Auto Policy

7/31/2019 Auto Policy

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RESEARCH PROPOSAL

TOPIC: THE EMPIRICAL STUDY OF AUTOMOBILE POLICY OF INDIA COMPARED TO AUTOMOBILE

POLICY OF INDIA.

FROM: GAURAV RANA

ROLL NO: 3056, TY (b)

Symbiosis School of Economics

India has been one of the fastest growing economies from the last year few years. But still have a

negative effect of policies followed till 1990s. After globalisation takes place in 1991, economic reforms

start taking place in India when we gradually open our economy for foreign companies. A huge foreigninvestment through many institutes or directly makes its way to boost the Indian economy. The main

question raise after this was does India did well in this era in comparison to other nations.

After this major change in foreign policy, an increasing confidence and demand in automobile sector can

be seen due to its long term potential and huge market. It helps also India to emerge as manufacturing

hub at global platform. The automobile industry after 1991 era plays a curious role in growth of Indian

economy. But is still have some effects of policies reforms in compared to nation, china quickly change

itself in marketable conditions

Pre-globalisation, Passenger car market was ruled by few car makers like Maruti Suzuki, Tata motors,

Hindustan motors, force motors and premier padmini. A commercial vehicle was dominated by Tata

motors, Mahindra & Mahindra and Ashok Leyland and Bajaj auto ruled the 2 wheeler market segment.

If we talk about its contribution to GDP it was just only 3.5% and import tariff rate was 152% which was

main hurdle of any individual for seeing a dream to park a car in his lawn.

This paper attempts to examine the changing aspects in favour of automobile sector post globalisation

which was following:

1. The overview of policies reforms (1980-2010)

2. Role of government while making policies


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3. The overview of china automobile policy (1978-2010)

4. Parameters to check Indian automobile growth

5. Comparison between economy of India and china situation

6. India or china- which is better?

7. Problems in India regarding automobile industry

8. The recommendation for future

9. Plans for future


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Comparison between India and China situations

India v/s china which economy is better?

Problems prevailing in both nations

Recommendation to Indian Automobile Policy

7. Automotive Mission Plan (2006-2016)...............................................................................

8. Conclusions......................................................................................................................

9. References....................................................................................................................


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Studying the Various Auto Policies of India and China and its Possible Impact on Automobile Industry

1. Introduction

Automobile sector is the main wheel of any economy to run its administration. After china, India is the

second largest producer of automobiles in Asia. In India automobile sector is ruled by many domestic

and foreign players. The current level of production is 19, 26,484 at 2009-10 which was quite high form

10,000 in 1950s. During the early stages of economy, the automobile sector not has any importance but

after several reforms automobile sector start contributing large number of income to GDP. The

government took many economic reforms and deregulation changes in polices towards the automobile

sectors. The reforms include the technology up gradation allowed to take from foreign countries by

domestic players in 1980s. First merger of automobile company was setup in 1983 as Maruti and Suzuki

to produce first Indian small car. Suzuki was Japanese based company allowed to set his plant in India

with Maruti. This initiative took by Ex Prime Minister Rajiv Gandhi to look for future growth prospectus.

The next change is big change in the history of polices which was delicensing in 1991 from strong license

raj. This new experience is beneficial for producer, retailer and consumer. Because automobile industry

is free from any kind of license and relaxed from heavy import and export duties. Last big change is

automobile sector is allowed 100% foreign direct investment in India by any foreign player to setup his

manufacturing plant. Affect of this change is seen clearly because it leads to enter of new 17 players in

industry. Different type of automobile products now available in market and consumer start enjoying

the products.After the lifting of licensing in 1993, 17 new ventures have come up of which 16 are formanufacture of cars. This industry currently accounts for nearly 4% of the GNP and 17% 0f the indirect

tax revenue.

The automobile industry have strong multiplier effect and capable of being driver of economic growth.

Auto industry has new and vast market to play in the Indian economy. Consumer in India was excited to

purchase new products. They are bored to see only ambassador, fiat padmini and Maruti 800 on road.

Automobile industry does not provide only new products but vast provider of employment, high income

level to employees, taxes and several duties to Indian government. They also made the big impact on

financial condition of government. They launch the Indian market and players on international platform.

It plays vital role in countries rapid economic growth and industrial development. The automobile sector

solves several problems which should be solved by government like employment, development in every

region and optimal use of resources available.

Current standing of Indias automobile production is around 2% of total global production of

Automobiles. This happened due to continuous change in automobile policies at regular interval. These

regular changes in policies change the outlook of Indian economy in front of foreign investors. After


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china, India is considered to be 2nd best investment centre in Asia. India is favourite investment centre

due to many factors like easy available resources, special plans provided by government, cheap

manpower and cost of resources.

A journey started after 1991 reform an automobile sector is just a multiplier, a driver of employment,

new source of technology and investment. Now Indian markets have presence of almost every big

automobile manufacture and many more companies heading towards India because of market potential

and consumers purchasing power. Government and policy makers are planning to extend the

automobile industry to increase the exports and imports. A proposal of AMP (automotive mission) 2016

came in existence to increase the benefits to manufacturers, employees and consumers. This plan

include a several job opportunities, technology up gradation, subsidies to manufactures and increase

exports to make strong presence at international automobile market. Even experiencing high growth inautomobile industry the situation is unsolved. The journey of automobile sector is come to end or its

just started.


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Current Status of Indian Automotive Industry

Automobile Industry includes commercial vehicles, Mutli-utility vehicles, Passenger cars, two/three

wheelers, tractors and auto components. Production of these entire stated automobile was done on

guidelines issued by Ministry of heavy industry. India now has large number of manufacturers setup in

India with their established subsidiary company for Raw Material, etc. there are 15 manufacturers of

passenger car and multi-utility vehicle, 9 manufacturers of commercial vehicles, 14 manufacturers of

two and three vehicles and 10 manufacturers of tractors.

The Indian automobile sector sustained at cumulative average of 22% in between the 1992 to 1997.

After deregulation investment in automobile sector is Rs. 59,500 crores. They provide direct

employment to 4, 50,000 employees and 1, 00, 00,000 indirectly. Currently India ranked 2nd

in

production of 2 wheelers and 5th in commercial vehicles. Due to recession in last 3 years the industry

faced a slowdown but able to maintained a positive growth rate. The component industry was faced

least effect due to its exports capacity and able to maintained approximately 12% growth rate.

The road traffic now needs attention to work on due to increasing traffic on roads. India is 2nd largest

populated country with 3.3 million kilometre network to ride. But now management needs to be

considered as major problem.


