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1.1: The Beginning of New Era…

With the invention of the wheel in 4000 BC, man’s journey on the road of mechanized transport had begun. Since then he continually sought to devise an automated, labor saving machine to replace the horse. Innumerable attempts reached conclusion in the early 1760s with the building of the first steam driven tractor by a French Captain, Nicolas Jacob Cugnot. It was however left to Karl Benz and Gottlieb Damlier to produce the first vehicles powered by the internal combustion engine in 1885. It was then that the petrol engine was introduced, which made the car a practical and safe proposition. Then onwards, it has been one big journey...on the roads

1.2: History of Automobile Industry                                              

The automobile as we know it was not invented in a single day by a single inventor. The history of the automobile reflects an evolution that took place worldwide. It is estimated that over 100,000 patents created the modern automobile. However, we can point to the many firsts that occurred along the way. Starting with the first theoretical plans for a motor vehicle that had been drawn up by both Leonardo da Vinci and Isaac Newton.

In 1769, the very first self-propelled road vehicle was a military tractor invented by French engineer and mechanic, Nicolas Joseph Cugnot (1725 - 1804). Cugnot used a steam engine to power his vehicle, built under his instructions at the Paris Arsenal by mechanic Brezin. It was used by the French Army to haul artillery at a whopping speed of 2 1/2 mph on only three wheels. The vehicle had to stop every ten to fifteen minutes to build up steam power. The steam engine and boiler were separate from the rest of the vehicle and placed in the front (see engraving above). The following year (1770), Cugnot built a steam-powered tricycle that carried four passengers.

In 1771, Cugnot drove one of his road vehicles into a stone wall, making Cugnot the first person to get into a motor vehicle accident. This was the beginning of bad luck for the inventor. After one of Cugnot's patrons died and the other was exiled, the money for Cugnot's road vehicle experiments ended.

Steam engines powered cars by burning fuel that heated water in a boiler, creating steam that expanded and pushed pistons that turned the crankshaft, which then turned the wheels. During the early history of self-propelled vehicles - both road and railroad vehicles were being developed with steam engines. (Cugnot also designed two steam locomotives with engines that never worked well.) Steam engines added so much weight to a vehicle that they proved a poor design for road vehicles; however, steam engines were very successfully used in locomotives. Historians, who accept that early steam-powered road vehicles were automobiles, feel that Nicolas Cugnot was the inventor of the first automobile.


The automotive industry has certain trends it has to follow, just like fashion designers and musical composers. In times of recession and decreasing sales there is less room to take chances and manufacturers are prone to follow the common pattern as a safer bet rather than releasing a controversial product or idea that might or might not be successful. However throughout the automotive industry's history, great innovators have "boldly gone where no man has gone before" to set new trends which have dynamically altered the industry as a whole.

1880's & early 1900's

  • About hundred years ago
    -The first motor car was imported
    -Import duty on vehicles was introduced.
    -Indian Great Royal Road (Predecessor of the Grand Trunk Road) was conceived.
  • First car brought in India by a princely ruler in 1898.
  • Simpson & Co established in 1840.
    -They were the first to build a steam car and a steam bus, to attempt motor car manufacture, to build and operate petrol driven passenger service and to import American Chassis in India.
  • Railways first came to India in 1850's
  • In 1865 Col. Rookes Crompton introduced public transport wagons strapped to and pulled by imported steam road rollers called streamers. The maximum speed of these buses was 33 kms/hr.
  • From 1888 Motors Spirit attracted a substantial import duty.
  • In 1919 at the end of the war, a large number of military vehicles came on the roads.
  • In 1928 assembly of CKD Trucks and Cars was started by the wholly owned Indian subsidiary of American General Motors in Bombay and in 1930-31 by Canadian Ford Motors in Madras, Bombay and Calcutta In 1935 the proposals of Sir M Visvesvaraya to set up an Automobile Industry were disallowed.
  • 1942 Hindustan Motors Ltd incorporated and their first vehicle was made in 1950.
  • In 1944 Premier Automobiles Ltd incorporated and in 1947 their first vehicle was produced.
  • In 1947 the Government of Bombay accepted a scheme of Bajaj Auto to replace the cycle rickshaw by the auto and assembly started in a couple of years under a license from Piaggio. Manufacturing Programme for the auto and scooter was submitted in 1953 to the Tariff Commission and approved by the Government in 1959.
  • In 1953 the Government decreed that only firms having a manufacturing programme should be allowed to operate and mere assemblers of imported CKD units be asked to terminate operations in three years.
  • Only seven firms namely Hindustan Motors Limited, Automobile Products of India Limited, Ashok Leyland Limited, Standard Motors Products of India Limited., Premier Automobiles Limited, Mahindra & Mahindra and TELCO received approval. M&M was manufacturing jeeps. Few more companies came up later.
  • Government continued with its protectionism policies towards the industry.
  • In 1956, Bajaj Tempo Ltd entered the Indian market with a programme of manufacturing Commercial Vehicles, and Simpson for making engines.


