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  1. 1. VISION“To emerge as the destination of choice inthe world for design and manufacture ofautomobiles and auto components withoutput reaching a level of US$ 145 billionaccounting for more than 10% of the GDPand providing additional employment to25 million people by 2016.” Automotive Mission Plan 2006-2016
  2. 2. AUTOMOTIVE MISSION PLAN 2006-2016From the Desk of Hon’ble Minister ofHeavy Industries and Public EnterprisesThe Indian Automotive Industry has emerged as a ‘Sunrise Sector’ in our economywithin fifteen years of its liberalisation. The next ten years will be crucial period forgrowth of the Indian automobile industry as a significant player in the global stage.I am happy to see that all stakeholders are focused to convert this challenge intoopportunity.In order to accelerate and sustain growth in the automotive sector, a roadmap wasneeded to steer, coordinate and synergise the efforts of all stakeholders. I am gladthat my Ministry in consultation with all; the industry, the planners, the academia, allconcerned central and state authorities; has prepared this comprehensive document :‘Automotive Mission Plan 2006-2016’ to make India a Global Automotive Hub.I am confident that the combined efforts of the Government, Industry and Academiawill succeed in this mission. My compliments to all those who are instrumental ingiving shape to this valuable Automotive Mission Plan. (Sontosh Mohan Dev)New DelhiDecember, 2006AUTOMOTIVE MISSION PLAN 2006-2016 3
  3. 3. Contents Abbreviations i Foreword v Preface ix Executive Summary xiii Auto Industry : The Global Scenario 1 Evolution of Indian Automotive Industry 5 Indian Automotive Industry : An Overview 17 The Automotive Mission Plan 25 Recommended Interventions 31 Summary of Recommendations 47 Annexure I-Working Groups 51 Annexure II- Composition of Inter-Ministerial Groups 53AUTOMOTIVE MISSION PLAN 2006-2016
  4. 4. AbbreviationsACMA Automotive Component Manufacturers AssociationAISC Automotive Industries Standards CommitteeARAI Automotive Research Association of IndiaASEAN Association of South East Asian NationsASI Annual Survey of IndustriesATI Automotive Training InstituteBIMSTEC Bay of Bengal Initiative for Multi Sectoral Technical and Economic CooperationBIS Bureau of Indian StandardsBS Bharat StageCAGR Compounded Annual Growth RateCAR Core group on Automotive R&DCBDT Central Board of Direct TaxesCDM Clean Development MechanismCFS Container Freight StationCMVR Central Motor Vehicle RulesCNG Compressed Natural GasCOP Conformity of ProductionCSIR Council for Scientific and Industrial ResearchCV Commercial VehicleDEPB Duty Entitlement Pass Book SchemeDG Diesel GeneratorDGFT Directorate General of Foreign TradeDHI Department of Heavy IndustriesDIN Deutsches Institut für NormungECE Economic Commission for EuropeEEC European Economic CommunityELV End of Life VehicleEOU Export Oriented UnitEPCG Export Promotion Capital Goods SchemeEU European UnionFDI Foreign Direct InvestmentFTA Free Trade AgreementFY Financial YearAUTOMOTIVE MISSION PLAN 2006-2016 i
  5. 5. ABBREVIATIONS GCC Gulf Co-operation Council GDP Gross Domestic Product GST Goods & Service Tax HP Horse Power I&C Inspection & Certification ICD Internal Container Depot ICRA Indian Credit Rating Agency IIM Indian Institute of Management IPP Industrial Policy & Promotion IIT Indian Institute of Technology iMaCS ICRA Management Consulting Services IPR Intellectual Property Rights ISO International Organisation for Standardization IT Information Technology ITI Industrial Training Institute JIPM Japan Institute of Productivity Management JNPT Jawaharlal Nehru Port Trust LCC Low Cost Countries LCV Light Commercial Vehicle M&HCV Medium & Heavy Commercial Vehicle MFN Most Favoured Nation mn Millions MNC Multi National Corporation MNRE Ministry of New & Renewable Energy MoHI & PE Ministry of Heavy Industries & Public Enterprises MUV Multi Utility Vehicle MW Mega Watt NAFTA North American Free Trade Area NAII National Automotive Infotronics Initiative NATRIP National Automotive Testing and R&D Implementation Project NCAER National Council for Applied Economic Research NGO Non-Governmental Organisation NHAI National Highway Authority of India NHDP National Highway Development Project NHEB National Hydrogen Energy Board NID National Institute of Design NMDP National Maritime Development Project NRSB National Road Safety Board OEM Original Equipment Manufacturer PMP Phased Manufacturing Programme PPP Public Private Partnership PTA Preferential Trade Agreement QR Quantitative Restriction R&D Research & Development RSPM Respirable Suspended Particulate Matter RTA Regional Trade Agreementii AUTOMOTIVE MISSION PLAN 2006-2016
  6. 6. ABBREVIATIONSSAARC South Asian Association for Regional CooperationSACU Southern African Customs UnionSAFTA South Asia Free Trade AgreementSAP Special Auto component ParksSERC State Electricity Regulatory CommissionSEZ Special Economic ZonesSIAM Society Of Indian Automobile ManufacturersSIDBI Small Industries Development Bank of IndiaSION Standard Input Output NormsSME Small and Medium EnterprisesSPM Suspended Particulate MatterSQC Statistical Quality ControlSUB Supplementary Unemployment Benefit FundSUV Sports Utility VehicleTA Type ApprovalTIFAC Technology Information Forecasting & Assessment CouncilTPM Total Productivity ManagementTQM Total Quality ManagementTSC Technical Standing CommitteeUNECE United Nations Economic Commission for EuropeUSD US DollarsVAT Value Added TaxWP.29 Working Party 29WTO World Trade OrganisationAUTOMOTIVE MISSION PLAN 2006-2016 iii
  7. 7. ForewordI ndia is emerging as one of the world’s fastest growing passenger car markets and second largest two wheeler manufacturer. It is home for the largest motor cycle manufacturer and fifth largest commercial vehicle manufacturer. The industry is producing about 13 lakhs passenger vehicles,4 lakhs commercial vehicles, 76 lakhs two wheelers and about 3 lakhs tractors per annum. Theautomobile industry has achieved a turn over of US $ 28 billion and the auto component industryhas reached a turn over of US $ 10 billion. The Indian tyre industry, which is an integral part ofIndian Automotive Industry has registered a turn over of almost US $ 3 billion. In order to further improve the automobiles in the Indian domestic market, to provide worldclass facilities of automotive testing and certification and to ensure a healthy competition amongthe manufacturers at a level playing field, our Ministry has undertaken to lay down the road map forfuture development of the industry in the form of this ‘Automotive Mission Plan 2006-2016’. Ministry would like to place on record its appreciation for the work and support of Chairmanand members of five working groups for ably identifying the challenges and for making valuablesuggestions for intervention which enabled us in finalizing the Mission document. Ministry alsoacknowledges the valuable contributions made by the members of five Inter-Ministerial Groupsand suggestions provided by various Ministries/Departments of the Government of India. TheGovernment is of firm conviction that the aspirations unfolded in the Mission document will beachieved and Indian Automotive industry will attain the strength to meet the competition at worldlevel and fare as a world class industry. The Mission Plan would be a useful blueprint for future toprovide the joint vision of the Ministry and the Indian Automotive Industry. (Dr. Ramesh Chandra Panda) Secretary to Government of India Ministry of Heavy Industries & Public EnterprisesNew DelhiDecember, 2006AUTOMOTIVE MISSION PLAN 2006-2016 v
  8. 8. Preface