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2. ROLE OF GOVERNMENT

As above mentioned prior to 1991 India was not a favourite investment destination of

foreign player. The policies were so tight and regulated that no foreign player thinks to set

his plant in India because they cannot see any chance of return and opportunities. But due

to continuous changes in polices in 1991 and 2002. The country was able to gain attention

of all foreign investors throughout the world. Now India is favourite destination of foreign

investment in Asia. The main responsibility of government is to secure this position and

continue with growth level. India has to look for future projects to make his presence in

international market at high level production and exporter. To gain this goal government

have to look for effective technology and efficient workers because these factors are

wheels of automobile sectors. Government has to look for time to time change in policies as

per the need of industry. The import duty and export charges should be deal accordingly

because presence of many foreign players makes it more important. The political

conditions should be balanced to run smooth industry programs. Otherwise government

never look on issues prevailing in market and needs to be fulfilling in the industry.

Government will create a conductive eco-system to support world class innovation in all

segments of the automobile industry. The government will also support and open the

centres for research and development in the field of automobile industry. These centres

will be funded and supported by government to search the resources available and

innovative technology can be used in manufacturing plants and offices. Government also

promote the eco friendly vehicle to be innovate and used in the country to save the

environment. So government should take care of all future prospectuses to control.

Now, Government is coming with AMP 2016 to double its production of automobile

industry. Government have to search for new alternative resources for new players comingin the Indian market.


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3. Review of literature

According to Mr. Mahipal Ranawat and Rajnish Tiwari, paper presented on Influence of Government

Policies on Industrial Development: A Case of Indias Automobile Industry at Hamburg University of

Technology, Germany. They review condition of automobile industry from 1974 to 2006. Mainly they

focused on the role played by Indian government for growth of automobile sector by introducing

various policies. To support his argument various sub topic chooses by them like impressive growth in

domestic sector, increase in export trends of Indian automotive industry, foreign direct investment

flows to India, growth drives of Indian Automobile market, inspiration to launch small budget car: Tata

Nano , factors affecting Indias competitive position and mainly policy framed by experts to boost the

automobile sector. They divide the analysis of policies issued in four different phases to classify them

separately. In first phase 1947-1965 and second phase 1966-1979 policies issued by government was

only related and concerned towards the protection of domestic players interest. They never concerned

to expand the market due to much other senior priority like poverty and education. In third phase 1980-

1991 the first important step took to look the industry from western angle. Relaxation was allowed in a

case of technology up gradation from any other countries. In same duration two more steps were taken

like promotion of exports and acceptance of broad banding policy for automotive segment. This

modernisation of policies will promote the exports of country. It helps to double the production from

1561 million in 1980-81 to 3041 million in 1884-85. The technology up gradation helps to set new

technology base. New vehicle will introduced with better fuel efficient engines and more features were

given in automobiles. The broad banding policies were helped to increase the competition. The fact

supporting was telco and other companies expand their engines capacity from 100 cc to 150cc. The

effect of 1991 delicensing scene clearly with high growth in automobile sector and Indian moved up in

ranking of production of passenger and commercial vehicles. This also lead to entre of new foreign

players like Mercedes, General Motors, Hyundai and many more due to allowed 51% foreign direct

investment in automobile industry. In 2002, with effect of change in policy like 100% foreign direct

investment allowed in automobile sector. It helps to increase the internalisation and FDI flows to India.

The FDI flows at CAGR of 77% from 2004-05 to 2007-08. Further government start working on Research

and Development centre. They ordered many companies to start special department in their

administration for R&D. With the effect of this guideline, Maruti and Suzuki announced the R&D

department to work on future projects and possible resources to achieve it.

According to them, policy reform helps for economic growth and more opportunities. They believed

these steps take automobile industry to new heights. They said in his paper domestic survived till nowdue to strong policies issued in favour on them during the regulatory and license raj. Tata Motors and


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Bajaj Auto survived till now due to strong regulatory policies with capturing the strong position in the

market.

In last, Indias market is great producer of small cars. So position should be secured and increase the

role in small car industry. Now the domestic sales of small cars are strong. It is one of the major factors

to increase the confidence of foreign players to increase the production in India. Government just have

to strong auto policy and take initiatives to hold the position.

All the points supported by them are correct and effective as per shown facts and figures in paper

presented. But I am not fully satisfied with them. I like to review all the points with update facts and

figures and try to draw the conclusion with comparison of any other nation auto policy. This helps

showing clear picture of growth of production and exports of any particular company with effect of

1991 reforms.


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Need for Effective Automobile Policy

Automobile policy was established to gain desired goals to maximise the growth of industry.

The Automobile Policy should be more regulative because now role of government is only upto

to extent of policy making only. Still now polices able to attract many foreign companies in

India. But policies should be more investor friendly and helpful for foreign companies to setup

their manufacturing plant in India. All the problems of investors should be addressed properly

and proper connection with WTO should be maintained to update with norms set by them for

global trade.

Presently companies from all over the world are here and resources are used extensively. The

situation in India is conduces contention over the competition. Automobile industry is going

under the structural transformation. Now industry distributes itself in Tier 1, Tier 2 and Tier 3.

Many MNCs convert themselves into Tier 1. Tier 1 producer are purchaser of auto components

from tier 2 and tier 3 suppliers. Many foreign companies also fall into tier 2 and tier 3. So

polices should be planned by keeping the entire tiers on one table. Indian automobile have the

potential to became powerful at international level but for that industry needs to grow with

pace of world automobile industry. For that certain efforts are required to sustain at every

point and need of industry required for production. There are certain challenges like low scale,

inadequate R&D, technology support, lower productivity, limited resources for international

marketing and establishment of an efficient supply chains. To meet with all these challenges

the auto policies were framed.


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4. Auto policy review (1980 2010)

Automobile industry working on guidelines issued in auto policy issued specially to control working of

industry. The automobile industry is gone under many phases and faces many policies changes. During

1947-79 the industry is going under the highly regulated phase. In this phase industry is captured and

ruled by few domestic players like HML and PAL. Entry of foreign is highly restricted in this phase. Next

phase start from 1966-79, this phases also regulated under high restriction and license rag. The

conditions are same as earlier phase. Next phase start from 1980-91, in this phase some modernisation

of automobile industry is done by introducing relaxation is technology transfer and allowed for foreign

collaboration. Exports figures get double and also lead to increase in competition. Last phase is 1991

onwards, this phase change whole scenario of industry. This phase gets the advantages of delicensing

and allowed 51% FDI in any automobile industry. Many changes and benefits announces later in this

phase also like 100% FDI allowed in any industry. In this paper, I took the partial regulated phase (1980-

1991) and liberalisation phase (1991 onwards).

I. Partial regulated phase (1980-91):-This phase was typical deal with modernisation policy for

automobile industry and promotion of export steps.

1. Modernisation Policy

In the early 80s when modernisation policy is needed then government took the right step and launch

the modernization program for automobile industry. This step took mainly for launching fuel efficient

engines and increased competition in automobile sector. This Policy cover the other areas like allowed

import of technology and machinery, relaxation in new entries and foreign equity collaboration. These

policies were introduced due to Japanese demand of new market and government observed right time

to launch new guidelines. Several new joint ventures came into existence like Maruti and Suzuki, etc for

technology transfer and equity collaboration. Many other domestic players also tried to merge with

foreign player to enjoy technology advantages to serve the big players going to set up in market and

consumers too. All this had a positive impact on industry and economy growth. As industry advantages

several numbers of models start launching in market. This foreign collaboration came with extreme

highly developed technology and elite quality products.