  • In sixties 2 and 3 Wheeler segment established a foothold in the industry.
  • Escorts and Ideal Jawa entered the field in the beginning of sixties.
  • Association of Indian Automobile Manufacturers formally established in 1960.
  • Standard Motors Products of India Ltd. moved over to the manufacture of Light Commercial Vehicles in 1965.


  • Major factors affecting the industry's structure were the implementation of MRTP Act, FERA and Oil Shocks of 1973 and 1979.
  • During this decade there was not much change in the four wheeler industry except the entry of Sipani Automobiles in the small car market.
  • Oil Shock of 1973 quickened the process of dieselization of the Commercial Vehicle segment.
  • Three other companies, namely, Kirloskar Ghatge Patil Auto Ltd, Indian Automotive Ltd and Sen & Pandit Engg products Ltd entered the market during 1971-75. They ultimately withdrew in early eighties.
  • During the seventies the economy was in bad shape. This and many specific problems affected the Automobile Industry adversely.

      1980's - The period of liberalized policy and intense competition

  • First phase of liberalisation announced.
  • Unfair practices of monopoly, oligopoly etc slowly disappeared.
  • Liberalisation of the protectionism policies of the Government.
  • Lots of new Foreign Collaborations came up in the eighties. Many companies went in for Japanese collaborations.
  • Hindustan Motors Ltd. in collaboration with Isuzu of Japan introduced the Isuzu truck in early eighties.
  • ALL entered into collaboration with Leyland Vehicles Ltd. for development of integral buses and with Hino Motors of Japan for the manufacture of W Series of Engines.
  • TELCO after the expiry of its contract with Daimler Benz, indigenously improved the same Benz model and introduced it in the market.
  • Government approved four new firms in the LCV market, namely, DCM, Eicher, Swaraj and Allwyn. They had collaborations with Japanese companies namely, Toyota, Mitsubishi, Mazda and Nissan respectively.
  • In 1983 Maruti Udyog Ltd was started in collaboration with Suzuki, a Japanese firm.
  • Other three Car manufacturers namely, Hindustan Motors Ltd., Premier Automobiles Ltd., Standard Motor Production of India Ltd. also introduced new models in the market.
  • At the time there were five Passenger Car manufacturers in India - Maruti Udyog Ltd., Hindustan Motors Ltd., Premier Automobiles Ltd., Standard Motor Production of India Ltd. and Sipani Automobiles.
  • Ashok Leyland Ltd. and TELCO were strong players in the Commercial Vehicles sector.
  • In 1983-84 Bajaj Tempo Ltd. entered into a collaboration with Daimler-Benz of Germany for manufacture of LCVs.
  • Important policy changes like relaxation in MRTP and FERA, delicensing of some ancillary products, broad banding of the products, modifications in licensing policy, concessions to private sector (both Indian and Foreign) and foreign collaboration policy etc. resulted in higher growth / better performance of the industry than in the earlier decades.