  9. 9. PrefaceT he Indian Automotive Industry embarked on a new journey in 1991 with delicensing of the sector and subsequent opening up for 100 per cent FDI through automatic route. Since then almost all the global majors have set up their facilities in India taking the level of productionof vehicle from 2 million in 1991 to 9.7 million in 2006. The growth of Indian middle class with increasing purchasing power along with strong growthof economy over a past few years have attracted the major auto manufacturers to Indian market.The market linked exchange rate and availability of trained manpower at competitive cost havefurther added to the attraction of Indian domestic market. The increasing pull of Indian marketon one hand and the near stagnation in auto sector in markets of USA, EU and Japan on the otherhave worked as a push factor for shifting of new capacities and flow of capital to the auto industryof India. The increasing competition in auto companies has not only resulted in multiple choicesfor Indian consumers at competitive costs, it has also ensured an improvement in productivity byalmost 20 per cent a year in auto industry, which is one of the highest in Indian manufacturingsector. To maintain this high rate of growth and to retain the attractiveness of Indian market andfor further enhancing the competitiveness of Indian companies, the Government through theDevelopment Council on Automobile and Allied Industries constituted a Task Force to drawup a ten year Mission Plan for the Indian Automotive Industry. The challenge was to give shapeto a futuristic plan of action with full participation of the stakeholders and to implement it in amission mode to remove the impediments coming in the way of growth of industry. Besides makingconcerted efforts for removal of obstacles for accelerated growth, the prime need was to put in placerequired infrastructure well in time to facilitate growth. Through this Automotive Mission Plan2006-2016, Government also wants to provide a level playing field to all players in the sector and tolay a predictable direction of growth to enable the manufacturers to take more informed investmentdecision. Automotive Mission Plan (AMP) 2006-2016 was the outcome of a protracted in-depth dialoguewith all stakeholders (industry, academia, authorities) over a period of fifteen months. FiveWorking Groups were constituted with people of eminence from industry, academia and publicinstitutions to map the challenges, set targets and evolve mission mode for implementation ofagreed mile stones. They examined policy parameters as well as the configuration of manufacturingAUTOMOTIVE MISSION PLAN 2006-2016 ix
  10. 10. PREFACE infrastructure of Indian industries and addressed a wide range of issues including upgrading infrastructure of production, induction of technology, labour law reforms and employment related issues, R&D needs, change of fiscal and policy parameters, human resource development, growth of domestic demand and exports and finally, environment and safety concerns. Their findings and recommendations were considered by five IMGs having representatives of all concerned Ministries, Academia and Public Institutions. The final recommendations of the IMGs vetted by respective Ministries were put in the public domain for wider debate and more inclusive recommendations. The final outcome was put before the Development Council of Automobile and Allied Industries, which has unanimously endorsed it. Thus the consensus was arrived at. India is at the threshold for a major take off in the automotive sector. Time bound implementation of Automotive Mission Plan ‘AMP 2006-2016’ together with establishment of world class testing, homologation and certification facilities along with 9 state of art R&D centres under National Automotive Testing & R&D Infrastructure Development Project (NATRIP) will ensure Indian Automotive Industry a distinct edge amongst the newly emerging automotive destinations of the world. (Dr. Surajit Mitra) Joint Secretary to Government of India Ministry of Heavy Industries & Public Enterprises New Delhi December, 2006 x AUTOMOTIVE MISSION PLAN 2006-2016
  11. 11. AUTOMOTIVE MISSION PLAN 2006-2016 Executive SummaryAUTOMOTIVE MISSION PLAN 2006-2016
  12. 12. AUTOMOTIVE MISSION PLAN 2006-2016
  13. 13. Executive Summary1. The Indian Automotive Industry after 3. It is a well accepted fact that the de-licensing in July, 1991 has grown at automotive industry is a volume driven a spectacular rate on an average of 17% industry and certain critical mass is a for last few years. The industry has now pre-requisite for attracting the much attained a turnover of Rs. 1,65,000 crores needed investment in Research and (34 billion USD, assuming 1$ = Rs. 46) Development and New Product Design and an investment of Rs. 50,000 crores. and Development. R&D investment Over Rs. 35,000 crores of investment is in is needed for innovations which is the pipeline. The industry is providing direct life-line for achieving and retaining the and indirect employment to 1.31 crore competitiveness in the industry. This people. It is also making a contribution competitiveness in turn depends on the of 17% to the kitty of indirect taxes. The capacity and the speed of the industry export in automotive sector has grown to innovate and upgrade. The most on an average CAGR of 30% per year for important indices of competitiveness are the last five years. The export earnings productivity of both labour and capital. from this sector are 4.08 billion USD out of which the share of auto component 4. The concept of attaining competitiveness sector is 1.8 billion USD during the year on the basis of low cost and abundant 2005-06. labour, favourable exchange rates, low interest rates and concessional duty2. Even with this rapid growth, the Indian structure is becoming inadequate and Automotive Industry’s contribution in therefore, not sustainable. In light of the global terms is very low. This is evident above, it is felt that a greater emphasis is from the fact that even though passenger required on the development of the factors and commercial vehicles have crossed which can ensure competitiveness on a the production figure of 1.5 million long-term basis. The automotive sector in the year 2005-06, yet India’s share is with its deep backward linkages (such as about 2.37% of world production of metals like steel, aluminum, copper etc., 66.46 million passenger and commercial plastics, paint, glass, electronics, capital vehicles. Indian automotive export equipment, trucking, warehousing constitutes only about 0.3% of global and logistics) and forward linkages automotive trade. including (dealership retails, credit and financing, logistics, advertising, repairAUTOMOTIVE MISSION PLAN 2006-2016 xiii
  14. 14. EXECUTIVE SUMMARY and maintenance, petroleum products, policies target to encourage growth, gas stations, insurance, service parts) promote domestic competition and has been recognized and identified at stimulate innovation. different fora (Development Council of Automobile and Allied Industries, 6. It is also felt that a general improvement Planning Commission, National in availability of trained manpower Manufacturing Competitiveness Council and good infrastructure is required and Investment Commission etc.) as for sustainable growth of the industry. a sector with a very high potential to Besides, specialized and industry- increase the share of manufacturing specific initiatives can lead to enhanced in GDP, exports and employment. The competitiveness. Keeping in view sector is also seen as a multiplier of the above factors, the Government industrial growth. It helps in attaining has launched a unique initiative of two critical goals of the Common National Automotive Testing and R&D Minimum Programme, that of increasing Infrastructure Project (NATRIP) to manufacturing output and providing provide specialized facilities for Testing, employment. Although indirectly, it also Certification and Homologation to the facilitates the third objective of increasing industry. A similar initiative is required agricultural productivity through for creating specialized institutions in farm mechanization and the needs of automotive sector for education, training agricultural product transportation. and development, market analysis and formulation and dissemination of 5. India with its rapidly growing middle courses. class (450 million in 2007 as per NCAER Report), market oriented stable economy, 7. The issues relating to fiscal incentives for availability of trained manpower at the industry to promote R & D is under competitive cost, fairly well-developed study of Mashelkar Committee and the credit and financing facilities and local issues pertaining to R & D related duty availability of almost all the raw materials structures is being examined by the at a competitive cost has emerged as one Hoda Committee. The concerns of the of the favorite investment destinations industry will be suitably addressed in the for the automotive manufacturers. above fora. These advantages need to be leveraged in a manner to attain the twin objective 8. It has been noticed that the Auto of ensuring availability of best quality Industry has grown in clusters of inter- product at lowest cost to the consumers connected companies which are linked by on the one hand and developing and commonalities and complementarities. assimilating the latest technology in The major clusters are in and around the industry on the other hand. The Manesar in North, Pune in West, Government recognizes its role as a Chennai in South, Jamshedpur-Kolkata catalyst and facilitator to encourage in East and Indore in Central India. the companies to move to higher The Department is envisaging in the level of competitive performance. The Eleventh Five-Year Plan period to Government wants to create a policy create a National Level Specialized environment to help companies gain Education and Training Institute for competitive advantage. The government Automotive Sector and to enhance the xiv AUTOMOTIVE MISSION PLAN 2006-2016