Through these collaboration new idea of reducing the body weight of vehicles were introduced and use

of fibres and plastic were taken into care while manufacturing the products. Japanese manufacturers

bring the world class facilities to Indian market. Many suppliers of foreign manufacturer shift

themselves to Indian market to serve their regular customer. This brings many ideas of business toIndian market. The hotspots of Japanese manufacturer are Gurgaon (Haryana) and Pithampur (Madhya

Pradesh). The main changes scene in passenger cars because they only concentrated in passenger cars


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due to unexplored area and break of monopoly created by HML and PAL. Japanese manufacturer

capture around 60% of market in few year only. The negative effect of this policy was breakdown of

monopoly created by HML and PAL and ignorance of other vehicle production.

2. Promotion of Exports

Automobile industry is the new and net user of foreign exchange. They need to have more foreign

exchange to have more trade easily. Otherwise the payment of imports gets costly and revenue of

products sales is low. Automobile industry was going through the unstable demand production ratio.

Firms trying to make their production maximum but domestic demand remain low in consideration to

production. So government came up with the idea to promote the exports of production to match the

balance of payment and balance of trade. The entire firms get negative influence if government not

came with ideas of promotion of exports to fully utilisation of installed capacity of production. The

problem of overproduction is seen in the market, so government open gates of exports to send

production cross the borders. This ideas consist the simple procedures to export the products, firms has

license to exports the 100% of their production and special plans for existing units to expand themselves

for purpose of exports. These initiatives encourage the manufacturer to increase their production and

earn maximum foreign exchange for future payments. The initiative taken in modernisation program

also influence domestic manufacturer and foreign players to exports the goods as per new standards

and better quality.

To promote exports technical up gradation is needed to match up with foreign consumers desire. For

technical collaboration with first collaboration done between LVECO and Ashok Leyland to maximum

the numbers of automobile exported to Mexico. Many Japanese manufacturers like Maruti Suzuki start

exporting their 800cc passenger cars to European market. European market is one of huge producer and

user of passenger cars. Due to less domestic demand firms have full chance to maximise their exports by

increasing their production. Previous to this initiative, India is new importer of products and technology

but after this Indian firm able to mark their spot at international level in terms of exports. The figures of

exports get double from 1591 million in 1984-85 to 3054 million in 1988-89. Indias standing on exports

at global level was around 0.1% but at least firms get a new ways to look for profits and motivation to

achieve their maximum production level compared to installed capacity. The decision to promote the

exports emerges as important decision taken to boost the automobile industry.

3. Broad Banding Policy

This policy was introduced in 1985 to support the efforts and plans started in previous policies.

The main attention was provided to maximum utilisation of installed capacity and expansion of


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firms and market to achieve high growth rate in automobile sector. Many initiatives were taken

to achieve coordination between the low cost production of vehicles and demand stimulation.

Under this program, government allow license to firms to produce any kind of products instead

of giving license for any particular product. This step free manufacturer to think out of box and

produced what required in the market without any government intervention. Through this firm

able to utilise the maximum installed capacity for production and exports also improved due to

low intervention and easy procedure as stated in previous policy. This policy did not have large

number of effect in industry but able to maximise benefits for some particular firm. Telco and

Lohia machines benefitted mostly with effect they able to increase their engines capacity from

100cc to 150cc. The effects of this and previous policies would be seen clearly in late 1980s. In

late 80s automobile industry start seeing effect when many orders for export and domestic

demand increases. To deal with important issues like saving on import of oil, growing demand

in vehicles and high growth rate of automobile industry. Government decide to upgrade the

technology and increase competition in market to match the above mentioned issues. Many

other important policies made during this phase. Many sort of relaxation provided to foreign

players to collaborate with domestic player and existing foreign collaboration. In everybody

mind one question is continuously prevailing like why government condition so easy to setup

plant and manufacturing units by foreign players? The answer to this is scene when

government start producing vehicles for middle class section of population. Middle class

section hold big portion of population in total population. The increased level of income and

status of living increase the demand for passenger vehicles. The continuous increase in prices

of oil and other goods related to automobile industry. This create a situation of worry between

manufacturers related to purchasing power of public but no slowdown is scene in demand of

vehicles after any other changes in prices.

The policies issued for automobile sector in 1980s have one more important aspect to look and

consider. The only contraction was that only one entry of foreign player allowed in high growth

car segment in comparison to low cost vehicles four entries was allowed from foreign

countries.

II. Liberalisation phase (1991 onwards):

In this phase new phase of automobile sector was taken into the picture. During early 1990s,

Indian economy facing debt crisis due to which government unable to pay loan and instalments


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to various agencies and nations. The Finance Minister came up with the idea of delicensing or

ends of license raj. In this phase many important steps were taken and policies reframed from

time to time.

1. Liberalisation policy (1991 onwards): This phase considered to be most important in the history of

automobile industry. The important polices were declared in this phase regarding the delicensing of

automobile industry. It means 51% foreign direct investment was allowed in the sector via automatic

route. No more licenses required to enter in the automobile industry to foreign players specially. Many

relaxation were also provided like reduction in import duty which is main problem for any foreign to

setup in Indian market. Now they can easily transfer their technology to India. The impacts to this policy

in scene in mid 90s like many foreign players start entering into Indian market. The policies lead to many

structural changes in automobile industry. They forced to restructure the market composition and

increase the competition in the market in terms of prices and quality of products. Monopoly conditions

prevailed in the market before these policy changes. The entire firms changes behaviour towards

products and technology acquisition. Now they need to change themselves towards performance

oriented goals. Firms were allowed to restructure themselves according to their needs and installed

capacity. Main motives of every firm is maximum utilisation of resources available in the market and

capture market composition as per their ability and products quality.

Many joint ventures were took place in this phase. Around 16 new manufacturing units came into

existence to serve the nation with keeping their business interest. Big and small company came

together into market like Mercesedes, general motors, ford and Hyundai etc. In early stage of reforms

many firms production were low as per their capability due to sudden change in number of suppliers

and limited number of demand in the market. The automobile industry suffered from many problems in

starting like installed capacity is above actual production and sales-capacity ratio. These problems start

affecting the calibre of firms and de-motivate them towards Indian market. The condition start

improving near 1998 with initiative took by government and consumers believe start in favour of foreign

players. To solve the problems relaxation is given on imports of capital goods and technology transfer.