  • Mass Emission Norms were introduced for in 1991 for Petrol Vehicles and in 1992 for Diesel Vehicles.
  • In 1991 new Industrial Policy was announced. It was the death of the License Raj and the Automobile Industry was allowed to expand.
  • Further tightening of Emission norms was done in 1996.
  • In 1997 National Highway Policy has been announced which will have a positive impact on the Automobile Industry.
  • The Indian Automobile market in general and Passenger Cars in particular have witnessed liberalisation. Many multinationals like Daewoo, Peugeot, General Motors, Mercedes-Benz, Honda, Hyundai, Toyota, Volvo and Fiat entered the market.
  • Various companies are coming up with state-of-art models of vehicles.
  • TELCO has diversified in Passenger Car segment with Indica.

       Despite the adverse trend in the growth of the industry, it is resolutely trying to meet the challenges. Various issues of critical importance to the industry are being dealt with forcefully.

1.3: Preview of Automobile Industry

The automobile industry, one of the core sectors, has undergone metamorphosis with the advent of new business and manufacturing practices in the light of liberalization and globalization. The sector seems to be optimistic of posting strong sales in the next couple of years in view of a reasonable surge in demand.

The Indian automobile market is gearing towards having international standards to meet the needs of the global automobile giants and become a global hub.  Players are strategizing to consolidate their position and gradually increase market penetration with the launch of new models, targeting different segments. Since the sector is price driven, huge investment is envisaged to remain competitive through cost advantage, for which indigenization is highly important. The product becomes dearer if it is manufactured using imported parts. IT in the automobile sector plays a crucial role.. Some players are working towards development of efficient production systems that control the entire production process with high precision and accuracy. Such systems working on real time operating systems allow efficient control of different parts of manufacturing and production. It is essential to leverage skills of different engineering disciplines to build these kinds of integrated systems.

Analysts foresee high scope in the electronics for auto sector and expect the retailing of such electronics products to contribute a major chunk of future revenues. The government is increasing the research and development (R&D) fund for the automobile industry over and above the Rs 1400 crores earmarked for eight years. All laboratories in the country researching on automobile technology, such as BHEL which is developing cell technology as alternative fuel, have also been brought together through the setting up of  a national R & D working group. The group is working out a plan to link all major laboratories across the country to give a thrust to automotive research.
Indian automobile sector being a driver of product and process technologies, and has become a excellent manufacturing base for global players, because of its high machine tool capabilities, extremely capable component industry, most of the raw material locally produced, low cost manufacturing base and highly skilled manpower Not only a large number of world manufacturers have set up production bases in India but also a large number of foreign companies are collaborating with the auto component suppliers and vendors.

Indian Automobile Components Industry has been making rapid strides towards achievement of world-class Quality Systems by imbibing ISO 9000/QS 9000 Quality Systems whereby the Indian Automotive industry has become more competitive in the export market due to its technological and quality advances, so much so that in quality conscious markets such as Europe and America, it is emerging as a major player, based on its performance. India today exports: Engine and engine parts, electrical parts, drive transmission & steering pats, suspension & braking parts among others.

The sector is striding inroads into the rural middle class after its inroads into the urban markets and rural rich. It is trying to bring in varying products to suit requirements of different class segments of customers.

States like Rajasthan, Uttar Pradesh, Maharashtra, Andhra Pradesh and West Bengal are vying to woo global players with proposals including heavy tax exemptions and to create a more investor friendly regime, each state is proposing to provide all regulatory clearances at express speed.

            The Government should promote Research & Development in automotive industry by strengthening the efforts of industry in this direction by providing suitable fiscal and financial incentives.

            The current policy allows Weighted Tax Deduction under I.T. Act, 1961 for sponsored research and in-house R&D expenditure. This will be improved further for research and development activities of vehicle and component manufacturers from the current level of 125%.

