AUTOMOBILE SECTOR IN INDIA

All over the world, performance of the automobile industry, especially the passenger car segment, is considered as an index of economic development. In terms of importance it is next only to housing sector. This is mainly due to the fact that these two products are the highest value purchases a typical middle income household and above prefer to own. India is no exception to this, since the middle income population is one of the largest in the world. Further, automobile industry has strong linkages, both forward and backward, to other major industries, such as, iron and steel, aluminium, tyre, etc.
Thanks to the favourable economic policies of the Indian Government, almost all the global players in the automobile industry have set up/are in the process of setting up their facilities in India: Ford, General Motors, Peugeot, Daewoo, Mercedes-Benz, Honda, Hyundai, Mitsubishi, Toyota, Audi, BMW, etc. This has resulted in the market being witnessing not only more choice of models with increased production capacities, but also more competition. One major question pertaining to the Indian automobile industry is that, whether it will be possible for India to absorb the huge jump in capacity in a short span of time without considering several factors such as road net work and socio-economic aspects.
According to Business Today-CRISIL study, the car segment is expected to grow at a compounded annual rate of growth rate of 20 per cent till the end of this century. The demand for economy and medium segment is estimated at 510000 cars and this will be comfortably met without resulting idle capacity. However, in the luxury car segment, an over supply position is estimated. Contradicting these estimates, the growth rate has declined to about 7 per cent during 1996-97. Thus, initial estimates on the Indian passenger car market size was between 8 to 10 lakh cars per annum. However, in reality it is estimated around 4.5 lakh cars per annum, working out to only about 10 per cent growth rate compared to the forecasted growth rate of 20 per cent.
Indian automobile sector is an example for the great Say's Law : 'Supply creates its own demand'. Maruti has vindicated this. Further, at the entry level, the demand for passenger cars will keep increasing due to several factors such as increasing income levels and easy availability of car finance. Currently there are around 3 million car owners in India. Since many of these existing car owners should have risen in the social strata, demand for medium and premium range of vehicles is also expected to grow significantly. The future entry-level demand for cars in India will arise from Rs 2 lakh and above income category which is estimated to be around 2.6 million by the turn of the century. Further, there are about 21 million two wheeler population in India, the owners of which predominantly belong to the middle income group. A major portion of them is likely to graduate themselves into car owners.