Relaxation was also given in terms of procedures and tariff duties included in export and imports of

vehicles and raw materials. As compared to 1980s modernisation policy technology transfer in this

phase is better and effective in terms of production. In 1980s phased manufacturing programme is

introduced. In this firms were obliged to maintain in own foreign exchange neutrality and use foreign

currency in terms of trade without information to government. But now 51% foreign direct investment

is allowed in automobile sector without any intervention by government. Firms can use their foreign

currency reserves as per their ability to pay. In previous policy foreign players were not allowed to

import their CSD/SKD Kits but in 1997 government announced the signing of MoU with foreign player to


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import their SKD/CSD kits. Foreign direct investment helped manufacturers to identify the cheap

resources available in the market or helped to explore the unidentified resources. The 1991

deregulation phase deal mainly with following points:

1. Raised technology standards 3. Increased exports performance

2. World class designs 4. Quality offered to Indian consumers

In this phase government also get benefitted while receiving so much of tax and duties received in

favour of free economy. Government also overcome from problem of debt crisis and became much

dependent in this industry regarding the overall development of region also. Like Gurgaon (Haryana)

and Aurangabad (Maharashtra).

2. Auto policy 2002

The policies issued in 2002 were completely concentrated on making a India automobile global

and competitive in nature. It was also raising the contribution towards economy directly and

indirectly. Directly it provides higher tax revenue to the government and indirectly it provides

higher foreign reserves. This policy came with idea of 100% foreign direct investment into

economy and automobile industry. This policy planned from foreign investor point of view. In

this policy no complexity was present of procedures and rules. Foreign investor can directly

invest in automobile sector via any automatic route. The impact of 100% FDI in automobile

sector was clearly scene in growth of industry during 2004-05 and 2007-08.

After 2002 many foreign manufacturer of high class passenger cars was start taking India

market seriously. Previously foreign investor can invest upto 51% but now this figure extended

to 100%. So big manufacturers can built cars according to their quality standards and better

technology. BMW and Volkswagen establish themselves in the industry after the 2002 and startdelivering products according to their potential and standards. High rate of competition from

global market in automobile sector lead to shortage of resources at some point of time.

Government decided to look for more growth drivers of automobile sector. They take initiatives

and set many Research and development centre to observe more resources available in the

economy. Suzuki and Hyundai are 1st

manufacturer who announced the R&D centre to open in

India. These policies also beneficial for increasing export-output ratio (the ratio of total vehicles

output related to export of vehicles) and increasing total imports to sales ratio (ratio related to

import of vehicles in India and sales of import vehicles). These increasing ratios try to mark a


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special place in international market and import capability of economy. The role played in this

phase by government was related to encourage firms for better performance and fully utilise

their installed capacity.

After liberalisation took place the role of government get lesser on regulation and control over

industry. The higher competition prevails in the industry but its not sudden. Proper facilities

and time were given each and every firm to adjust themselves in the industry. Again this policy

concentrated on more R&D initiatives to look for alternative resources to carry out the

momentum of growth in economy.

Industry have eye on small car production sector. Now India is one of the largest producers of

small car segment. So economy should not leave this position and continue with growth

prospectus. Small car segment has international competition but if company settled in India

take care of situation. No worry should be there and India can be face of small car production.

As per increasing competition, imports, exports and domestic demand industry should look for

basic and improved standards of vehicles manufactured. Special attention was given to

adopting higher environmental friendly technology and safety standards to secure the

consumers or owner of vehicle. Government setup the bureau of Indian standards to look for

safety features and others needed action.


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5. Parameters to Check the Impact of Auto Policy

The Automobile Industry observed the real growth after liberalisation. Here the automobile

industry supported the effect of policies changes. The sharp increasing in exports and imports

were seen due to low import duty. The other figures also show the real impact of liberalisation

1991. There are some parameters which support the whole issues we discussed above which

are following. Before showing figures lets see the standing of each segment in the market.

Two wheelers segment:

Two wheelers is the main and most common way of travelling in India. This sector consist

motorcycle, scooters, mopeds and gear less scooters. In terms of volume of production two

wheelers is the largest producer of automobiles in India. The two wheelers market consist

motorcycle of engines capacity 100cc, 150 and till 500cc. Market did not have any share in

production of superbikes. Superbikes did not have production in India because demand is not

there. Example, BMW introduced his superbikes in 1990s but totally failed in market. As if

today condition are changing and many superbike producer like Harley division setting up their

plant in Bawal (Haryana). Now, the main problem is maintained roads to drive such type of

vehicle and safety issues should be taken care off. This segment has promising growth from last

decades and expected to continue further. Two wheelers market grows at CAGR of 11% from

last decades and expected to grow as increase in population. In India, most of population lives

in rural and semi urban areas where people preferred to travel through cycle or public

transport. But increase in income level of population leads to switching on motorcycles. The

factors effects this sector is rapid urbanisation in rural areas, easier finance schemes available

for purchasing of automobiles and introduction of different model with different configuration.

India have worlds largest manufacturer of motorcycle, Hero Honda. Here market for

motorcycles in different from developed country markets.

Light commercial vehicle

These are different from heavy commercial vehicles. In India, market for LCV is growing due to

more rural and semi urban condition in country. These are mainly used for the transportationin rural areas due to bad and narrow roads. These are small in size so easily travelled to inner

parts of India. For example, Tata Ace is a big hit product launched by Tata motors in rural areas.


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The small size and capability to transfer heavy products from one place to another place makes

it favourite product among rural India.

Medium and Heavy Commercial Vehicles

This segment should be consisting of rigid trucks, tractor trailers, semi- trailers, bulkier and

tipper. This segment vehicle available in the range from 2 to 12 axle and mostly run on the

diesel fuel. This segment is mainly dominant by Tata Motors, Ashok Leyland and Eicher Motors.

The main manufactures of buses are Ashok Leyland and Tata Motors. Government strongly

announced the use of CNG (compressed natural gas) in buses. In capital of India, it is

mandatory to use CNG in public and private buses. These all are done due to environmental

problem and availability of alternative fuels. Tempo also included in this segment. There sizes

are smaller to regular trucks. Mainly travelled to rural area where big trucks cannot reach


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1. Installed Capacity

The installed capacity shows the capacity of automobile industry to serve the nations. This help

to check the strength and capacity for export purpose of automobile industry. This capacity is

not decided by government in current phase. Previously special license was proposed to

increase or decrease the production capability.

Source: SIAM

Above picture shows the figures of two different years. Here we can see the increase installed

capacity from year to next year. Two and three wheelers have much strong installed capacity

due to concentration on middle class section. Even every household prefers to have 1 two

wheelers in house to support the travel local areas. The four wheelers section increases

according to demand and need of country. The installed capacity was increases due to increase

the exports by two wheelers companies like Hero Honda, Bajaj and TVS.

The engines installed capacity was increases but not much. The foreign companies still prefers

engines from their respective supplier from the respective companies. This could be done to

match up their quality product and standards of products they preferred to launch in the Indian

market.


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2. Increase in production of Automobile Production

The automobile industry in India before liberalisation produces vehicles to satisfy domestic

need only. But when foreign investors enter into market and many foreign manufacturers

setup their plant in India. The production capacity of automobile sector increase and industry

has surplus goods. The automobile industry is fit enough to start exporting the surplus goods to

other market. The growth in automobile industry is due to growth in all segments of industry.

