Challenges Before Indian Automobile Industry

April 29, 2010India Auto Industryby EconomyWatch


Over the last few years the face of the Indian automobile industry has undergone a sea change. The growth of the industry has surpassed all previous records. However there are certain factors that stand as challenges before the Indian automobile industry.

The development of the industry has been attributed to a couple of factors. One of these was the liberalization of the economy in the early 1990s and the rise in disposable income and standard of living. Liberalization of the economy meant a decrease in import tariffs, equity regulations, liberalization in banking norms and relaxation of the foreign exchange. Since then there has been no looking back and the automobile industry has continued to grow at a consistent rate of 25%. These positive steps led to globally renowned auto brands to invest in the Indian market. Some of the leading automobile manufacturers from Europe and the United States collaborated with Indian brands to create customized vehicles for each section of the population. Companies like Maruti Udyog were formed as a result of collaboration between Suzuki of Japan and the Indian government.

With each passing year, the number of automobile manufacturers willing to take the plunge into the Indian market has risen considerably while most of the international brands have entered into joint ventures; there are exceptions like Hyundai which is keen on setting up its own manufacturing units. However, there are numerous challenges before Indian automobile industry. One of the major problems faced by this sector is the poor condition of the roads. The road infrastructure is not properly developed. The condition of the highways is not up to the mark. A large number of the roads are single lane roads built almost 50 years ago. They hardly match the rapid pace at which the automobile industry is developing. Moreover, they are mostly used by bullock carts and two wheelers. It is believed that the condition of the roads would worsen with the introduction of bigger and increasing number of vehicles. Repair work is expected to incur expenses up to$30 billion. The privatization of the road infrastructure is not enough to solve the problem which has attained large proportions. The Road Development Program and its progress is expected to be a key factor in the growth of the auto industry in India.

Though numerous foreign companies have entered the Indian automobile market, the tariffs on imported components and products and the frequent alterations in the currency exchange rates have made localization an absolute necessity for these companies. Daewoo-DCM and GM Astra have already begun the process of localization and plan to expand it. However, it there is an obstacle in the path of localization with respect to the limited number of component suppliers. The policies and programs of the government in power also play a crucial role in the growth of this sector.

The major players in the Indian automobile industry include Maruti Udyog, Mahindra& Mahindra, Hindustan Motors and Telco. They can be divided into four major sections namely Multinational Assemblers, Indian Assemblers, Multinational Component Makers and Indian Component Makers. While the Indian Assemblers boast of a proper distribution network, at the same time they fall short in with respect to product development and a known brand. The multinational assemblers, on the other hand, have a well developed production system and financial resources but are not well acquainted with the intricacies of the Indian market.

Despite these challenges, the Indian automobile industry has managed to carve a niche for itself in the global auto sector. It continues to grow in the face of some stiff competition from other Asian auto markets.


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