            In addition, Vehicle manufacturers will also be considered for a rebate on the applicable excise duty for every 1% of the gross turnover of the company expended during the year on Research and Development carried either in-house under a distinct dedicated entity, faculty or division within the company assessed as competent and qualified for the purpose or in any other R&D institution in the country. This would include R & D leading to adoption of low emission technologies and energy saving devices.

           Government will encourage setting up of independent auto design firms by providing them tax breaks, concessional duty on plant/equipment imports and granting automatic approval.

          Allocations to automotive cess fund created for R&D of automotive industry shall be increased and the scope of activities covered under it enlarged.




                   1:4 Automobile industry – Wheels of Change

              India had its date with this wonderful vehicle first time in 1898. Then for the next fifty years, cars were imported to satisfy domestic demand. Between 1910 and 20's the automobile industry made a humble beginning by setting up assembly plants in Mumbai, Calcutta and Chennai. The import/assembly of vehicles grew consistently after the 1920's, crossing the 30,000 mark in 1930. In 1946, Premier Automobile Ltd (PAL) earned the distinction of manufacturing the first car in the country by assembling 'Dodge DeSoto' and 'Plymouth' cars at its Kurla plant. Hindustan Motors (HM), which started as a manufacturer of auto components graduated to manufacture cars in 1949. Thanks to the Licence Raj which restricted foreign competitors to enter the Indian car market, Indian roads were ruled by Ambassador Car from Hindustan Motors and the Fiat from Premier Auto Ltd. for many of the initial years.

              In 1952, the GOI set up a tariff commission to devise regulations to develop an indigenous automobile industry in the country. After the commission submitted its recommendations, the GOI asked assembly plants, which did not have plans to set up manufacturing facilities, to shut operations. As a result General Motors, Ford and other assemblers closed operations in the country. The year was 1954 and this decision of the government marked a turning point in the history of the Indian car industry. The GOI also had a say in what type of vehicle each manufacturer should make. Therefore, each product was safely cocooned in its own segment with no fears of any impending competition. Also, no new entrant was allowed even though they had plans of a full-fledged manufacturing program. The restrictive set of policies was chiefly aimed at building an indigenous auto industry. However, the restrictions on foreign collaborations led to limitations on import of technology through technical agreements. In the absence of adequate technology and purchasing power, the car industry grew at a snail's pace in the 60’s. The demand for cars in 1960 was to the tune of 15,714. In the next two decades the number increased to 30,989 i.e. a CAGR of only 3.5 per cent. 

            The other control imposed on carmakers related to production capacity and distribution. The GOI control even extended to fixation of prices for cars and dealer commissions. This triggered the start of a protracted legal battle in 1969 between some carmakers and GOI. Simply put, the three decades following the establishment of the passenger car industry in India and leading upto the early 1980s, proved to be the 'dark ages' for the consumer, as his choice throughout this period was limited to two models viz. Ambassador and Padmini. It was only in 1985, after the entry of Maruti Udyog, that the car makers were given a free hand to fix the prices of cars, thus, effectively abolishing all controls relating to the pricing of the end product.

          In the early 80's, a series of liberal policy changes were announced marking another turning point for the automobile industry. The GOI entered the car business, with a 74% stake in Maruti Udyog Ltd (MUL), the joint venture with Suzuki Motors Ltd of Japan. The very face of the industry was changed for ever in 1983 with the entry of public sector Maruti Udyog in a joint venture with the Suzuki Corporation of Japan. Car sales grew by 42 per cent yoy in 1985 after Maruti 800 was launched. Thanks to MUL car sales registered a CAGR of 18.6 per cent i.e. from 1981 to 1990.

          In 1985, the GOI announced its famous broadbanding policy which gave new licenses to broad groups of automotive products like two and four-wheeled vehicles. Though a liberal move, the licensing system was still very much intact. MUL introduced 'Maruti 800' in 1983 providing a complete facelift to the Indian car industry. The car was launched as a "people’s car" with a price tag of Rs 40,000. This changed the industry's profile dramatically. Maruti 800 was well accepted by middle income families in the country and its sales increased from 1,200 units in FY84 to more than 200,000 units in FY99. However in FY2000, this figure came down due to rising competition from Hyundai's 'Santro', Telco's Indica and Daewoo's 'Matiz'.