Every segment production increased but most notable growth is seen in passenger car and

commercial vehicle. The 2 wheelers production increases beyond any other segment. During

last few years certain macroeconomic conditions were helped Automobile Industry to grow

further. The government of India took several policies to boost the industry. It included easier

financing facility available for producer to expand its size and increase in real income of

consumer by which their purchasing power regarding products is increased. The demand in

commercial vehicle increases with development of manufacturing sectors. Its growth force

government for improvement in infrastructure, more safety guards and maintained roads.


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Below chart is showing the Increase in Production of Passenger Cars

Source: ACMA

Above chart is showing the picture of increase in production of passenger cars. There is low

production in starting year of liberalisation 1994-95 because reforms is just took place and it

take time to strong the momentum of production capacity. Then slowly production is taking

rise due to many joint ventures and entry of 16 independent foreign players. The companieslike Hyundai and General Motors entre into the market. After 2002, Government announced

the 100% FDI in automobile many foreign players head towards Indian market and setup their

manufacturing units. The government announced the many incentives to invest in Indian

market. Foreign players have believed in Indian market due to unexplored resources of

production and strong purchasing power of population.

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348,146407,539 401,002 390,355

574,369517,907

564,052

608,851

843,235

1,027,858

1,112,542

1,322,728

1,521,813 1,516,967

1,926,484

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

1994-95 1995-96 1996-97 1997-98 1988-99 99-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10


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Below chart shows the increase production of Mutli-utility vehicles

Source: ACMA

Above chart showing increase in production of MUV due to effect of liberalisation polices. The

production of MUV is not that much low prior to liberalisation. Ashok Leyland and Tata Motors

is big producer of MUV in 1980s. So liberalisation policy is not beneficial for them but its

beneficial for economy prospectus. This sort of vehicles mostly used in transportation

purposes. This helps to maintain the healthy administration working throughout the country.

49,675

67,643

134,594 134,613

113,440

124,310125,938

105,667

114,479

146,325

182,018

196,371

222,495

246,038

219,498

272,848

-

50,000

100,000

150,000

200,000

250,000

300,000

1994-95 1995-96 1996-97 1997-98 1988-99 99-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10


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Below chart showing increase in production of LCV ( low commercial vehicle)

Source: ACMA

Above chart showing the trends in production of LCV due to special attention was paid to this

sector during the liberalisation and in 2002. From 1994-95 to 2001-02 this segment does not

observe any special turn due to entry of only big players. In 2002 government announced 100%

FDI. It helps this segment to see uptrend in production by entry of foreign players who are

concentrated on low commercial vehicle.

92,805

129,417

85,069

65,069

55,37161,213 63,869

65,756

83,195

108,917

138,896

171,781

225,724

254,049

224,587

316,437

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

1994-95 1995-96 1996-97 1997-98 1988-99 99-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10


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Trends in production of 2 wheelers

Source: ACMA

Above chart shows the continuous growth in production of 2 wheelers till 2006-07. In 2007-08

the downturn is faced due to overall recession in the world. This sector production is

maximised because production of this sector is used in purpose of exports. The Bajaj Auto,

Hero Honda and TVS are main producer in India.

647,521

809,097 988,7091,125,958

1,387,276

1,794,093

2,183,430

2,906,323

3,876,175

4,355,168

5,193,894

6,201,214

7,112,2816,503,532

6,798,118

8,444,852

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

1994-95 1995-96 1996-97 1997-98 1988-99 99-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10


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Production trend in case of Mopeds

Source: ACMA

Above graph shows clear picture of decreasing production trend in mopeds. The uses of

mopeds were high in previous decade but in this decade no one use to travel through mopeds.

Due to growth in motor-cycles production with providing extensively feature. Market of

mopeds was getting lower day by day. There are very few producers of mopeds in the market

like Hero, etc.

516,936

623,114

668,666 667,242671,699

724,510

694,974

427,498

351,612

332,294

348,437

379,574 379,987

430,827

436,219

571,070

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

1994-95 1995-96 1996-97 1997-98 1988-99 99-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10


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Trends in production of buses and trucks

Source: ACMA

Above charts shows many up and downs in production of buses and trucks. It reaches

maximum upto its calibre in 2006-08. But recession made downturn in production trends. The

imports of buses and truck which are fully powered and have capacity to load more weight are

start came in use. Then domestic user thinks of technology transfer or up gradation. It helps to

boost the market of local products again.

101,994

129,731

152,185

95,895

80,452

114,068

88,18596,752

120,502

166,123

214,807

219,297

294,258

294,957

192,283

250,171

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

1994-95 1995-96 1996-97 1997-98 1988-99 99-2000 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10


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Export position of Indian Automobile Industry

Automobile industry of India registers a growth in term of export. After liberalisation to solve

the problem of over production economy decided to export the vehicle. Now Indian

automobile is known for one of vast exporter of automobiles. Manufacturer settled in India

supplied vehicle to other countries but also provide auto component to same nations. The key

partners of India for export are Netherland, Middle East, North America, South Asian

Neighbours and European Union. The low cost resources and quality products are main tool of

India. Because of which India came into the eye of every manufacturer to set his base in India.

The other supporting factors of increasing exports is regulated and protected policies and

bilateral and multilateral trade agreement signed between two or more nations to carry on

trade on some special conditions. Nowadays the automobile products made in India are

acceptable at every piece of globe due to world class design and quality products.

Indian Auto Component industry made their global image due to cost effective resources and

quality conscious products exported. The industry experts believed that export of India crossed

the figures of USD 25 million by 2015.

Automobile Export Trends

Category2003-04 2004-05

2005-

062006-07

2007-08 2008-09 2009-10

Passenger

Vehicles129,291 166,402 175,572 198,452 218,401 335,729 446,146

Commercial

Vehicles17,432 29,940 40,600 49,537 58,994 42,625 45,007

Three

Wheelers68,144 66,795 76,881 143,896 141,225 148,066 173,282

Two

Wheelers265,052 366,407 513,169 619,644 819,713 1,004,174 1,140,184

Grand Total 479,919 629,544 806,222 1,011,529 1,238,333 1,530,594 1,804,619

Source: ACMA

As seen in table Indian automobile have low level of export till 2002. In 2002, declaration of

100% FDI in automobile sector from foreign investor changes the export capacity of economy.


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Even in 2008 recession it does not get much affected and carry on positive growth. In 2010 it

reported highest exporting figures in entire journey of automobile sector till date.

Domestic Sales Trends:

Automobile industry of India provides vast choice of list to consumers for purchasing purpose.

In todays time automobile companies in India produces almost every type of automobile and

can sale any amount of automobile in market without any permission. Indian automobile

industry provides strong base to global automobile industry for future growth. In Indian

economy demand for passenger car and commercial cars is rapidly increasing.

