India, Science and Technology:  2008

S&T and Industry

 

 

 

Automobile Sector: Innovative Changes in Factory Sector over 2000-04

 

 

 

Panchanan Das

 

This section provides an overview of the automobile industry in India with relevant facts regarding the structure and size, taken from Ministry of Heavy Industries & Public Enterprises and Annual Survey of Industries (ASI), Government of India. The automobile industry is one of the largest industries in India and has a strong multiplier effect on the economy through its forward and backward linkages with other sectors in the economy. The automotive industry provided direct and indirect employment to more than 13 million people in 2006–2007. However, there is a large unorganized sector that also contributes 30 per cent to total employment.

The production of automobiles started in India since the 1940s and grew considerably since the 1970s. Joint ventures with foreign collaboration started in this industry in the mid 1980s and accelerated after the initiation of economic reforms. The Core Group on Automotive Research & Development (CAR) was set up in the year 2003 to identify priority areas in automobile industry for Research and Development (R&D) in India. The New Industrial Policy of 1991 delicensed the automobile industry in India, but passenger car segment 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 up gradation on the royalty payment of 5 per cent without any duration limit and lump sum payment of US $ 2 million is also allowed under automatic route in this sector.

In 1982, the Government of India created Maruti Udyog Limited (MUL), a public sector company as a a joint-venture with Suzuki Motors Corporation of Japanⁱ . The government owned 80% of the equity. For the first time the state became an investor in a car project and in a successful monopoly. With the entry of MUL the structure of the Indian car market changed perceptibly. Until the 1960s there were three producers of cars, Hindustan Motors (HM) and Premier Automobiles Ltd. (PAL), and Standard Motors Private Ltd. (SMP), each with very small output. Mahindra & Mahindra (M&M) produced utility vehicles (jeeps). All of these producers initially licensed foreign technologies from the UK, Italy, and the US. By the 1970s HM and PAL formed a duopoly in the car industry, while M&M was a monopoly in utility vehicles. In 1984, two years after it was established, MUL manufactured over 12,000 cars mainly from imported completely knocked down (CKD) kits. In 1990 MUL produced over 50% of all passenger vehicles produced in India. Ashok Leyland and Tata Engineering and Locomotive Company (TELCO), with 8% and 36% of the market respectively, specialized solely in commercial vehicles.

The major Indian players producing passenger car include Tata Motors, MUL, Mahindra & Mahindra and Hindustan Motors(HM). MUL is on the top, followed by Hyundai and Tata Motors. In producing commercial vehicles, the leading manufacturers are Tata Motors, Ashok Leyland, Eicher Motors, Mahindra & Mahindra(M&M) and Force Motors. Two-wheeler manufacturing is dominated by Hero Honda, Bajaj Auto and TVS. Three-wheeler manufacturing is led by Bajaj Auto, Force Motors and Mahindra & Mahindra. The major foreign players in Indian automobile sector include Mercedes-Benz, Fiat, General Motors(GM), Toyota, MAN, ITEC, Scania and Hyundai.

In the post-reform phase foreign technical collaborations continued to mount. Numerous component manufacturers emerged to supply the auto assembly units. Most of them have had to resort to foreign technologies through joint-ventures. From August 1991 to April 2002, the auto industry garnered 5.48% of the total foreign direct investment approved during this period (Government of India, Ministry of Commerce and Industry 2002).

ASI provides data on different structural parameters of the manufacturers of motor vehicles, manufacturers of bodies of motor vehicles and manufacturers of different parts and accessories for motor vehicles at the 4 digit level of disaggregation. We have used this data base to provide an overview of the performance of these industries within the automobile sector. Figure 1 compares the trends in values of output at current prices among these different sectors of the automobile industry. Production of motor vehicles grew at a faster rate during the first half of the present decade.Annual growth rate of output of manufacturers of motor vehicles was nearly 34 percent during 2000-2004 (Table 1) .ⁱⁱ

The Indian automotive component industry is highly unorganised. Only 6 per cent manufacturers are organised and the remaining 94 per cent are small-scale, unorganised players. In terms of value added, however, the organised players account for nearly 77 per cent of the output in the sector. 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. The auto component sector has been one of the fastest growing segments of auto industry, growing by over 28 percent, in nominal terms during 2000-2005 (Table 1). The industry, over the years, developed the capability of manufacturing all components required to manufacture vehicles and now it manufactures the engine parts, drive, transmission parts, suspension and braking Parts, electrical, body and chassis Parts, equipment etc..

