Essay About Indian Automobiles And Indian Governments Liberalization Measures

Indian Automobiles:opportunities and Challenges
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Executive Summary: The Indian automobile industry is currently experiencing an unprecedented
boom in demand for all types of vehicles. This boom has been triggered primarily by two factors:
(1) increase in disposable incomes and standards of living of middle class Indian families estimated
to be as many as four million in number; and (2) the Indian governments liberalization measures
such as relaxation of the foreign exchange and equity regulations, reduction of tariffs on imports,
and banking liberalization that has fueled financing-driven purchases. Industry observers predict
that passenger vehicle sales will triple in five years to about one million, and as the market grows
and customers purchasing abilities rise, there will be greater demand for higher-end models which
currently constitute only a tiny fraction of the market. These trends have encouraged many multinational
automakers from Japan, U. S. A., and Europe to enter the Indian market mainly through
joint ventures with Indian firms. This paper presents an introduction to the key players in the
Indian automotive industry, a summary of the recent developments, and an analysis of the
opportunities and challenges facing the various players (Indian and multi-national assemblers and
component makers) in the areas of product development, production, and distribution.
1.1 Introduction to The Indian Automotive Industry
For forty years since Indias independence from the British in 1947, the Indian car market was
dominated by two localized versions of ancient European designs — the Morris Oxford, known as
the Ambassador, and a old Fiat. This lack of product activity in the Indian market was mainly due
to the Indian governments complex regulatory system that effectively banned foreign-owned
operations. Within this system (referred to informally as the “license raj”), any Indian firm that
wanted to import technology or products needed a license/permit from the government. The
difficulty of getting these licenses stifled automobile and component imports, creating a low
volume high cost car industry that was inefficient, unprofitable, and technologically obsolete. The
two dominant products Ambassador and Fiat, although customized to the poor road conditions in
India, were based on a stale design concept (with outdated features), and were also fuel inefficient.
In the early 1980s, the Indian government made limited attempts at reforming the automotive
industry, and entered into a joint venture with Suzuki of Japan. The joint-venture, called Maruti
Udyog Limited, launched a small but fuel efficient model (called “Maruti 100”). Priced at about
$5,500, the product became an instant hit. The joint venture now produces three small-car models,
a van, and a utility vehicle at a rate of more than 250,000 a year. Despite being a late entrant,
Marutis vehicles are estimated to account for as much as 70 per cent of Indias car population.
In 1991, a newly elected Indian government took over and faced with a balance-of-payments crisis
initiated a series of economic liberalization measures designed to open the Indian economy to
foreign investment and trade. These new measures effectively dismantled the license raj which had
made it difficult for Indian firms to import machinery and know-how, and had disallowed equity
ownerships by foreign firms. In 1993, the government followed up its liberalization measures with
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significant reductions in the import duty on automobile components. These measures have spurred