The demand for two wheelers vehicle is left behind in term of passenger cars and commercial

cars. Now, export can be done at any amount but if we took case for imports of automobiles.

The import duty is reduced now and many relaxations were also given. Any foreign player can

import complete built unit (cbu) to set his plant in India. If any kind of threat his found and

excess of competition is found in economy. Policies were still strong to stop any import.

Automobile Domestic Sales Trends

Category 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10Passenger

Vehicles902,096

1,061,57

2

1,143,07

61,379,979

1,549,88

2

1,552,70

31,949,776

Commercia

l Vehicles260,114 318,430 351,041 467,765 490,494 384,194 531,395

Three

Wheelers284,078 307,862 359,920 403,910 364,781 349,727 440,368

TwoWheelers

5,364,249

6,209,765

7,052,391

7,872,334 7,249,278

7,437,619

9,371,231

Grand

Total

6,810,53

7

7,897,62

9

8,906,42

8

10,123,98

8

9,654,43

5

9,724,24

3

12,292,77

0

Source: ACMA

As above after liberalisation many consumer took the loan and purchase the automobiles for

their respective uses. In India main target is middle class so all the policies was settled

according to their convenience. In 2008 due to recession and low lending from banks domestic

sales goes down. But after the economy recovery the domestic sales get recovered and figures


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again start increases the effect of fast recovery is shown in 2009-10. Country registers highest

sales in domestic markets.

The domestic market shows increasing trends as stated above. The 2 wheelers vehicle always

gain a maximum share of domestic sales. Due to heavy demand and heavy supply system

follows in 2 wheelers vehicles market. The next maximum sales done in passenger car segment

and commercial vehicles followed them. The 3 wheelers vehicles have lowest sales in Indian

market in comparison to other vehicles.

Segment Wise Market Share in 2009-10

Two wheelers 76.23%

Passenger cars 15.86%

Commercial vehicles 4.32%

3 wheelers 3.58%

Source: SIMA

Due to lack of availability of data of previous years to compare the increase or decrease in

market shares of each segment. The comparison could not be possible but as observation from

above charts. The 2 wheelers market always had a maximum share of market and passenger

cars are 2nd favourite of consumers in India. The continuous growth in automobile industry lead


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to increase in market shares of each segment. Even while exporting our automobile products to

other nation 2 wheelers and passenger car are precious to importers.

5. China Auto policy

China is one of the leading producer and manufacturer of automobile products. They regulated

their market mainly in 2000 onwards. Whereby, Indian regulated market in 1990s. But the

growth rate and development in both countries are different to each other. The development

of the automotive industry in China has clearly been shaped by the circumstances of

Chinas wider political economy. To understand its growth, it is important to understand its

evolution in the wider context of Chinas industrialisation which, unsurprisingly, has been

centrally driven and shaped under very distinct industrial policies, which we will review in this

section. In this section, the history of the automotive industry is considered in terms of four

key phases of development: the central control and planning era of 1949-1979; the

proliferation phase (1979-1994), the phase of concentration (1994-2004) and current phase till

2010. For reviewing the policy, I choose to take time period from 1980 to 2010.The time

duration covering the two phases mainly proliferation and concentration phases.


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The Concentration Phase (1994-2004)

The Chinese market for automobiles was, and continues to be, protected by high tariffs a

situation that was only eased very recently by Chinas accession to the World Trade Organisation

(WTO). An overview of the tariffs, pre- and post-WTO accession in 2002. A legacy of central planning

was that the government decided the price of automobiles; this absence of a market mechanism to

mediate between demand and supply enabled small-scale auto factories to survive. However, these

small-scale, scattered, manufacturing operations spread capital and other resources thinly, thereby

hindering the development of large-scale automobile plants capable of competing with foreign

automakers.

Although the ministries and local governments have considerable autonomy, the central

government continues to be influential with local governments, and by the 1990s two powerful forces

were at work. On one hand, the pressure of the rapidly developing market and the growing presence of

foreign companies put pressure on China to develop several large-scale, competitive automobile plants.

After China started negotiations to join the WTO, there was only a limited period of tariff protection

before Chinese enterprises were to be exposed to foreign competitors. On the other hand, local

governments were supporting the development of local manufacturers to boost the industrialisation

in their respective region, which lead to a range of smaller vehicle manufacturers owned by

municipal governments, such a Nanjing Automotive for example. Nanjing was originally a small-scale

truck manufacturer, yet under distinct pressure from the provincial government entered car production

and later became Fiats joint venture partner in China.

In 1994, the national economy, and the automotive industry was been chosen as one of these pillar

industries. The reasons for this choice are not difficult to see - an automobile is composed of more

than 10,000 parts and components; the automotive industry is related to many other industries

such as metallurgy, petroleum, chemistry, coal, light industry, electronics, and textiles, and it was

reasoned that development of an automotive industry would encourage Chinese enterprises in

many sectors to specializeand better co-ordinate their effort. ( H o l w i e g , 2 0 0 5 )

These conditions were the background for the Chinese government to formulate its Automobile

industry policy. This was submitted by the State Planning Commission, the State Economy, the Trade

Commission and the Ministry of Machinery Industry in February 1994, was approved by the State

Council in March that year, and published in July 1994. The Policy had four key objectives:

(1) To establish large-scale groups of saloon and light truck producers

(2) To improve component industry

(3) To create automotive product development capabilities; and


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(4) To encourage individual car ownership.

The policy addressed the four objectives listed above, and also issues such as local content

requirements, pollution and environmental considerations, conditions for the approval of foreign

investment and so on. The policy contained an aggressive schedule for the development of the Chineseautomotive industry, as outlined, and was further amended only in 2004.

Tariffs, Pre- and Post-WTO Membership ( GAO 2002)

Before entry into WTO After entry in WTO

Tariffs 200% in 1980s

80-100% in 1990s

25% by 2006

Import quotas 30,000 vehicles a year allowed

from foreign carmakers

Quota increased by 20% a year,

phased out by 2006

Local content requirements 40% in first year of production,

increasing to 60% and 80% in

Second and third years, respectively

No local content ratio requirement

Auto financing for Chinese

domestic costumers

Foreign, nonblank financial

institutions prohibited from

Providing financing

Foreign, nonblank financing

permitted in selected cities prior to

Gradual national rollout

Foreign participation in sales and

distribution

__________________________

Source: (Holwieg, 2005)

__________________________

Will by 2006 be allowed to

own vehicle wholesale, retail

organizations, integrated sales

Organisation


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Stages of the 1994 Automotive Industry Policy

Stage

Description

1994 - 1996 Foundation Stage: Approved projects of light weight vehicles and saloons to

commence production; the development of the components industry; vehicles to have a

local content of60-80%.

1997 - 2000 Attacking Difficulties Stage: The target output for 2000 was 2.7 million vehicles, of

1.35 million Were to comprise saloons. The intention was for there to be two or three

large- scale automobile groups and six or seven backbone automobile enterprises.