 

 

 

Sector	Growth rate
Motor vehicles	33.7
Bodies for motor vehicles	28.5
Parts and accessories for motor vehicles	21.6

Note: Growth rates are estimated by using log linear pooled regression model

 

The automotive industry in India produces a wide range of vehicles like passenger cars, utility vehicles, commercial vehicles, two-wheelers, three-wheelers and tractors. Currently, there are approximately 15 manufacturers of passenger cars and utility vehicles, 9 manufacturers of commercial vehicles, 16 manufacturers of two-wheelers and three-wheelers and 14 manufacturers of tractors. Table 2 provides trends in number of automobile production by different categories in India. Average annual growth rate of the number of automobile production in India was 15 percent during 2000-2005. The Indian automobile industry has been registering as the eleventh largest manufacturer of passenger cars, fourth largest manufacturer of commercial vehicles and the second largest manufacturer of two-wheelers in the world (GOI, 2008).

 

 

	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06
Passenger cars	513	564	609	842	961	1,046
Multi utility vehicles	128	106	112	146	249	263
Commercial vehicles	157	163	204	275	350	391
Two wheelers	3,759	4,271	5,076	5,625	6,527	7,600
Three wheelers	203	213	277	341	374	434
Total	4760	5317	6278	7229	8461	9734
Annual growth rates		12	18	15	17	15

Source: Ministry of Heavy Industries & Public Enterprises (Department of Heavy Industries(DHI)), GoI.

 

 

Automobile industry plays a significant role in export from India. Table 2 displays export performance of this industry during 2000-20005. The export in this sector has grown mainly to the export of cars, two/three wheelers. The automobile exports crossed US $ 1 billion mark in 2003-04 and reached US $ 2.28 billion in 2005-06 (GOI, 2008).

Figures 2 to 4 presents some structural ratios, namely fixed capital, fuels used and materials used per unit output at the all India level. Fixed capital fuels used per unit output declined since 2001 in all segment of the automobile industry in India. While the use of other materials declined in motor vehicles, its use increased in the automotive component sectors. The nature of changes of inputs per unit output shown in Figures 2 to 4 indicates a technological improvement in this industry.

 

	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06
Passenger cars	23	50	71	126	161	170
Multi utility vehicles	4	3	1	3	6	5
Commercial vehicles	14	12	12	17	30	41
Two wheelers	111	104	180	265	367	513
Three wheelers	16	15	43	68	67	77
Total	168	185	307	479	620	806
Annual growth rates		10.1	65.9	56.0	29.4	30.0

 

 

 

Fig 2: Fixed capital per unit output

 

 

 

Fig 3: Fuels used per unit output

 

 

 

Fig 4: Materials used per unit output

 

 

Automobiles by states

The automobile industry in India grew unevenly (Figures 5, 6, 7) across the states and is even developing in clusters within a particular state. In terms of the number of factory units, Maharshtra has leaded the industry followed by Tamil Nadu and Delhi. There are four major clusters in the automotive industry in India: New Delhi, Gurgaon and Manesar in North India; Pune, Nasik, Halol and Aurangabad in West India; Chennai, Bangalore and Hosur in South India and Jamshedpur and Kolkata in East India.

 

AP	Delhi
Gujrat	Haryana
Jharkhand	Karnataka
Maharashtra	Madhya Pradesh
Punjab	Rajasthan
Tamil Nadu	Uttar Pradesh
West Bengal

Fig 5:  Wage per worker

 

 

 

Andhra Pradesh	Delhi
Gujrat	Haryana
Jharkhand	Karnataka
Maharashtra	Madhya Pradesh
Punjab	Rajasthan
Tamil Nadu	Uttar Pradesh
West Bengal

Fig 6: NVA per worker

 

 

 

Andhra Pradesh	Delhi
Gujrat	Haryana
Jharkhand	Karnataka
Maharashtra	Madhya Pradesh
Punjab	Rajasthan
Tamil Nadu	Uttar Pradesh
West Bengal

Fig 7: Fixed capital per output

 

 

 

 

 

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ⁱIn 1982, the Government of India created Maruti Udyog Limited, a public sector company as a joint-venture with Suzuki Motors Corporation of Japan. The government owned 80% of the equity.

ⁱⁱAs the value of output is measured at current prices, this growth rate includes inflation rate

 

 

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