  15. 15. EXECUTIVE SUMMARY transportation, communication and 9. The Automotive Mission Plan (AMP) export infrastructure facilities through 2006-2016 aims at doubling the concerned Ministries in and around contribution of automotive sector in these clusters. The Government will GDP by taking the turnover to 145 make attempts to streamline the relevant USD in 2016 with special emphasis on Government Institutions and Educational export of small cars, MUVs, two & three and Research Institutions in and around wheelers and auto components. the clusters to meet the growing needs of the automotive sector. t t t t tAUTOMOTIVE MISSION PLAN 2006-2016 xv
  16. 16. AUTOMOTIVE MISSION PLAN 2006-2016Auto Industry: Global Scenario AUTOMOTIVE MISSION PLAN 2006-2016
  17. 17. AUTOMOTIVE MISSION PLAN 2006-2016 AUTOMOTIVE MISSION PLAN 2006-2016
  18. 18. 1Auto Industry: Global Scenario1.1 The production of passenger and at 16 million and Japan at 10 million but commercial vehicles has reached a new it has more than doubled in Asia-Pacific record of 66.46 million units in 2005. region from 7.1 million in 1997 to 16 The growth in production has been as million in 2005. follows: 1.3 A bulk of this increase in Asia- Pacific region has come from China where Table: 01 Global vehicle production production has trebled from 15.82 lakh (1997-2005) units in 1997 to 46 lakh in 2005. The second contributor to this growth is Year World Vehicle Percentage India where production has doubled Production increase/ (units in million) decrease (-) going up from 7.72 lakh units in 1997 to 15.76 lakh in 2005. The third contributor 1997 55.87 to this growth is Thailand where it has 1998 53.20 (-) 4.77 increased from 3.60 lakh units in 1997 1999 55.74 4.77 to 8 lakh units in 2005. It is pertinent to note that the global installed capacity in 2000 58.33 4.64 the sector is around 80 million, so still an 2001 56.17 (-) 3.70 idle capacity of about 15 million exists 2002 58.45 4.05 world wide. 2003 60.09 2.80 1.4 The 12 global majors account for 53.02 2004 64.16 6.77 million of vehicles produced in 2005, 2005 66.46 3.58 which is 80% of the total production of Source: OICA Statistics Committee, world ranking 2005 66.46 million. 1.5 Global motorcycle production has1.2 There has been an addition of 10.59 increased from 30 million units in 2003 million vehicle production since 1997. A to 40 million units in 2005. Asia is the majority of this growth is coming from the major producer of motorcycles in the Asia – Pacific region (excluding Japan). world with 90% share. Within Asia, The production has nearly stagnated in China accounts for 17 million units Western Europe at 17 millions, NAFTA whereas India is at second position withAUTOMOTIVE MISSION PLAN 2006-2016 1
  19. 19. AUTO INDUSTRY: GLOBAL SCENARIO 7.7 million units in 2005. rapidly growing purchasing power, market linked exchange rate and well 1.6 The industry being highly capital established financial market and stable intensive, has entry barriers for smaller corporate governance framework is players. Even the existing global auto emerging as an attractive destination for majors themselves are realigning their new investments in this sector. production bases coming closer to the scene of action in Asia- Pacific region, 1.8 The rapid improvement in infrastructure mainly in China , India and Thailand. including road, port, power and world Besides the above, the constant pressure class facilities for Testing, Certification for cost reduction on OEMs is compelling and Homologation, coupled with them to outsource more and more availability of trained manpower components from Low Cost Countries. and enabling government policies to The changing scenario has opened up promote fair competition make Indian opportunities for Indian Automotive Automotive Industry more competitive Industry. in world besides making the country a favourable destination for investment by global majors in auto industry. 1.7 India, with its huge domestic market, t t t t t2 AUTOMOTIVE MISSION PLAN 2006-2016
  20. 20. AUTOMOTIVE MISSION PLAN 2006-2016 Evolution of Indian Automotive IndustryAUTOMOTIVE MISSION PLAN 2006-2016
  21. 21. AUTOMOTIVE MISSION PLAN 2006-20164 AUTOMOTIVE MISSION PLAN 2006-2016
  22. 22. 2Evolution of IndianAutomotive Industry2.1 Automobiles Between 1995 and 2000 several international players entered the market. While the genesis of Indian Automotive Advanced technology was introduced Industry can be traced to the 1940s, to meet competitive pressures, and distinct growth decades started in the environmental and safety imperatives. 1970s. Automobile companies started investing in service network to support Between 1970 and 1984 cars were maintenance of on-road vehicles. considered a luxury product; Auto financing started emerging as an manufacturing was licensed, expansion important driver for demand. was restricted; there were quantitative restriction (QR) on imports and a Starting in 2000, several landmark policy tariff structure designed to restrict the changes like removal of quantitative market. The market was dominated by restrictions (QR) and 100 percent six manufacturers - Telco (now Tata FDI through automatic route were Motors), Ashok Leyland, Mahindra & introduced. Indigenously developed Mahindra, Hindustan Motors, Premier (Made in India) Vehicles were introduced Automobiles and Bajaj Auto. in the domestic market and exports were given a thrust. Auto companies started The decade of 1985 to 1995 saw the entry collaboration with financial firms to of Maruti Udyog in the passenger car provide auto financing and insurance segment and Japanese manufacturers services to customers. Manufacturers also in the two wheelers and light introduced systems to improve capacity commercial vehicle segments. Economic utilization and adopted quality and liberalization, started in 1991, led to the environmental management systems. In delicensing of the passenger car segment 2003, Core-group on Automotive R&D in 1993. QR on imports continued. This (C.A.R.) was set up to identify priority decade witnessed the emergence of Hero areas for automotive R&D in India. Honda as a major player in the two wheeler segment and Maruti Udyog as 2.2 Auto Components the market leader in the passenger car segment. In 1953, the Tariff Commission in its report to Government had stressedAUTOMOTIVE MISSION PLAN 2006-2016 5
