Recent Developments and Future Prospects in the Indian Automotive Industry

The automobile market is growing at about 25% for the last three years. The number of persons per car is 200, which is very large compared to other emerging markets like Korea and Brazil which have about 12 persons per car. There is therefore a very huge untapped market. Uncertainty exists about the extent of growth, but a minimum growth rate of 20% is expected until the year 2000. Sales are expected to rise to anywhere between 850,000 to 1.5 million vehicles by the year 2000. Markets are highly price sensitive since a car is about 18 to 24 months salary for the average middle class buyer. However, incomes are rising and the economy has been growing steadily at nearly 6%. Import duties on CKDs and components is 50%. Reduction of prices because of lower duties and taxes and progressive indigenization, and rising middle class incomes are likely to further increase industry growth rates. Penetration in rural and semi urban areas is extremely low and could provide fresh markets. New entrants will have to deal with uncertainty of demand, different and evolving customer needs, a relatively poor supplier base, a market crowded with competition and industry wide capacity shortages. However, if there is a shake out as many analysts expect, further opportunities for survivors will open up. Another implication is that India could emerge as a significant manufacturing base for exports. The supplier industry is also going through massive growth, although from a small initial base. Except for Telco, indigenous product development capabilities are very low, and the industry has some way to go before it becomes world class