Basic R&D capabilities were to be established.

2000 - 2010 Rapidly Developing Stage: The target output for 2010 was 6.0 million per year, of which

4.0 million were to be saloons. The industry was to be self sufficient for product

development and competitive by international standards.

Source: ( H o l wi e g , 2 0 0 5 )

--------------------------------------------------------------------------------------------------------------------------

Above description, helps to understand the thinking of Chinese government planners. In First stage,

they set the foundation of automobile sector policy so strong no one faces any problem regarding

the component and production facility. Till 2000, Chinese start thinking for need of research and

development program to set up. Intention was getting 2-3 large scale automobiles and 6-7 backbone

automobile to support the industry. Till 2010, the industry wants to get self sufficient in production

of any auto component field by international standards.


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Auto policy 2010

China's automobile industry released a much-anticipated new policy with rules expected to slow

investment and consolidates the auto industry. The policy also encourages car buying through new

traffic laws enacted by local governments. The Policy-Maker, the National Development and

Reform Commission, claims this policy will help create a healthier auto industry and cites seven

distince differences from the 1994 policy, including abolishing market-share requirements for local

vehicles, which stated that by 2010 half of all new cars must be built in China. The policy also

favoured large manufacturers over China's aging producers. Companies in other industries will not

be allowed to buy failing manufacturers a will need to invest at least 2 billion Yuan ($241 million)

accordingly to the new policy. 6- ( "The Ch ines e governmen t , )

The policy harms importers by closing a tax loophole. Previously, foreign companies imported cars

in bulk and stored them in a holding area only paying taxes as the cars were sold. Now taxes must

be paid as they are imported. Chinese investors must now also own 51% of any joint venture and

that a Chinese company must be the largest investor if more than two are involved.

General Motors applauded the policy as more transparent and predicted it would result in a

healthier industry, despite the fact that new licensing policies designed to limit the number of

vehicles will result in higher prices and lower sales.


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6. India Automobile Policy v/s China Automobile Policy

As we discussed the policies of both the nations in paper, now we see the current standing of both the

nation and factors which can effect in positive manner for both the countries. The fundamental for

both the countries are same

1. Large population- China is worlds largest populated country and India is second largest populated

country. So the factor is still the same for both.

2. Low car ownership rates- the ownership rate is called as ratio of 1 car to number of person. Both

governments have motive to increase this ratio. In India, this ratio is around 6 cars against 1000

persons and in china its around 7 cars against 1000 persons.

3. Growing GDP per head- This is beneficial outcome for government to maximise the purpose ofincreasing GDP.


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The Comparison between China and India situations:

China India

Second largest auto market: 8million units/year 9th largest auto market: 2million units/year

VM production mainly as JVs with MNCs: product

IP resides with the MNC

Local VMs with own brands and IP

Products derivative or even seen as copies of

existing products

Local innovation cheap Emerging market

vehiclesthe global industry is watching

Limited vehicle exports to date domestic

consumption dominates

Some VMs establishing India as a global

source of low-cost vehicles; local brands also

exporting

Weak indigenous supply base - many JVs with

MNCs in auto components

Strong (but fragmented) local automotive

supply industry

Developing an engineering capability Strong tradition and capability in Engineering:

Inbound companies typically have to form JVs.

Within the JV some activities are owned by the

Chinese JV

More freedom to enter a market without

forming a JV

North America the main destination of component

exports

Europe the main destination of components

exports

Strong in Electronics (in all sectors) Strong in castings, forgings, metal components

and assemblies; also software

SOURCE: 7. ( w a l l b a n l )

Above charts shows the advantages of both the nation into their expert field. According to me, India

has more potential to grow but the US-China relation makes china condition easier. The comparison

between two of them is tough because both nations is different in their automobile industry.


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India v/s ch ina which economy is better?

An economic condition played a most crucial in implementation of any polices. A comparison that

economists and some business experts make between Asias two rising economy, China and India,

China nearly always comes out on top. The Chinese economy historically outpaces India's by just

about every measure. China's fast-acting government implements new policies with blinding speed,

making India's fractured political system appear sluggish and chaotic. Beijing's shiny new airport and

wide freeways are models of modern development, contrasting sharply with the sagging

infrastructure of New Delhi and Mumbai. And as the global economy emerges from the Great

Recession, India once again seems to be playing second fiddle. Pundits around the world laud China's

leadership for its well-devised economic policies during the crisis, which were so effective in

restarting economic growth that they helped, lift the entire Asian region out of the downturn. Now,

however, India may finally have one up on its high-octane rival. Though India still can't compete on

top-line economic growth the World Bank projects India's gross domestic product (GDP) will

increase 6.4% in 2009, far short of the 8.7% that China announced in mid-January India's economy

looks to be rebounding from the downturn in better shape than China's. India doesn't appear to be

facing the same degree of potential dangers and downside risks as China, which means policymakers

in New Delhi might have a much easier task in maintaining the economy's momentum than their

Chinese counterparts. "The way I see it is that the growth in India is much more sustainable" than

the growth in China, says Jim Walker, an economist at Hong Kongbased research firm Asianomics.

India's edge is due to the different stimulus programs adopted by the two countries to support

growth during the downturn. China implemented what Walker calls "the biggest stimulus program in

global history." On top of government outlays for new infrastructure and tax breaks, Beijing most

significantly counted on massive credit growth to spur the economy. The amount of new loans made

in 2009 nearly doubled from the year before to $1.4 trillion representing almost 30% of GDP. The

stimulus plan worked wonders, holding up growth even as China's exports dropped 16% in 2009.

But now China is facing the consequences of its largesse. Fears are rising that Beijing's easy-money

policies have fuelled a potential property-price bubble. According to government data, average real

estate prices in Chinese cities jumped 7.8% in December from a year earlier the fastest increase in

18 months. The credit boom has also sparked worries about the nation's banking system. Many

economists expect the large surge in credit to lead to a growing number of nonperforming loans

(NPLs). In a November report, UBS economist Wang Tao calculates that if 20% of all new lending in

2009 and 10% of the amount in 2010 goes bad over the next three to five years, the total amount ofNPLs from China's stimulus program would reach $400 billion, or roughly 8% of GDP. Though Wang


41/46

notes that the total is small compared with the level of NPLs that Chinese banks carried in the past,

she still calls the sum "staggering." Policymakers in Beijing are clearly concerned. Since December,

they have introduced a series of steps to cool down the housing market and restrict access to credit

by, for example, reintroducing taxes on certain property transactions and raising the required level

of cash that banks have to keep on hand in an effort to reduce new lending.