         MUL extended its product range to include vans, multi-utility vehicles (MUVs) and mid-sized cars. The company has single handedly driven the sales of cars in the country cornering around 79.6% market share. With increasing competition from new entrants, this market share has plummeted to almost 62% in FY2000.

           A brief 3-year downturn till 1993 and car sales bounced back to register a 17 per cent growth rate in 1997.Since then, the economy slumped into recession and sales of cars remained quite stagnant FY97 and FY99. The Financial year 2000 has, however, been the turnaround year for the Auto industry with the economy looking up. The automobile industry, crossed the half million mark for the first time in FY2000.                                                                                      Overwhelmed by newer models from new and existing players had led to an impressive shift from a constrained supply situation to a surplus one. Within the past decade, about 30 models have entered the Indian market with a number of models still awaiting launch. The de-licensing of auto industry in 1993 opened the gates to a virtual flood of international auto makers into the country with an idea to tap the large population. Also the lifting of quantitative restrictions on imports by the recent policy is expected to add up to the flurry of foreign cars in to the country.

          The Indian Automobile industry registered one of the strongest growth rates in FY’04. Aided by sustained economic recovery, the industry registered high growth rates in all major segments.


          The growth story was led by Medium and Heavy Commercial Vehicles (M&HCVs) registering a 40% growth while Light Commercial Vehicles (LCVs) recorded a 32% jump in total sales. Passenger cars also registered an impressive 34% growth in FY’04 and total sales volume crossed the 1 million mark for the first time. Interestingly, two wheelers registered the lowest but healthy growth rate of 13% in FY’04. While motorcycle volumes tripped on a high base, scooters registered a 10%

growth after 4 years of continuous decline. Three wheelers grew by 23% in FY’04.


           Apart from strong economic growth in all sectors, low interest rate regime, normal monsoon, continued infrastructure investment, fiscal measures like cut in excise duty (in case of cars), etc provided impetus for the growth. The year also saw a sharp 56% rise in export volumes with all the sectors registering more than 40% growth, signalling the

rising international competitiveness of the industry.

           Profitability improvements were recorded in companies across segments driven by rise in volumes and lower interest costs to some extent, notwithstanding the rise in prices of certain inputs like steel.


          Though the peak customs duty had been reduced to 20% in January 2004 and Special Additional Duty was abolished, the domestic industry still enjoys adequate protection, with no import threats. The potential borne by the industry is well exhibited by the growing number of international players setting up base in India and increasing

competitiveness in the industry.       

          Many companies have entered the car manufacturing sector, to tap the middle and premium end of car industry.



1.5: Background of Automobile Industry

.    The automobiles industry for many years operated in a seller's market. In such a scenario the manufacturer could offer outdated models and also raise prices at will. Little or no attempt was made to control costs or to offer new products. Lack of innovation restricted the consumer’s options to the models offered by these companies.


.    The number of manufacturers (domestic and foreign) increased dramatically after the de-licensing of the sector. Increased competition has forced companies to focus on cutting costs, improve technology and styling through research. It has also constrained them to limit price increases.


.    Availability of easy credit facilities also resulted in creating demand for automobiles. The car financing market has boomed from a turnover of Rs 7,000 m in FY95 to nearly Rs 35,000 m in FY97.





.    The Indian automobile industry can be broadly classified into:

Ä     2 /3 Wheelers

Ä     Passenger Cars

Ä     Commercial Vehicles (LCV/HCV/MCV)

Ä     UV (Utility vehicles)

Ä     Tractors





The models in the car market can be fitted to different segments as given below:







 Economy segment (upto Rs 0.25mn)

Maruti Omni, Maruti 800 etc.

