Automotive

Overview:

The automotive sector, comprising of the automobile and auto component sub sectors, is
one of the key segments of the economy having extensive forward and backward linkages
with other key segments of the economy. It contributes about 4 per cent in India's Gross
Domestic Product (GDP) and 5 per cent in India's industrial production. The well-developed
Indian automotive industry ably fulfils this catalytic role by producing a wide variety of
vehicles like passenger cars, light, medium and heavy commercial vehicles, multi-utility
vehicles such as jeeps, scooters, motorcycles, mopeds, three wheelers, tractors etc.

The auto component industry, which is an important part of automotive sector, comprises
about 500 firms in the organized sector and more than 10,000 firms in the small and
unorganized sector has been one of the fastest growing segments of Indian manufacturing.
It has the capability to manufacture the entire range of auto parts and has rapidly added to
its capacity base. Indian auto components industry has an important place at the global
level.

Advantage India:

India holds huge potential in the automobile sector including the automobile component
sector owing to its technological, cost and manpower advantage. Further, India has a well-
developed, globally competitive Auto Ancillary Industry and established automobile testing
and R&D centres. The country enjoys natural advantage and is among the lowest cost
producers of steel in the world. The Indian automobile industry today boasts of being the
second largest two wheelers manufacturers in the world, second largest tractor
manufacturer in the world, fifth largest commercial vehicle manufacturer in the world and
fourth largest Car market in Asia. World largest Motorcycle manufacturer is in India.

India has largest three wheeler market in the world, second largest two wheeler market in
the world, fourth largest passenger vehicle market in Asia, fourth largest tractor market in
the world, fifth largest commercial
vehicle market in the world. India became fastest growing car market in the world in 2004.

Installed Capacity:

The automobile industry including passenger cars, over a period of time and particularly
after liberalization, has installed a robust capacity in different segments of automobile
industry is as under:

Segment Installed Capacity

(Nos.)
Four Wheelers 1,590,000
Two & Three 7,950,000
Wheelers
Total 9,540,000

Investment Opportunities:

In India, lots of investment opportunities exist in the following areas:

Establishing Research and Development Centres

Establishing Engineering Centres

Passenger Car Segment

Two Wheeler Segment

Heavy truck Segment

Total production:

The automobile industry produces a wide variety of vehicles including 17 lakh four wheelers
and over 80 lakhs two and three wheelers in 2005-06. The turn over of auto components
industry has grown from US $3.1 billion to US $10 billion between 1997-98 and 2005-06.

Production trend:

Installed capacity of this sector has been growing at a compound annual rate of over 16 per
cent since 2001-02. Automobile industry grew by 14.83 per cent in April 2006-Feburary
2007.Cumulative growth of some important segments in April 2006-December 2007 was

Passenger Vehicles: 22.91%

Passenger cars: 24.76%

Utility Vehicles: 12.69%

Multi Purpose Vehicle: 28.38%

Commercial Vehicle: 36.12%

Medium and heavy Commercial Vehicle: 36.74%

Light Commercial Vehicle : 35.25%

Automobile Production
Category 2000- 2001- 2002- 2003- 2004- 2005- 2006-07
01 02 03 04 05 06 (till
Sept'06)
Passenger 513 564 609 842 961 1,046 594
Cars
Multi Utility 128 106 112 146 249 263 144
Vehicles
Commercial 157 163 204 275 350 391 237
Vehicles
Two 3,759 4,271 5,076 5,625 6,527 7,600 4,155
Wheelers
Three 203 213 277 341 374 434 264
Wheelers
Total 4,759 5,316 6,280 7,229 8,461 9,735 5,394
Growth in -2 11.7 18.6 15.12 16.8 14.97 18.04
per cent

*Source: Ministry of Heavy Industries & Public Enterprises (Department of Heavy

Inuustries), Government of India

Some of the major companies:

There are 15 manufacturers of passenger cars and multi utility vehicles, 9 manufacturers of
commercial vehicles, 14 of two-three wheelers and 14 of tractors besides 5 manufacturers
of engines. In passenger car segment, Maruti Udyog Ltd. Is on the top, followed by Hyundai
and Tata Motors. Some of the major players of Automobile industry are:

Maruti Udyog Ltd.

M/s Hyundai

Tata Motors

General Motors India

Ford India Ltd.

Eicher Motors

Bajaj Auto

Daewoo Motors India

Hero Motors

Hindustan Motors

Hyundai Motor India Ltd.

