets.
[A big push to 'made in India' cars]
Ford Motor Co., will ship cars made at its Indian factories to more overseas markets as industrywide sales in the country head for their first annual drop since 2002. Ford exported 29,316 units,
or 27% of its production in India, in the year ended March. It sold 77,225 passenger vehicles in
the country in the year ended 31 March, giving it a 2.9% market share,
[Ford to expand exports from India as demand slows]

Indian Auto Sector Medium term

During the downturn, the two-wheeler and three-wheeler segments, which were until then
experiencing low growth or losing volumes, bucked the trend. Indias vehicle demand is quite
different from other top automobile markets with the exception of China in that two-wheelers
constitute a significant portion of vehicle demand (more than 3/4th of the Indian market is in
two-wheelers). In the context of the unique characteristics of the Indian automobile market,
growth is expected to be driven by the following:
Affordability
While quite a few new vehicles launched in the Indian market have been developed locally,
vehicle affordability remains a significant concern. Although the price of an average motorcycle
in India (about USD 900) is comparable to the average per capita income, the prices of passenger
cars have a long way to go. Although the entry level car is priced at around USD 2,500, the
passenger car market could grow multi-fold if there is a break-through of another price level in
the years to come.
Policy Environment and Evolution of Indian Auto Industry
The midterm goals in respect of the sector are articulated in the Automotive Mission Plan 200616, a ten year strategy and plan prepared jointly by Government and industry. The Plan laid
down a 10 year roadmap for the industry covering every aspect of its growth ranging from broad
direction on fiscal policies, emissions, safety and globalization in terms of technical standards,
enhancing competitiveness, skill development, testing and homologation, R&D etc. The
Automotive Mission Plan 2006-2016 envisaged that by 2016 India will emerge as the destination
of choice in Asia for the design & manufacture of automobiles and automotive components. The
output of the Indias automotive sector was projected at USD 145 billion by 2016, doubling the
contribution of the industry to the National GDP from around 5% in 2006 to 10% in 2016 and
providing employment to 25 million persons additionally.
FDI in India
FDI plays an important role in the development process of a country.. In the FY 2007-08 the
growth is by 45% and maximum being in FY 2009-10 by 58% in automobile sector but the total
FDI inflow is on the negative side by 17%. The cumulative inflow in FDI from April 2000 to
October 2012 is 8,55,433 crore and within this automobile sector is 4.0%, in value terms is

34,875 crore. The total FDI inflows is maximum in the FY 2011-12 comparing with all other
financial years and the maximum inflow (38%) is from Mauritius for all the financial years
because of DTAA (Double Taxation Avoidance Agreement), that is, if the entity is a resident in
India, it will be Taxed under Indian Tax laws, if it is a resident of Mauritius, it will be taxed
under the tax laws of that country. The next highest FDI inflow is from Singapore being 84,416
crores which is 10% of Total FDI inflows from April 2000 to October 2012.
Automotive Sector for the 12th Five Year Plan (2012-2017)
In the present stage of economic development of the country, the manufacturing sector is
expected to absorb a much larger workforce, relieving agriculture of the excessive burden and
also contribute more to the national GDP India will become the third largest automotive market
in the world by 2016 ahead of Japan, Germany and Brazil, riding on its domestic automotive
sales. Although the economic growth vulnerability and lower sentiment resulted in market
slowdown in 2012 and 2013, India is expected to regain strong growth trend from 2014. With a
CAGR of over of 15% during the last 5-7 years, the automotive sector is aptly described as the
next sun rise sector of the Indian economy. The contribution of this sector to the National GDP,
with liberalization, has risen from 2.77% in 1992-93 to about 6% now. It provides direct and
indirect employment to over 13.1 million people. In 2010-11, the total turnover of the
automotive Industry stood at USD 73 Billion (`3, 27,300 cr.) and its contribution to the
Manufacturing GDP and the excise duty was 22% and 21% respectively. India surpassed France,
UK and Italy to become the 6th largest vehicle manufacturer globally in 2010-11. Today, it is the
largest manufacturer of tractors, second largest manufacturer of two wheelers and 5th largest
manufacturer of commercial vehicles and is emerging as a global automotive hub.

REFERENCES:
1:Automotives March 2013, IBEF.
http://www.ibef.org/industry/indian-automobile-industry-analysis-march-2013.aspx
2:Automotives sector for the 12th five year plan.(2012-2017).
http://natrip.in/download/Auto_report_12th_FiveyearPlan.pdf
3:CRISIL May 2013, automobile.
http://crisil.com/pdf/research/CRISIL-Research-cust-bulletin_may13.pdf
*4:KPMG's global automotive executive survey 2013.
http://www.kpmg.com/KZ/ru/IssuesAndInsights/ArticlesAndPublications/Documents/KPMGsGlobal-Automotive-Executive-Survey-2013.pdf
5: Indian Two-Wheeler Industry October 2013.

http://www.icra.in/Files/ticker/SH-2013-Q3-1-ICRA-Two%20wheelers.pdf
6: Mega trends shaping the Indian commercial vehicle industry February 2013.
http://www.ey.com/Publication/vwLUAssets/EY_Mega_trends_shaping_the_Indian_commercial
_vehicle_industry/$FILE/EY-Mega-trends-shaping-the-Indian-commercial-vehicle-industry.pdf
7: A big push to Made in India cars by G. BALACHANDAR
http://www.thehindu.com/business/Industry/a-big-push-to-made-in-indiacars/article5487335.ece.
8: Ford to expand exports from India as demand slows

TUE, NOV 19 2013.

http://www.livemint.com/Industry/VH7WvFjaJdlIkTGNGRDyeN/Ford-to-expand-exports-from-India-asdemand-slows.html.