Mid-size segment (Rs 0.25-0.45 mn)

Fiat Uno, Hyundai Santro, tata Indica, Maruti Alto etc.

Luxury car segment (Rs 0.45- 1mn)

Tata Indigo, Honda City, Mitsibushi Lancer, Ford Ikon, Opel Astra, Hyundai Accent & others

Super luxury segment (above Rs 1mn)

Mercedes Benz & other imported models





The economy segment has a very large foothold over the Indian automobile market as compared to the mid-size and luxury segment.



                       Market Share (%)



           Mid-size and luxury



Source:  SIAM/ Auto Car India



.    Increased urbanisation, low pricing policies, improvement in products and technology have fuelled demand for 4-wheelers. The markets are clearly segmented between economy models and premium models. The easy availability of finance and increased levels of disposable incomes has led to higher demand for premium models. Rural areas have also become an exciting market to cater to.

.    The growth of the economy has also resulted in a shift in consumer preferences in each of the segment. Gradual shift can be seen in buyers from mopeds to economy scooters, from economy scooters to premium and from premium to motorcycles




 Figure -Structure of Passenger Vehicle Market (India)




Trends in Passenger Car / Utiltity Vehicle Sales






.    The passenger car segment has seen rapid growth on the back of rise in disposable income, increased availability of consumer finance, and reduction in excise and customs duties. Post-1991, this segment has seen maximum foreign investment. There is a clear segmentation of passenger cars based on price and size. While the lower and medium range cars (Maruti, Ford, Cielo) have been moderately successful, luxury cars such as Mercedes have found the going tough.

.    The CV segment is directly linked to industrial production and foreign trade and is therefore subject to cyclical fluctuations of the economy. The demand for CVs is related to growth in movement of goods transported and freight rate levels, both of which are linked to level of production.


Commercial Vehicle Sales Growth v/s IIP Growth



.    Demand for utility vehicles and tractors come from rural India. These vehicles have witnessed steady demand growth over the past few years due to successive monsoons, better procurement prices, improved irrigation facilities, and availability of finance.

.    A strong in-house R&D capability allows a manufacturer to develop and introduce products at lower prices, thus saving costs of importing technology. However, Indian companies spend very little on R&D.

Availability of quality components is another factor that determines smooth production without bottlenecks. High rejection rate of auto components has prompted several global majors like Ford, to get their international suppliers





1.6: Features of the automobile industry

The structure of the auto market has been changing at a faster pace along with the global changes in the Industry. There are several global automobile companies who were averse to come and invest in India ten years ago, now have kept India as a priority destination for their investment. Along with the entry of multinational auto companies, the profile of domestic auto companies too witnessed a structural change. The stiff competition to access market prompted companies to go for different models with differing qualities and efficiency. The market too expanded at a rapid pace with the entry of soft financial assistance from several financial institutions to middle income households.

              MNCs need to carefully plan their entry into emerging markets. Early commitment to a market often results in first mover advantages that are difficult to replicate. On the other hand, later entrants have the opportunity to learn from the mistakes of the first entrant. The Indian car market offers useful lessons in this context. In the 1990s, the Indian Government removed several restrictions in a bid to attract foreign investors into the automobile industry. Among the first to enter was Daewoo of South Korea, with its model Cielo, targeted at the upper end of the market. Other MNCs such as Ford and General Motors also entered the Indian market, followed by Hyundai, Honda, Toyota, Volkswagen etc.

           Most MNCs began their operations in India as joint ventures with local partners.  Examples include Suzuki, G.M, Ford and Daewoo.  With the exception of Suzuki,  these joint ventures have become fully owned subsidiaries of the foreign partners.  In all these cases, the local partners have just not had enough resources to chip in whenever the equity base has been expanded.  Consequently, the foreign partners have pumped in the additional capital and raised their equity stakes


            With the liberalization of the India economy, the Rs 18,500 crore Indian car market is being opened up to foreign investors. Several companies are setting up or have already set up operations in India to cater to the Indian market. There are several strategies by which a foreign enterprise can set - up Indian operations. This module aims to give the various entry options available to a foreign investor, especially for foreign direct investment. This module does not deal with portfolio investments.