Royal Enfield Motors

Telco

TVS Motors

DC Designs

Swaraj Mazda Ltd

Size of some major companies:

Company Industry Market

Capitalization( Rs
Crore), January
2007
Maruti Udyog Ltd. Automobile 26711
Hero Honda Motors Automobile 14925
Bharat Forge Co. Auto Ancillaries 8090
Ashok leyland Automobile 6,011
Amtek Auto Auto Ancillaries 4549
Exide Industries Auto Ancillaries 2981
Sundaram Clayton Auto Ancillaries 2497
TVS Motor Company Automobile 1944
Sundaram Fasteners Auto Ancillaries 1756
Fag Bearings India Auto Ancillaries 1124
Bosch Chassis Systems Auto Ancillaries 1044
India
Eicher Motors Automobile 1005
Automotive Axies Auto Ancillaries 957

Total investment & turnover:

The automobile industry had an investment of nearly 50,000 crore in 2002-03 and it is
estimated to go up to Rs. 80,000 crore by the year 2007.The turnover of this sector
exceeded Rs. 144,000 crore in 2003-04 including nearly 92,500 crore of automobile
industry. In 2004-05, total turnover of this sector was estimated to exceed Rs. 1,65,000
crore

Presence of foreign firms:

After liberalization of Indian Economy in general and automobile industry in particular,
considerable number of Multinational Companies are operating in India either as wholly
owned subsidiaries or in collaboration with their Indian partners. This automotive sector has
taken benefit of liberalization of Indian economy to a large extent and made available
various international brands in India for Indian consumers. Firms like Hyundai are supplying
manufactures cars in the international market using its manufacturing facility in India in a
big way. These firms are using locally available efficient and cost competitive huge pool of
human resource in India.

Employment generated:

This sector has generated about 4.5 lakh of direct employment and about one crore of
indirect employment. The auto component and ancillary industry has huge forward and
backward linkages in terms of employment generated. Huge number of firms in auto
component and ancillary industry in India are in small scale and unorganized sector
employing large number of human resources.

Geographical concentration of firms:

Firms of this sector are in clusters scattered all over India. Some clusters with heavy
concentration of firms are Chennai and around, National Capital Region (NCR), Pune, and
Hoogli Region of West Bengal. An upcoming cluster for this sector is Rudra pur and
surrounding areas in Uttarakhand.

Government support:

Current Industrial Policy: The New Industrial Policy of 1991 delicensed the
Automobile Industry in India, but passenger car was delicensed in 1993. Now, no
license is required for setting up of any unit for manufacture of Automobiles except in
some special cases. Further, 100 per cent Foreign Direct Investment (FDI) is
permissible under automatic route in this sector including passenger card segment.
The import of technology or technological upgradation on the royalty payment of 5
per cent without any duration limit and lump sum payment of US $ 2 million is also
allowed under automatics route in this sector. This liberalization has helped this
sector to restructure itself, absorb newer technologies, and keep pace with the global
developments realizing its full potential.

Exim Policy: Removal of Quantitative Restrictions (QRs) from April 1, 2001 has
allowed the import of vehicle, including passenger car segment freely subject to
certain conditions notified by DGFT. To protect India from becoming a dumping
ground for old and used vehicles produced abroad, the custom duty on the import of
second hand vehicles including passenger cars has been raised to 105 per cent. The
custom duty rate on new Completely Built Units (CBUs) has also been increased to a
level of 60 per cent to allow Indian countries to a fully competitive environment.

Recent policy initiatives:

In order to develop and realize the growth potential of this sector both at domestic
and global level, and to optimize its contribution to the national economy, the
Department of Heavy Industry has decided to draw up a 10 year Mission Plan for the
development of Indian Automotive Sector and creation of global hub.

To put Indian Auto Industry at the global map, National Automotive Testing and R&D
Infrastructure Project (NATRIP) at the total cost of Rs. 1718 crore has been initiated.
This project principally aims to:
 create critically needed automotive testing infrastructure to
enable the government in ushering in global vehicular safety,
emission and performance standard,
 deepen manufacturing in India, promote larger value addition and
 performance standards and facilitates convergence of India's strength and IT
and electronics with automotive engineering,
 enhance India's abysmally low global outreach in this sector by de-
bottlenecking exports, and
 provide basic product testing, validation and development infrastructure so
that Indian automotive sector would not face any export obstacle in the
foreign market

In the Union Budget 2007-08, import duty on raw material had been reduced to 5-
7.5 per cent from the earlier 10 per cent.

Contribution in exports:

Automotive sector in India has great potential to play a significant role in export from India.
This potential is being tapped to some extent after liberalization of Indian Economy. During
the last two years, the export in this sector has grown mainly to the export of cars,
two/three wheelers.

Automobile Export
(Numbers in thousand)
Category 2000- 2001- 2002- 2003- 2004- 2005- 2006-07
01 02 03 04 05 06 (till Sept.
06)
Passenger 23 50 71 126 161 170 98
cars
Multi utility 4 3 1 3 6 5 3
vehicles
Commercial 14 12 12 17 30 41 23
vehicles
Two wheelers 111 104 180 265 367 513 332
Three 16 15 43 68 67 77 62
wheelers
Total 168 185 307 479 620 806 519
Growth in 20.24 9.74 65.35 55.98 31.25 28.03 27.43
per cent

Source: Ministry of Heavy Industry & Public Enterprises (Department of Heavy Industries)

Future prospects:

Future prospect of Indian Automotive Sector is looking bright. A Customer Satisfaction

Ranking done by TNS Automotive in April 2007 revealed that indigenous automobile
companies are replacing foreign multinational companies in terms of consumer satisfaction.
For the first time since 2002, the year on which TNS started this kind of survey, home
grown companies displaced MNCs from the top. This trend shows that automotive sector
has much to deliver in the years to come.