  23. 23. EVOLUTION OF INDIAN AUTOMOTIVE INDUSTRY the need for a balanced and integrated end in 1991, Government introduced development of the Automotive the MOU system that continued to place Industry by promoting the emergence emphasis on the aspect of localization of a strong auto-component sector. As of components. With support from this a result of this recommendation the policy, the component industry developed leading entrepreneurs were invited further capability to manufacture the by Government to establish an auto- new breed of auto-components required component manufacturing industry. for the new generation vehicles. In the pre-1985 era, the auto component As a result of successful localization of sector was a protected market with high these components, Vehicle manufacturers import tariffs. The market was oriented started outsourcing more and more primarily towards supply of components components rather than manufacturing to domestic manufacturers. in-house. Entrepreneurs were encouraged to develop components and set up In the 1980s, encouraged by the facilities. Whenever required, OEMs establishment of many Japanese OEMs supported component manufacturers in the passenger car, two-wheeler and through equity participation, technical LCV industry in the country, a number collaboration, etc. of Indian companies entered into joint ventures with Japanese companies and Currently the Auto component Industry exports also commenced. manufactures a wide range of products in India for both domestic consumption The Phased Manufacturing Programme and exports. The total size of the (PMP) introduced in Indian automotive component industry is close to USD sector in the 1980s for localization had 14 billion out of which USD 9.4 billion laid the foundation for the development is the domestic OEM market, USD 2.6 of auto component industry. This billion is the domestic aftermarket and programme enabled the auto-component USD 2.0 billion are the direct exports of industry to modernize its technology, components. improve quality and to imbibe good manufacturing and shop-floor practices More than 60% of the exports of auto- and to transform itself into a highly components are to Europe and USA. capable sector of the industry, while at More than 70% of the exports go to the the same time contribute to localizing the OEMs and Tier I suppliers and only 30% component base. In 1990s global OEMs to the global aftermarket, indicating the and Tier 1 suppliers started operations high level of maturity in quality and in India. This paved the way for a large technology that has been achieved by the number of new Joint Ventures in the component industry. component industry with European and American component manufacturers Currently the Auto component Industry and gave the Indian component industry manufactures a wide range of products an all-round expertise to manufacture in India for both domestic consumption components for applications in Japanese, and exports. European as well as American vehicles. After the PMP programme came to an6 AUTOMOTIVE MISSION PLAN 2006-2016
  24. 24. EVOLUTION OF INDIAN AUTOMOTIVE INDUSTRY2.3 Size of the Indian 2.3.4 The Utility Vehicles had reached a Automotive Industry production of 1,82,000 units in 2004- 05 and has gone upto 1,96,000 units in2.3.1 The Indian Automobile Industry 2005-06. The tractors production has produced 8.5 million vehicles in 2004- reached a figure of 293,000 in 2006. 05 amounting to around USD 25 billion. During the financial year 2005-06, Indian 2.3.5 Two wheelers sales have grown at 11% Automobile Industry produced more CAGR during the last decade. Over the than 9.7 million vehicles amounting to years, while the sales of motorcycles almost USD 28 billion. The growth in have increased, sales of scooters and production was 15%. India is the second moped have stagnated. With 5.82 largest market for two wheelers in the million units sold in 2005-2006 (out of world. However, in value terms, the value 7 million two wheelers), motorcycles of the market for passenger cars and CVs have replaced scooters as the preferred is higher than the market size for two mode of transport with higher load wheelers. bearing capacity (essential feature for rural areas), better fuel efficiency, better2.3.2 Sales of passenger cars and utility vehicles aesthetics thus resulting in a change in have grown at 12% CAGR over the last consumer preference/ behaviour. Last decade. However, in 2005-06 the growth year for the first time two wheeler sales rate for the passenger car segment was crossed 7 million units registering a lower than 8%. Sales of passenger cars growth of around 14%. Also, exports post 2000 have been driven by increase of two wheelers crossed half a million in the number of available models, registering a growth rate of 40%. purchasing power, especially of the middle class, easy availability of car 2.3.6 Three wheelers have also exhibited strong finance, favourable government policies growth with a CAGR of 9%. Sale of three and growth of used car market. Further wheelers has grown from 145,000 units reduction in cost of ownership would in 1995 -1996 to over 360,000 in 2005- fuel demand for passenger vehicles. 06. Last year growth in three wheeler sales was around 17%.2.3.3 Commercial vehicles sales have grown at a 4.4% CAGR over the last decade 2.3.7 Today, the Indian auto component sector and the segment has also demonstrated has over 500 organised players and about cyclical trends. In 2005-06, however, 5000 unorganised sector players. The growth was over 10% in domestic sales 500 players of organised sector reached and production. Exports have also a turnover of over USD 14 billion in picked up – registering a growth of 2005-06. Demand from OEMs account 36% over the last year. Growth in the for 67% of sales, replacement market commercial vehicle sector is dependent accounts for 19%, while exports account on the general economic trend, for over 14% at about USD 2.0 billion. development of infrastructure projects, This is exclusive of tyres, batteries and transport economics and availability of imported components. freight, replacement period of vehicles, easy availability of credit and favourable 2.3.8 Automotive retail trade and service government policies. currently comprising of a networkAUTOMOTIVE MISSION PLAN 2006-2016 7
  25. 25. EVOLUTION OF INDIAN AUTOMOTIVE INDUSTRY of 6500 automobile dealers and their by rapid urbanization and resultant rise service stations form an essential part of in demand from semi-urban and rural the automotive business. This segment areas, increasing income levels, wider has investment of over Rs. 22,000 crore, product range available to customers, provides direct employment to about and easy finance options. 4,00,000 people and contributes around Rs, 25,000 crore by way of VAT, CST, 2.4.4 The growth in tractor industry is linked service tax, road tax and other levies to with the growth in agricultural output central and state exchequers. It also has and exports to neighboring countries. significant spin off on insurance, auto finance and oil sector. 2.4.5 Auto component industry growth is directly linked to the growth of 2.4 Growth Drivers automobile industry since more than 65% sales is to the OEMs. However, in 2.4.1 Rising per capita Income and the recent years, component exports are changing demographic distribution becoming an important growth driver are conducive for growth. India has the and it is expected to assume greater highest proportion of population below importance in future. 35 years, 70%, (potential buyers), which means that 130 million people will get 2.5 Export Trends added to the working population between 2003 and 2009. The trends indicate that Compared to domestic sales, vehicle small and medium cars would remain exports have grown at the rate of 39% dominant and a shift towards high end CAGR over the last five years, led by cars is expected at a faster rate. The SUV exports of passenger cars at 57% and market is expected to develop rapidly two wheeler exports at 35%. Last year in future. Higher disposable incomes however, overall exports registered a coupled with availability of easy finance growth of around 28%. In value terms options have driven the Passenger vehicle exports crossed USD 2 billion. The key segment. destinations are the SAARC countries, European Union (Germany, UK, 2.4.2 In the commercial vehicle segment, Belgium, the Netherlands and Italy), increased investment in road Middle East and North America. Maruti infrastructure and availability of cheaper Udyog, Tata Motors and Hyundai Motor finance has led to a growth in multi-axle India are key exporters for passenger vehicles. This is expected to be followed cars; Mahindra & Mahindra and Tata by a shift to tractor-trailer combinations Motors for light commercial vehicles, on account of operating economics of medium and heavy commercial vehicles, higher power-to-weight ratio vehicles. Mahindra & Mahindra for MUVs, Bajaj Growth in the demand for pick-up trucks Auto for two and three wheelers and has coincided with the growth in multi- Mahindra & Mahindra and TAFE for axle vehicles. The next growth driver for tractors. A 3% growth in global demand LCVs is expected to be the introduction is anticipated over the next five years and of lighter pick-ups. it will be led by Asia (mainly by China, India and ASEAN). Also global auto 2.4.3 The two wheeler segment growth is led companies are increasingly sourcing8 AUTOMOTIVE MISSION PLAN 2006-2016