            Broadly, entry strategies may be classified into two major types :-

  1. A foreign investor may directly set up its operations in India through a branch office or a representative office or liaison office or project office of the foreign Company ; or
  2. It may do so through an Indian arm i.e. through a subsidiary company set - up in India under Indian laws.

            Generally, setting up operations through an Indian arm is advisable, especially if the quantum of investment is huge.

             The impact of India’s initiatives in economic liberalization and globalization (post 1991) is most apparent in the automotive sector. Automotive industry is a key driver of economic growth contributing around four to five percent to the Indian GDP. Introduction of reforms and entry of international companies has intensified competition in the Indian automotive sector. This has resulted in the transformation of a seller’s market (created mainly due to the Indian government’s protectionist policies) into a buyers market. The changing structure of this industry has posed many challenges and opportunities to the market participants.

             Previously, Indian automotive market was characterized by weak air pollution regulations. In addition, low labor cost of maintenance and the psyche of Indian consumer to delay the discarding of the old vehicle reduced the scrap rate. All these factors resulted in prolonged operational existence of vehicle on Indian roads. The benefit of this practice is the comparatively higher revenues for automotive component suppliers, due to increased demand in the aftermarket. But recent pronouncement of GoI to prohibit polluting vehicles in the National Capital Region (NCR) is likely to force the old polluting vehicles off road. This will reduce the average life span of vehicles on road and the overall impact would be reduced per vehicle parts consumption.

               Two wheelers generate the highest volumes and are more popular in rural and semi urban markets primarily due to lower income levels and poor road conditions. Therefore, these could be classified as entry-level vehicles. Within two wheeler segments, progressively mopeds are likely to be replaced by motorcycles. With the growth in the family income of these rural and semi-urban buyers and the option of numerous used cars, it is expected that a significant shift would take place from two wheelers (mainly scooters) to four wheelers. Lucrative finance schemes have made the purchase of mid-sized cars really affordable. The present owners of the small car are likely to graduate to mid-size cars mainly due to declining importance of small car as status symbol and the marginal increment in repayment installment in the finance options.


               Good performance of the economy has led to higher all round growth leading to high GDP growth of 8%. Excise duty reduction on passenger vehicles helped to reduce the ultimate price to the customer. Brisk activities on infrastructural development will give a boost to the automobile industry. Softening of interest rates and improved financing of second hand vehicles have made the purchasing of cars financially viable. Availability of finance in rural and semi-urban areas have led the low-end customers to put money in the purchase of vehicles. Emergence of India as a manufacturing hub for the automobile industry is a good sign for the country’s future prospects.


               The automotive industry performance is closely linked to industrial growth. It is hoped that industrial growth would be around 7 per cent during the year 2003-04 as against around 6.5% last year. Agriculture output during the year 2003-04 increased by over 10% as compared to (-)3.2% in the previous year. Today we are fourth largest economy (USD 2.5 trillion) in the world after USA, Japan and China in terms of purchasing power parity. The outlook for the year 2004-05 is promising and it is expected that the current growth rates of GDP and industrial output will be sustainable, which would ensure robust growth in the automotive sector.

               Good performance of the economy has led to higher all round growth leading to high GDP growth


1.7: The landmarks along the way...

1928- The first imported car was seen on Indian roads

1942- Hindustan Motors incorporated

1944- Premier automobiles started

1948- First car manufactured in India

1953- The Government of India decreed that only those firms which have a manufacturing program should be allowed to operate

1955- Only seven firms, namely, Hindustan Motors Limited, Automobile Products of India Limited, Ashok Leyland Limited, Standard Motors Products of India Limited. Premier Automobiles Limited, Mahindra & Mahindra and TELCO received approval.

