International Journal of Commerce and Management Research

International Journal of Commerce and Management Research

ISSN: 2455-1627, Impact Factor: RJIF 5.22
www.managejournal.com
Volume 3; Issue 8; August 2017; Page No. 06-10

Growth of automobile industry and its economic impact: An Indian perspective

Vandana Singh
Research Scholar, MMAJ, Academy of International Studies, Jamia Millia Islamia Central University, New Delhi, India

Abstract
The automobile industry is a prominent part of the manufacturing sector and considered to be an indicator of economic development
of any country. It is also a technology and knowledge intensive industry because it demands high performance and quality parts. In
India also the automobile industry occupies a prominent place due to its deep forward and backward linkages with many key
segments of the economy. This industry has a strong multiplier effect and is capable of being the driver of economic growth. The
performance of the automobile industry can be correlated to the health of the economy.
A sound transportation system, to which the automobile industry is linked, plays a pivotal role in the country’s rapid economic and
industrial development. The prime objective of this paper is to analyse the growth pattern and economic impact of automobile
industry on Indian economy.

Keywords: automobile, India, export, production, FDI and employment

Introduction export markets of India’s automobile include United Kingdom,

An elementary automobile industry emerged in India in the largest export market followed by Italy, Germany,
1940’s. Almost after a decade leading entrepreneurs and the Netherlands and South Africa; some other export markets are
government in the independent India have extended efforts to United States, Mexico, United Kingdom, Sri Lanka,
create a manufacturing industry. However, the growth was Bangladesh, Turkey, Nigeria, United Arab Emirates, Colombia
relatively slow in 1950s and 1960s due to the license raj. The etc.
Automotive firms were required to obtain licenses from Indian
government for entry expansion, diversification and relocation. Objectives
Total restrictions for import of vehicles were set and after 1970  To analyse the growth of Indian automobile industry.
the automotive industry started to grow, but the growth was  To study the economic impact of growth of automobile
mainly driven by tractors, commercial vehicles and scooters; industry on Indian economy.
cars were still a major luxury item. By the 1980, the automobile
market was still dominated by Hindustan and premier, who Research Methodology
sold superannuated products in fairly limited number. Data collection
During the eighties, a few competitors began to arrive on the Methodology was adopted in accordance to the above
scene, multinational automakers such as Suzuki and Toyota of mentioned objectives. The present research study is conducted
Japan and Hyundai of South Korea, were allowed to invest in on the basis of primary as well as secondary sources data and
Indian market. Maruti Suzuki was the first and the most information published by several governmental and private
successful of these new entries. The partial liberalisation of institutions namely SIAM (Society of Indian Automobile
1980s and the introduction of new economic policy in 1991 Manufactures), DIPP (Department of Industrial Policy and
have put the industry on the fast track of development. The Promotion), IBEF (India Brand Equity Foundation), BCG (The
central government reduced the intervention of government Boston Consulting Groups), Ernst & Young etc.
and promoted deregulation in the automobile industry.
Following this, a number of foreign firms also initiated joint Data Analysis Technique
ventures with existing Indian companies. GM (General Data can be analysed with the help of statistical tool like
Motors), Ford, Daewoo were early entrants establishing local average, Percentage, CAGR (Compound Annual Growth
operations in India. Indigenous production of cars started since Rate), AAGR (Average Annual Growth Rate), correlation,
than with an eye to the domestic and international market trend analysis line and bar graph etc.
needs.In 2002, the Indian government formulated an auto
policy that aimed at promoting an integrated, phased and self- India’s Automobile Production
sustained growth of Indian automotive industry with higher The core automotive industry supports wide range of
fiscal incentives for R&D (Research and Development). In the businesses segments, both upstream and downstream, along
same year the Indian government approved the 100 percent with adjacent industries. This leads to multiplier effect for
foreign ownership of manufacturing operations in India. growth and economic development. Automotive contributes to
The top India manufactures are Tata Motors, Maruti Suzuki, several important dimensions of nations building: generating
Hyundai, General Motors India, Toyota Kirloskar Motors, government revenue, creating economic development,
Skoda Auto India, Ashok Leyland, Mahindra & Mahindra, encouraging people development and fostering R&D and
Eicher, Bajaj, Honda, Ford India, Fiat India and so on. Major innovation.
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Table 1: Automobile Production Trends (Number of Vehicles)

Category Annual Annual Annual Annual Annual
Passenger Commercial Three Two Grand
Growth Growth Growth Growth Growth
Vehicles Vehicle Wheelers Wheelers Total
Year Rate % Rate % Rate % Rate % Rate %
2004-05 1209876 - 353703 - 374445 - 6529829 - 8467853 -
2005-06 1309300 8.21 391083 10.56 434423 16.01 7608697 16.52 9743503 15.06
2006-07 1544850 17.99 520000 32.96 556124 28.01 8444168 10.98 11065142 13.56
2007-08 1777583 15.06 549006 5.57 500660 -9.97 8026681 -4.94 10853930 -1.90
2008-09 1838593 3.43 416870 -24.06 497020 -0.72 8419792 4.89 11172275 2.93
2009-10 2357411 28.21 567556 36.14 619194 24.58 10512903 24.85 14057064 25.82
2010-11 2982772 26.52 760735 34.03 799553 29.12 13349349 26.98 17892409 27.28
2011-12 3146069 5.47 929136 22.13 879289 9.97 15427532 15.56 20382026 13.91
2012-13 3231058 2.70 823649 -10.38 839748 -4.49 15744156 2.052 20647611 1.30
2013-14 3087973 -4.42 699035 -16.04 830108 -1.14 16883049 7.23 21500165 4.12
2014-15 3232419 4.67 698298 -0.10 949019 14.32 18489311 9.51 23358047 8.64
AAGR 10.78% 9.08% 10.56% 11.36% 11.07%
CAGR 10.32% 7.03% 9.74% 10.96% 10.67%
Source: SIAM (compiled by researcher).