  26. 26. EVOLUTION OF INDIAN AUTOMOTIVE INDUSTRY Figure 01: What does the output mean in term of investments? Fixed asset turnover Four-Wheelers : 1.5-2 (1) $ 35-40 billion (1) (Rs. 160,000 - 180,000 Auto-components : 1.1-2.4 Implies (3) crores) incremental investments by 2015 India transportation sector : 0.86 (2) Note: (1) Sales/Gross Block for FY 2002 - Source: IMaCS analysis (2) ASI - 2002 (3) Assuming a fixed asset turnover of about 2 - 2.25 Source: SIAM & ACMA components and vehicles from low cost emissions and crash standards. countries. The outsourcing pie is slowly extending to services like engineering 2.6.2 It is expected that the world production design and other business processes. of Auto-Components would reach USD India is well positioned to take advantage 1.7 Trillion by 2015. About USD 700 of the outsourcing opportunities. billion worth of auto-components shall be sourced out from low cost countries2.6 Growth potential of Indian (LCCs) by 2016. If India targets to get Automotive Industry a 10% share of this potential, it would mean USD 70 billion, nearly five times2.6.1 Automotive Industry offers huge growth current total size of the industry in India. potential in terms of sales volume However, this Mission Document has (including exports) and also immense set a modest target of USD 25 billion by employment opportunities. The likely 2016 for export of auto components. future volumes of different vehicle categories were estimated on the basis of 2.6.3 The projected size in 2016 of the Indian projections made by iMaCS, NCAER and automotive industry varies between AT Kearney. Value of projected domestic USD 122 billion and USD 159 billion output was computed based on historical including USD 35 billion exports. This average vehicle prices. Export potential translates into a contribution of 10-11% was estimated on the basis of current to India’s GDP by 2016, that is, double trends and possible opportunities in the current contribution. This would major export destinations. Demand for mean a domestic vehicle market of USD after-market auto components and export 82 billion to USD 119 billion by 2016, output was also included in computing USD 12 billion exports of vehicles and growth potential of the industry. The tractors, USD 20-25 billion component unit value of different vehicle categories exports and more than USD 5 billion in 2016 have been estimated keeping after market of components. Another in view the need for compliance with USD 2 – 2.5 billion in engineeringAUTOMOTIVE MISSION PLAN 2006-2016 9
  27. 27. EVOLUTION OF INDIAN AUTOMOTIVE INDUSTRY services outsourcing opportunity is will not only be an opportunity, but expected to develop. The total size of getting adequately trained personnel will the auto component industry in India is become a major challenge. expected to become USD 40-45 billion by 2016. This calls for a major focus and 2.7 Areas to Focus policy initiative to market India as an attractive “Manufacturing Destination”. The future challenge for Indian automobile industry would be to develop 2.6.4 The output estimated would require a supply base with emphasis on lower incremental investment of USD 35-40 costs and economies of scale, develop billion (Rs 160,000 -180,000 crores) by technical and human capabilities, 2016 as indicated in Figure 01. overcome infrastructural bottlenecks, stimulate domestic demand and exploit 2.6.5 The automotive industry also promises export and international business significant employment opportunities. opportunities. The key to success is to Large number of workers, both skilled achieve the critical mass that would and unskilled, will be required to sustain make India competitive and profitable increased level of production. A large part for sustained investments. Keeping of the employment would also be indirect, these in view, the identified challenges for sales, finance, insurance, mechanics and interventions are in the areas of and other after-sales personnel for both competitiveness in manufacturing and semi-skilled and unskilled workers in flow of technology; demand, brand rural and semi-urban areas. While direct building and infrastructure; export and employment is by way of workers engaged international business; environmental in the production of automobiles and and safety standards, and human auto components, indirect employment is resources development. A key deficiency generated in feeder and supplier industries that needs to be addressed for attaining to the automotive industry, such as the the vision is to improve competitiveness vehicle financing and insurance industry, in manufacturing. Systemic deficiencies vehicle repair, service and maintenance could be overcome through a long-term outfits, automobile and auto component and stable policy regime that will support dealers and retailers, vehicle drivers, tyre the industry to fulfill its potential. industry, amongst others. It is estimated that, on a conservative basis, 5.3, 13.3, 2.8 Competitiveness in 0.5 and 3.9 units of direct and indirect manufacturing employment are generated per unit of car, CV, 2-wheeler and 3-wheeler produced 2.8.1 The share of manufacturing sector respectively. This translates into an (within the Industry sector) has shown additional employment generation of 25 only a marginal improvement from million by the automobile industry by 16.6% in 1991 to 17% of Indian GDP 2016. 2003. In comparison, in some East Asian economies the share of manufacturing 2.6.6 Specialists in the areas of R&D, has ranged from 25% to 35% of their technology, product development, GDP. It is known that stagnation of logistics and operations would also be manufacturing as a proportion of GDP required. Availability of such requirements has adverse impact on employment10 AUTOMOTIVE MISSION PLAN 2006-2016
  28. 28. EVOLUTION OF INDIAN AUTOMOTIVE INDUSTRY generation. Therefore it is imperative (ii) Higher incidence of indirect taxes to boost manufacturing given the huge (iii) Sub-optimal levels of operations anticipated increase in the workforce (iv) Lower operational efficiencies and over the next 15 years. Higher transaction costs (v) Lower labour productivity and2.8.2 As observed by the National Higher cost of capital Manufacturing Competitiveness (vi) Inadequate infrastructure Council in its national manufacturing strategy, the challenges faced by Indian 2.8.5 In a survey of corporates, the following manufacturers raise important questions factors were ranked on the basis of the for both Industry and Government “.... responses: this calls for ‘breakthrough’ and bold thinking on the part of all stakeholders. (i) Flexibility in labour laws Only bold aspirations can enable India (ii) Scale of operations benefit from emerging opportunities in (iii) Cost of capital the manufacturing sector”. (iv) Cost, availability and quality of raw materials2.8.3 In a Global Competitiveness Survey of (v) Technology gap with international 104 countries India ranked only 55th. In levels terms of macroeconomic environment, (vi) Power costs public institutions and technology, India (vii) Cost of compliance to government ranked 52, 53 and 63 respectively. On regulations location attractiveness for manufacturing, (viii) Quality of transport infrastructure India ranked 43 while other regional countries like China, Singapore and Hong 2.8.6 The key factors that contribute to Kong ranked 39, 11 and 6 respectively. competitiveness of a country or a The productivity in automotive industry location can be summarized as shown in in India is substantially higher than the Figure 02. other sectors and it has a huge potential for further improvement, which in turn The availability of low cost quality will pull up the competitiveness of entire manpower and presence of a sizeable manufacturing sector. Hence it becomes auto industry, availability of raw material, imperative to identify factors that make and stable economy contribute to India’s manufacturing in India un-competitive strengths. and address these and improve our competitiveness. 2.8.7 But manufacturing in India suffers from disadvantages as was stated earlier.2.8.4 The National Manufacturing As a result, auto sector in India is less Competitiveness Commission’s National competitive as compared to competing Manufacturing Strategy lists the following countries like China and Thailand. factors impacting manufacturing competitiveness: 2.8.8 In a study commissioned by SIAM, ICRA Advisory Services evaluated the (i) Higher import duties including Indian and Chinese economies from an inverted duty structure on raw automotive manufacturing perspective. materials The following policy initiatives fromAUTOMOTIVE MISSION PLAN 2006-2016 11