1960 - 1970 - The two, three wheeler industries established a foothold in the Indian scenario.

1970 - 1980 - Not much change was witnessed during this period. The major factors affecting the industry were the implementation of the MRTP Act (Monopolies and Restrictive Trade Practices Act), FERA (Foreign Exchange Regulation Act) and the Oil Shock of 1973 and 1979.

1980 - 1990 - The first phase of liberalization was announced by the Govt. -With the liberalization of the Government's protectionist policies, the advantages hitherto enjoyed by the Indian car manufacturers like monopoly, oligopoly, slowly began to disappear.

1991 - Under the Govt.'s new National Industrial Policy, the license raj was dispensed with, and the automobile industries were allowed to expand freely.

1993 - With the winds of liberalization sweeping the Indian car market, many multinationals like Daewoo, Peugeot, general Motors, Mercedes-Benz and Fiat came into the Indian car market.

1997 - The National Highway Policy was announced which will hopefully have a positive impact on the automobile industry. The Government also laid down the emission standards to be met by car manufacturers in India in the coming millennium. There were two successively stringent emission levels to be met by April 2000 and April 2005, respectively. These norms were benchmarked on the basis of those already adopted in Europe, hence the names Euro I (equivalent to India 2000) and the Indian equivalent of Euro II.

1999 - The Hon’ble Supreme Court passed an order directing all car manufacturers to comply with Euro I emission norms (India 2000 norms) by the 1st of May, 1999 in National Capital Region(NCR) of Delhi. The deadline was later extended to 1st June, 1999

2004 -  Tata Motors becomes the first Indian auto company to be listed on the New York Stock Exchange.









2.1: Auto policy of the Government of India



To establish a globally competitive automotive industry in India and to double its contribution to the economy by 2010.

This policy aims to promote integrated, phased, enduring and self-sustained growth of the Indian automotive industry. The objectives are to:-

  • Exalt the sector as a lever of industrial growth and employment and to achieve a high degree of value addition in the country;
  • Promote a globally competitive automotive industry and emerge as a global source for auto components;
  • Establish an international hub for manufacturing small, affordable passenger cars and a key center for manufacturing Tractors and Two-wheelers in the world;
  • Ensure a balanced transition to open trade at a minimal risk to the Indian economy and local industry;
  • Conduce incessant modernization of the industry and facilitate indigenous design, research and development;
  • Steer India's software industry into automotive technology;
  • Assist development of vehicles propelled by alternate energy sources;
  • Development of domestic safety and environmental standards at par with international standards.

SIAM welcomed the announcement of Auto Policy, and feels that the policy would serve as a reference document for all stake holders and other interested parties.

The Auto Policy has spelt out the direction of growth for the auto sector in India and addresses most concerns of the automobile sector, including-

Promotion of R&D in the automotive sector to ensure continuous technology

  • upgradation, building better designing capacities to remain competitive;
  • Impetus to Alternative Fuel Vehicles through appropriate long term fiscal structure to facilitate their acceptance;
  • Emphasis on low emission fuel auto technologies and availability of appropriate auto fuels and
    encouragement to construction of safer bus/truck bodies - subjecting unorganised sector also to 16% excise duty on body building activity as in case of OEMs

The policy has rightly recognised the need for modernising the parc profile of vehicles to arrest degradation of air quality. The terminal life policy for commercial vehicles and move toward international taxing policies linked to age of vehicles, are steps in the right direction.

SIAM has always been advocating encouragement of value addition within the country against mere trading activity. However, this aspect has not been fully addressed. The Auto Policy allows automatic approval for foreign equity investment upto 100% in the automotive sector and does not lay down any minimum investment criteria.

The recommendation of promoting passenger cars of length upto 3.8 meters through excise benefits is not in line with the free market concept and may lead to market distortion.

However, with the Auto Policy in place, the automotive industry would get further fillip to become vibrant and globally competitive. The industry would get the required support from other Ministries and departments of Government of India in achieving the goals laid down in the auto policy








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