India, meanwhile, isn't experiencing nearly the same degree of fallout from its recession-fighting

methods. The government used the same tools as every other to support growth when the financial

crisis hit cutting interest rates, offering tax breaks and increasing fiscal spending but the scale

was smaller than in China. Goldman Sachs estimates that India's government stimulus will total $36

billion this fiscal year, or only 3% of GDP. By comparison, China's two-year, $585 billion package is

roughly twice as large, at about 6% of GDP per year. Most important, India managed to achieve itssubstantial growth without putting its banking sector at risk. In fact, India's banks have remained

quite conservative through the downturn, especially compared with Chinese lenders. Growth of

credit, for example, was actually lower in 2009 than in 2008. As a result, economists see continued

strength in India's banks. A January report by economic-research outfit Centennial Asia Advisors

noted that based on available data, "there was no sign that domestic banks' nonperforming assets

were deteriorating materially." Nor do analysts harbour the same concerns that India's monetary

policies are sending prices of Indian real estate to bubble levels. "India's growth, though less stellar,

does have the reassuring factor that the [risks of] asset price bubbles are less," says Rajat Nag,

managing director general of the Asian Development Bank in Manila. (Suhuman, 28)

India maintained robust growth without Beijing's hefty stimulus in part because it is less exposed to

the international economy. China's exports represented 35% of GDP compared with only 24% for

India in 2008. Thus India was afforded more protection from the worst effects of the financial crisis

in the West, while China's government needed to be much more active to replace lost exports to the

U.S. More significantly, though, India's domestic economy provides greater cushion from external

shocks than China's. Private domestic consumption accounts for 57% of GDP in India compared with

only 35% in China. India's confident consumer didn't let the economy down. Passenger car sales in

India in December jumped 40% from a year earlier. "What we see [in India] is a fundamental

domestic demand story that doesn't stall in the time of a global downturn," says Asianomics' Walker

The Indian economy is not immune to risks. The government has to contend with a yawning budget

deficit, and last year's weak monsoon rains will likely undercut agricultural production and soften

rural consumer spending. But rapid growth is expected to continue. The World Bank forecasts India's

economy will surge 7.6% in 2010 and 8% in 2011, not far behind the 9% rate it predicts for China for


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each of those years. Indian Prime Minister Manmohan Singh, when speaking about his country's

more plodding pace of economic policymaking, has said that "slow and steady will win the race." The

Great Recession appears to have proved him right.

Probl ems of A utomobi l e Industry: India and China

The development of any industry has many problems always. Here, we discussed the problem of

automobile industry in China and India respectively.

1. In china, the problem was over protective nature of government policies issued for industry. China

does not want any outsider to hold strong position inside china. By which, they lost some

manufacturer but now china is more sufficient. The export and import level of china is most

important. Otherwise rules and regulation held by china is not tolerable sometime. ( W a l l b a n l)

2. The insecurity of intellectual property rights was next big problem. Now, World knows the power

of making duplicate products in china industry. Due to which many manufacturers lost their brand

value and financial losses. This should be taking care of by china otherwise they can have serious

losses in future.

3. In India, The stereotype problem of automobile is Infrastructure and manpower. The country has

slow growth and many areas are still rural. So proper infrastructure given by India is not adequate.

No One can start business just like this. Every unit came up with some plans but if infra is not there

nothing is there. The manpower is still prevails in India even having 2 nd largest population. The main

problem is industry need skilled labour and educated too. But India have low literacy rate as

compared to china even.

4. The next big problem is taxation and business environment. India is one of the nations who taxed

income of producer and consumers in large extent. So manufacturing units sometime has problem

to pay huge amount of tax. Next business environment problem like rising input prices and

appreciation in rupee. The over prices of raw material is not beneficial for government and

producers. The change is needed in whole structure.


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Recommendation to Indian Automobile Industry

The study between Indian and Chinese Automobile Policies helped me to deliver some

recommendation to India. The growth of auto industry in India will be contingent not just on

domestic demand, but also equally on exports. Therefore, the present projections will become a

reality if thrust is given to original research that will yield breakthrough results. These results help in

addressing the current global concerns such as environment, fuel efficiency, need for alternate and

renewable fuels and materials etc. 9. (Kolaskar)

This can happen only through a consortium approach where various auto companies and academic

institutions work together as in the case of IT hardware industry. The consortium approach should

be extended to address the trained human resource shortage as well. The government should act as

a facilitator by bringing about necessary changes in the current laws that will encourage private

participation.

Finally, there should be mechanisms in place that will ensure that there is a balance in the pool of

human resources comprising research scientists, managers, engineers, designers, technicians, and

skilled and semiskilled worker. The factor given to boost the economy is important.

The India needs to capture the speed and strategies which china followed till now. Before they open

up their economy fully but now those again setting policies to control foreign investment and

support local producers.


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7. Automotive Mission Plan 2006-2016

Indias Automotive Mission Plan (AMP) 2006-2016 is a collaborative effort between the Indian

government, the automotive industry, and academia. The stated vision of AMP is for India to

emerge as the destination of choice in the world for design and manufacture of automobiles and

auto components with output reaching a level of U.S. $145 billion accounting for more than 10

percent of the GDP and providing additional employment to 25 million people by 2016. India is

currently the eleventh largest passenger car market in the world and aims to be the seventh largest

market by 2016. While the auto industry has experienced strong growth over the past decade, it still

plays a small role in the global industry. According to AMP, India has about 2.37 percent of the world

production of passenger and commercial vehicles and exports from India contribute approximately

0.3 percent of the global auto trade. The AMP makes a number of suggestions for actions to betaken by both the government and industry in order for India to fulfil the goals laid out in the plan.

For example, they estimate an investment of approximately $35-40 billion in the auto sector over

the 2006-2016 times period will be required to implement AMP. The governments responsibility

would be to facilitate infrastructure creation, promote the countrys capabilities, create a

favourable and predictable business environment, attract investments and promote R&D.

Industrys responsibility concerns issues such as designing and manufacturing quality products,

improving productivity, maintaining costs, among others.

AMP also calls for the formation of an appropriate development policy; improving road, rail, port,

and energy infrastructure; expanding demand for Automobiles domestically; and, developing a

roadmap to address environmental and safety Concern.


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8. Conclusion

India and china are neighbour country but their strategies and polices are different. China set free

themselves for market policies after India. Today they came in list of super powers. The conclusion, I

would like to draw is India should work on policies again and restructure on steps of china. China is

closing doors for foreign investment by policies of 51% allowed FDI in country. India still making

policies regarding making India a better investment nation. Indian government have to make polices

which is fast in action and have some control on foreign investor to tackle in India.

The continuous flow of foreign companies and investment can create national threat. This also de-

motivates the domestic producer like HML and PAL motors. The previous decades players no were

standing in todays market. The Indian government should come up policies which protect the

domestic producers and experts. Otherwise, no Indian producer of automobile products left in

industry. Government concentrated on more foreign players but I suggest more Joint ventures

should be there to maintain the importance of domestic players. The government should also take

of tariff polices. They also make losses of billions of Indian government.

India has the potential and ability to come up with maximum production of vehicles because we

have all the resources and key factor required to set up manufacturing plant. Further India should

concentrate on passenger cars and two wheelers segment. These two are most demanded and

exportable products.


46/46

References

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