  29. 29. EVOLUTION OF INDIAN AUTOMOTIVE INDUSTRY Figure 02: Key factors Labour Productivity cost Efficiency factor Labour Flexibility Capital efficiency / other production factors Quality Manpower Resource Availability Infrastructure Raw Materials Economic Policies & Stability Ability to attract Investment Incentives Domestic / Exports Proximity to Markets Auto clusters Source: IMaCS Limited Study for SIAM & ACMA the Chinese Government have been or business but work time to be identified as driving its manufacturing prolonged should not exceed 36 and investment leading to stupendous hours a month. growth: (xi) Low interest rates (xii) Availability of reliable and quality (i) Creating world class physical power; no need to invest in DG infrastructure – road networks, sets ports, railways and airports (xiii) Large capacity additions annually (ii) Government responsiveness to that keep pace with growth business needs (administration that (xiv) Requirement of minimum facilitates business) investment in industry and R&D. (iii) Reduction and simplification of direct and indirect taxes 2.8.9 A cost comparison study between Indian (iv) Lowered rate of income tax and Chinese automotive manufacturing (v) 17% uniform VAT, ensuring no companies to identify factors and cascading taxes or duties their magnitude that impact auto (vi) Ensuring no location based tax manufacturing in India vis-à-vis auto exemptions and barriers to inter- manufacturing in China reveals that the state movement of goods cost of manufacture of a passenger vehicle (vii) Creating flexible and investor in China is 23% lower than in India with friendly labour laws the principal difference owing to higher (viii) Companies can retrench labour taxes and their cascading impact in India. and pay productivity-based wages Higher labour productivity and lower (ix) No trade unions in SEZs infrastructural costs makes China more (x) Employers can prolong work competitive. The study also revealed that hours due to needs of production since design and engineering capabilities12 AUTOMOTIVE MISSION PLAN 2006-2016
  30. 30. EVOLUTION OF INDIAN AUTOMOTIVE INDUSTRY in India have not been as strong there 2.10 Demand creation, brand building would be a disadvantage of 30% higher and infrastructure costs for products manufactured in India. While some of the above issues like scale 2.10.1 In order to raise the contribution of of operations and labour productivity automotive industry to GDP from 5.2% are industry or company related, others to 10%, there has to be a focus both on are identified for improvement and the domestic market as well as exports. strengthening by the Government. Domestically the focus should be on developing and selling appropriate2.9 Prescriptions for Industry in the products for the large population of the National Manufacturing strategy country. These products could include cost effective small carriers, strong,2.9.1 The National Manufacturing Strategy rugged, low cost vehicle for the rural has indicated that Industry would not market, USD 300-350 motorbikes and only need to think big in terms of scale small, safe four wheelers for family but also need to: transport. For exports, the focus should be on new geographies for growth (i) Invest in R&D and technology beyond traditional markets. (ii) Have a continuing commitment for skills development and education 2.10.2 India’s GDP is expected to grow from (iii) Benchmark their performance USD 650 billion to USD 950 billion in against best in the industry 2010 and USD 1390 billion in 2016. (iv) Adopt best manufacturing practices Automotive industry’s contribution in and production techniques these years is expected to rise from USD 34 (v) Deliver on globally acceptable quality billion to USD 69 billion and to USD 145 levels billion respectively. These translate into a contribution to GDP to grow from the2.9.2 In light of the above scenario and goal current 5.2% to 7.2% and 10.4% in 2010 of making India a hub for small cars, and 2015. Secondly, the challenge lies in MUVs, two & three wheelers, tractors and developing appropriate infrastructure to components, it becomes essential to focus sustain this growth. Also, important would on the automotive sector and develop a be to establish brand image not only in policy specific to the sector which addresses the domestic market but internationally all the constraints. Investment in R&D for also. An appropriate policy for attracting technology development will become one investment would ensure realization of of the most important aspects of future the potential. Government is aiming strength of this industry. Given India’s for creating suitable stable, predictable, strength in having the skill sets required and sustainable policy environment and to promote technological development, partnering with industry to look beyond the industry needs to invest in research borders. and development to increase innovative breakthroughs for vehicle design as well 2.11 International Business (Exports) as in manufacturing technology and incentivisation of such investments will be Export opportunities for four wheelers needed on the part of the Government. would lie primarily in the small car segment as Indian companies have gainedAUTOMOTIVE MISSION PLAN 2006-2016 13
  31. 31. EVOLUTION OF INDIAN AUTOMOTIVE INDUSTRY expertise in manufacturing vehicles in this be developed as the current roadmap segment and enjoy an advantage over other is only up to 2010. Alternative fuels low cost countries. India should capitalize like Hydrogen and bio fuels need to be on this expertise and target becoming a promoted to ensure sustainability of the manufacturing hub for A/B class vehicles. industry over the long term. This is already being leveraged by OEMs like Hyundai with Santro, Suzuki with 2.13 Human Resource Development Maruti 800/Alto and Tata Motors with Indica. The exports in respect of Multi 2.13.1 Employment is always a major factor Utility Vehicles, Three wheelers and Two when measuring the significance of wheeler are expected to become substantial any economic activity. The automotive in the coming years. Export of other industry, on account of its backward and vehicle categories will be largely driven forward linkages, is a significant generator by strategies of individual companies. of employment - both direct and indirect. Incentivising the exports, encouraging While direct employment is by way development of domestic competitiveness, of workers engaged in the production establishing ‘Made-in-India’ brand are of automobiles and auto components, some of the initiatives required to promote indirect employment is generated in feeder International business. and supplier industries to the automotive industry, such as the vehicle financing and 2.12 Environment and Safety insurance industry, vehicle repair, service Regulations and maintenance outfits, automobile and auto component dealers and retailers, Emission norms came into force with vehicle drivers and cleaners, tyre industry, the Idle Emission Norms in 1984. Mass amongst others. Thus steps are needed to Emission Norms were introduced in ensure that demand – supply gap, both 1991 for petrol vehicles and in 1992 quantitative and qualitative, in terms of for diesel vehicles. These norms have human resources, does not arise. been progressively made stringent and India has followed the European 2.13.2 The need of engineering and managerial emission standards and test procedures. manpower is being met by IIT and IIM. Environment concerns led to India The setting up of a specialized institute for narrowing the gap with Euro norms at a industry will add to the competitiveness rapid pace and currently BS-II or Euro II of the Industry. The institute, besides equivalent norms are in force throughout developing as a repository of knowledge the country and BS-III or Euro-III norms in the field, will also take up market in eleven cities. Two Wheelers which play research and analysis within and outside the unique role of family vehicles in India the country. It will also develop training comply with stringent emission norms modules and will disseminate them while at the same time satisfactorily through ITIs and ATIs. The Investment meeting the Indian customer demand Commission has also identified this for fuel efficiency. Idle emission norms input as requirement for the industry. applicable to in-use vehicles have also been The adoption of existing training tightened. The need is for an appropriate institutes by OEMs and setting up of in-use vehicle management policy. Also, new training institutes by them will be a long term emission roadmap needs to promoted.14 AUTOMOTIVE MISSION PLAN 2006-2016
  32. 32. AUTOMOTIVE MISSION PLAN 2006-2016Indian Automotive Industry: An overviewAUTOMOTIVE MISSION PLAN 2006-2016
  33. 33. AUTOMOTIVE MISSION PLAN 2006-201616 AUTOMOTIVE MISSION PLAN 2006-2016
  34. 34. 3Indian Automotive Industry:An overview3.1 Automotive Industry, globally, as well industry, especially over a period of time, in India, is one of the key sectors of and particularly after liberalization, has the economy. Due to its deep forward installed a robust capacity. The installed and backward linkages with several key capacity in different segments of segments of the economy, automotive automobile industry is given in Table 02. industry has a strong multiplier effect and acts as one of the key drivers of economic 3.3 The production of all categories of growth. The well-developed Indian vehicles has grown at a rate of 16% per automotive industry produces a wide annum over the last five years. The last variety of vehicles: passenger cars, light, 5 years production figures are given in medium and heavy commercial vehicles, Table 03. multi-utility vehicles such as jeeps, scooters, motor-cycles, mopeds, three 3.4 Export of Vehicles: Indian automotive wheelers, tractors and other agricultural industry is now finding increasing equipment etc. The sector has high recognition worldwide. While a potential for providing employment. beginning has been made in export of This will increase the present level of vehicles, the potential in this area still employment in manufacturing sector remains to be fully tapped. Significantly, which presently is quite low at 12% as during the last two years the export in this compared to the countries like Malaysia sector has grown specifically in export of (50%); Korea (62%) and China (31%). cars and two / three wheelers. The table 04 indicates the performance during last3.2 Installed capacity: The automobile six years. Table 02 Installed Capacity in Different The automobile exports crossed USD Segments in nos. 1 billion mark in 2003-04 and reached USD 2.28 billion in 2005-06. S.No. Segment Installed Capacity 3.5 Indian auto component industry is quite 1. Four Wheelers 1,590,000 robust with around 500 firms in the 2. Two & Three Wheelers 7,950,000 organised sector producing practically all parts and more than 10,000 firms in Grand Total 9,540,000 small unorganised sector, in tierizedAUTOMOTIVE MISSION PLAN 2006-2016 17
  35. 35. INDIAN AUTOMOTIVE INDUSTRY: AN OVERVIEW Table 03 Automobile Production (in nos.) Category 2001-02 2002-03 2003-04 2004-05 2005-06 Passenger Cars 564,052 608,851 842,437 960,505 1,045,881 Multi Utility Vehicles 105,667 114,479 146,103 249,149 263,032 Commercial Vehicles 162,508 203,697 275,224 350,033 391,078 Two Wheelers 4,271,327 5,076,221 5,624,950 6526,547 7600,801 Three Wheelers 212,748 276,719 340,729 374,414 434,424 Total 5,316,302 6,279,967 7,229,443 8,460,648 9,735,216 Percentage growth 11.70 18.60 15.12 16.80 15.06 Source: SIAM format. The auto component sector completely Indian made vehicles like has been one of the fastest growing the Tata Indica, Tata Indigo, Mahindra segments of auto industry. The Industry Scorpio, Bajaj Pulsar, TVS Victor and also sustained a high growth rate TVS star. The component industry has and could achieve growth of 20% in now holistic capability to manufacture 2001-02, 18.20% in 2002-03, 19.92% the entire range of auto-components e.g. in 2003-04, 25.65% in 2004-05 and Engine parts, Drive, Transmission Parts, 18.08% in 2005-06. The industry, over Suspension & Braking Parts, Electricals, the years, developed the capability of Body and Chassis Parts, Equipment etc. manufacturing all components required The component-wise share of production, to manufacture vehicles, which is evident is Engine parts-31%, Drive and from the high levels of indigenisation Transmission Parts-19%, Suspension & achieved in the vehicle industry as well Braking Parts-12%, Electricals-9%, Body as the components developed for the and Chassis Parts-12%, Equipment-10%. Table 04 Automobile Export (in nos.) Category 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Passenger Cars 22,990 50,088 70,828 126,249 160,677 170,193 Multi Utility Vehicles 4,122 3,077 1,177 3,067 5,736 5,579 Commercial Vehicles 13,770 11,870 12,255 17,227 29,949 40,581 Two Wheelers 111,138 104,183 179,682 264,669 366,724 513,256 Three Wheelers 16,263 15,462 43,366 68,138 66,801 76,885 Total 168,283 184,680 307,308 479,350 629,887 806,494 Percentage growth 09.74 66.40 55.98 31.40 28.03 Source: SIAM18 AUTOMOTIVE MISSION PLAN 2006-2016
  36. 36. INDIAN AUTOMOTIVE INDUSTRY: AN OVERVIEW3.6 Over the last few years the Indian Auto 30% was to the aftermarket. This signifies Component Industry has created a that the Indian component industry has robust capacity base and all of the world’s now reached a high degree of maturity major manufacturers have set up their in terms of quality and productivity and manufacturing units in the country. has also developed capabilities in the The high quality of the components area of design and engineering, which produced by the component industry in are critical requirements for being a part the country is recognized by the fact that, of the global supply chain. out of the 498 ACMA members, 9 are Deming Prize winners, 4 are JIPM award 3.9 Indian auto component manufacturing, winners and 1 is Japan Quality Medal currently constrained by lack of large winner. capacities, is slowly but steadily working on expanding capacities and automation3.7 Growth Trends: The turnover of auto levels. As the users increasingly become component sector has grown from a discerning in their buying behavior, level of USD 3.1 billion in 1997-98 to new model introduction by the auto USD 9.8 billion in 2003-04. Low labor manufacturers has become the trend. costs, availability of skilled labor and Greater variety in vehicle is offering high quality consciousness among challenges to the manufacturing Indian vendors have spurred the growth capabilities and economies of scale of auto component exports from India. of component suppliers. Hence the During 2003-2004, the exports of auto- component industry is constantly components crossed the magic figure looking at maintaining lean and of USD 1 billion after having recorded efficient manufacturing systems. Having a healthy growth of 25%. During the established themselves in the domestic year 2004-2005, the exports grew by market, tapping opportunities abroad 40% thereby taking the direct exports of was a natural step for the auto component components to a level of USD 1.4 billion. manufacturers in their growth path. In the year 2005-06 exports grew by 28% The Indian auto component industry and reached the level of USD 1.8 billion. is targeting a bigger share of the export It is pertinent to mention here that this market and is in the process of ramping figure is still very low against the volume up its manufacturing capabilities to meet of world trade of 185 billion USD in auto the capacity and quality requirements. components. During 2004, the auto component industry increased its investment by3.8 More than 60% of the exports of auto- 17% while the automation processes in components go to USA and Europe, which this industry registered a growth of over constitute high AQL (Accepted Quality 40%. Level) countries. Moreover, over the last 5 years, the structure of the customer base 3.10 The Indian Tractor Industry: India is one in the global markets has also undergone of the largest manufacturers of tractors in a major change. In the 1990s more than the world. The tractor industry reached 80% of the exports were made to the a production of 2,48,000 units in 2004- international aftermarket. In 2005, more 05 and increased up to 2,93,000 units in than 70% of the exports to the global 2005-06. The government focus on the OEMs and Tier 1 companies and only agricultural economy, with increasedAUTOMOTIVE MISSION PLAN 2006-2016 19
  37. 37. INDIAN AUTOMOTIVE INDUSTRY: AN OVERVIEW rural lending ensuring availability of car growth in the domestic market is cheap finance, led to this growth. The on the verge of a major and sustained exports stood at 20,000 units in 2004-05 boom. It is expected that the passenger and 28,000 in 2005-06. Indian market is car market which was 1 million in 2003- dominated by 31-40 HP tractors followed 2004 can easily cross the 3 million mark by 41-50 HP. The tractor industry has 14 by 2015. This can lead to an increase in players, including three MNCs, and is the size of the domestic auto-component led by Mahindra & Mahindra Ltd. The market from the current level of USD industry is growing at the rate of 5% to 9.8 billion (2005-06) to at least USD 15 6% a year. The demand for tractors is billion by 2015. likely to be driven by thrust on increase in area under irrigation, increased rural 3.12.2 Need for innovation: The competitiveness connectivity, and enhanced farm credit in the sector will largely depend on the facilities. capacity of the industries to innovate and upgrade. The industry will also benefit if 3.11 The Indian Tyre Industry: India is one of it has strong domestic competition, home the few countries which has attained self- based suppliers and demanding local sufficiency in tyre production barring customers. There is no denying the fact the production of few special types of that the factors like labour cost, duties, vehicles tyres, air-craft tyres, and snow interest rate and economies of scale are tyres. India has constantly been exporting the most important determinants of tyres to almost 65 countries. The total competitiveness. But productivity is the installed capacity is 850 lakh units against prime determinant of the competitiveness which 650 lakh units were produced in and also impacts the national per the year 2005-06 of which 620 lakh units capita income. The globally successful were consumed domestically. In tonnage OEMs and auto makers will ultimately terms the production in the year 2005-06 make their base in places which are was 11.17 lakh metric. tons. The industry high on productivity factor and where is expected to grow at an average rate of essential competitive advantages of the 7% per annum during Eleventh Five- enterprise can be created and sustained. Year Plan period. The total turnover of It would also involve core products the tyre industry is Rs. 13,500 crores out and process technology creation apart of which tyres worth Rs. 2300 cores were from maintaining productive human exported in the year 2005-06. resource and reward for advanced skills. The OEMs also look for the policies of 3.12 Major Challenges: the state which stimulates innovations in new technologies. 3.12.1 Sustaining the growth rate: There is a potential for much higher growth in the 3.12.3 Enhancement of share of auto domestic market due to the fact that the component in global trade: The global current car penetration level in India is auto component industry is estimated to just 7 cars per thousand persons. The be USD 1.2 trillion in value and is likely increase in purchasing power at the top to increase to USD 1.7 trillion by 2015. echelon of about 300 million people in Sourcing from low cost countries is likely the country, where the per capita income to increase from USD 65 billion in 2002 is over USD 1000, implies that passenger to USD 375 billion by 2015. Although20 AUTOMOTIVE MISSION PLAN 2006-2016
  38. 38. INDIAN AUTOMOTIVE INDUSTRY: AN OVERVIEW India’s exports are still small (USD 1.8 some of the objectives like imposition Billion in 2005-06), it has opportunity of excise duty on body building to leverage this trend by expanding its activity of Commercial Vehicles, supply base to build dominant position lower excise duty on the small amongst auto component low cost cars, extension of 150% weighted countries by 2015. A position in the deduction on R&D expenditure to top two would enable India to achieve the automotive sector, increased export of USD 20-25 billion by 2015. budgetary allocation for R&D This would increase India’s share of activities in the sector and moving world auto component trade from 0.9 towards a lower duty regime have percent in 2005-06 (Provisional) to 2.0- been achieved and steps are being 2.5 percent by 2015, inclusive of domestic taken to further strengthen the consumption. Such a high growth in capability of the sector. the Auto component Sector is expected to lead to an additional 750,000 direct (iii) NationalAutomotiveTestingandR&D jobs in tiny sector alongwith indirect Infrastructure Project (NATRIP): employment of 1.8 million people over The most critical intervention of the next 10 years. In addition to creating the Government thus far in the incremental employment of about 2.5 automotive sector has come in the million people in direct and indirect form of an ambitious project on jobs, it is also expected to result in an setting up world-class automotive incremental revenue of USD 3.8 billion testing and R&D infrastructure to the exchequer. Investments in this in the country to deepen sector would also grow by USD 15 manufacturing, encourage localized billion from the current level of USD 3.1 R&D, boost exports, converge billion. India’s unparalleled strengths in IT and electronics with automotive3.13 Recent initiatives of the Government engineering sectors to firmly place India in USD six trillion global3.13.1 In order to give a boost to the growth in automotive business. NATRIP aims this sector, the Government has taken at facilitating introduction of world- several initiatives. Some of them are as class automotive safety, emission and under. performance standards in India and also to ensure seamless integration (i) The Finance Bill 2006 has given a of Indian automotive industry with further boost to the Automotive the global industry. The project Industry by reduction of the excise aims at addressing one of the most duty on the small motor vehicles, critical handicaps in the overall the reduction in the duty for raw growth of automotive industry material which is now between 5 to today, i.e. major shortfall of testing 7.5% as compared to the previous and pre-competitive common R&D level of 10%, and the thrust on infrastructure. National Automotive infrastructure development. Testing and R&D Infrastructure Project envisages setting up of the (ii) As a result of constant persuasion by following facilities:- the Department of Heavy Industry,AUTOMOTIVE MISSION PLAN 2006-2016 21
  39. 39. INDIAN AUTOMOTIVE INDUSTRY: AN OVERVIEW (a) A full-fledged testing, certification (d) World-class proving grounds or and homologation centre within the testing tracks on around 4,000 acres northern hub of automotive industry of land at Pithampur in Madhya at Manesar in the State of Haryana; Pradesh; (b) A full-fledged testing, certification (e) National Centre for Testing of Tractors and homologation centre within the and Off-Road Vehicles together with southern hub of automotive industry national facility for accident data at a location near Chennai in the State analysis and specialized driving of Tamil Nadu; training at Rae Bareilly in the State of Uttar Pradesh; and (c) Up-gradation of existing testing, certification and homologation (f) National Specialized Hill Area Driving facilities at Automotive Research Training Centre as also Regional In- Association of India (ARAI), Pune and Use vehicle management Centre at at Vehicle Research and Development Dholchora (Silchar) in the State of Establishment (VRDE), Ahmednagar; Assam. t t t t t22 AUTOMOTIVE MISSION PLAN 2006-2016
  40. 40. AUTOMOTIVE MISSION PLAN 2006-2016The Automotive Mission PlanAUTOMOTIVE MISSION PLAN 2006-2016
  41. 41. AUTOMOTIVE MISSION PLAN 2006-201624 AUTOMOTIVE MISSION PLAN 2006-2016

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