The Table 1 shows that the Indian automobile industry two-wheeler manufacture, fifth largest producer of commercial
produced around 8.46 million vehicles in FY (Financial Year) vehicle, fourth largest manufacture of passenger car and the
2004-05. During the FY 2014-15 this industry produced 23.35 largest manufacture of tractor.
million vehicles. The sector shows AAGR (Average Annual
Growth Rate) of 11.7 percent and CAGR (Compound Annual FDI (Foreign Direct Investment) in India’s Automobile
Growth Rate) of 10.6 percent over FY 2004-15. Two-wheeler Sector
vehicle segment was the fastest growing segment, representing FDI inflows to automobile industry in India have been
a CAGR of 10.96 percent followed by passenger vehicle increasing year on year at fast rate and this sector ranked
segment with a CAGR of 10.32 percent between FY 2004-15. seventh among the top ten sectors attracting highest FDI
Two-wheeler market share accounts for about 79 percent of the inflows. FDI in this sector brings investment in the related
total automobile production in the county. India’s auto industry industries and can lead the development of a broad automotive
is the world’s sixth largest producer of automobile in terms of environment.
volume and value. Further, India is the Asia’s second largest

Table 2: FDI in Automobile Industry

Total FDI Inflows FDI Inflows in automobile sector Share of automobile FDI inflows in total FDI
Year CAGR
(Cr) (Cr) inflows %
2007-08 98642 2697 2.7
2008-09 142829 5212 3.6
2009-10 123120 5893 4.7
2010-11 97320 5864 6.0
2011-12 165146 4347 2.6
25.34
2012-13 121907 8384 6.8
2013-14 147518 9027 6.1
2014-15 189107 16760 8.8
2015-16 262322 16437 6.2
Total 1347911 74621 5.5
Source: DIPP

Total FDI inflows received during 2007-16 were Rs.1347911 which is 5.5 percent of the total FDI inflows. During 2007-016
Cr. (Table 2) Out of this the amount of FDI inflows in FDI inflows in automobile industry registered a CAGR of 25.3
automobile industry during the same period is Rs.74621Cr., percent.

Table 3: Correlation Analyses between FDI in Automobile Industry and Total Output
FDI Inflows in automobile sector (Cr) Total production (Cr) (No. of vehicles) Coefficient of correlation between
Year
X Y X and Y
2007-08 2697 1085
2008-09 5212 1117
2009-10 5893 1405
2010-11 5864 1789
2011-12 4347 2038
2012-13 8384 2064 r = 0.714006
2013-14 9027 2150
2014-15 16760 2335
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In Table 3 FDI Inflows in automobile sector is taken as “X” and Y, which is + 0.71. This shows a high degree of positive
and Total production by automobile industry is taken as “Y” correlation between the two.
during 2007-15, “r” is the Coefficient or correlation between X

Export by India’s Automobile Sector

Table 4: Automobile Export Trends (Number of Vehicles)

Category Annual Annual Annual Annual Annual
Passenger Commercial Three Two Grand
Growth Growth Growth Growth Growth
Vehicles Vehicle Wheelers Wheelers Total
Year Rate % Rate % Rate % Rate % Rate %
2004-05 160677 - 29940 - 66795 - 366407 - 623819 -
2005-06 170193 5.92 40600 35.60 76881 15.09 513169 40.05 800843 28.37
2006-07 189347 11.25 49766 22.57 143896 87.16 619187 20.65 1002196 25.14
2007-08 218401 15.34 58994 18.54 141225 -1.85 819713 32.38 1238333 23.56
2008-09 335729 53.72 42625 -27.74 148066 4.84 1004174 22.50 1530594 23.60
2009-10 446145 32.88 45009 5.59 173214 16.98 1140058 13.53 1804426 17.89
2010-11 444326 -0.40 74043 64.50 269968 55.85 1531619 34.34 2319956 28.57
2011-12 507414 14.17 92663 25.14 362876 34.41 1947198 27.13 2910055 25.43
2012-13 559414 10.26 80027 -13.63 303088 -16.47 1956378 0.47 2898907 -0.38
2013-14 593507 6.094 77056 -3.71 533392 75.98 2083938 6.52 3107893 7.20
2014-15 653053 10.03 86939 12.82 407600 -23.58 2457466 17.92 3573346 14.97
AAGR 15.92% 13.97% 24.84% 21.55% 19.43%
CAGR 15.05% 11.24% 19.82% 20.96% 19.06%
Source: SIAM (compiled by researcher)

Table 4 shows that the automobile export volume increased at compare AAGR and CAGR of production and export during
a CAGR of 19.6 percent over FY 2004-15. Two- wheeler FY 2004-15 both are higher in case of exports; it is positive
segment reported the fastest growth (20.9 percent) followed by sign for the Indian automobile industry. Being one of the
three-wheeler (19.8 percent) Passenger Vehicle comprises of leading steel producers in the world, India invests largely on
(15 percent) and commercial Vehicle (11.2 percent). If we the automobile sector and its export.

Domestic Sales Pattern

Source: SIAM (compiled by researcher)

Fig 1: Automobile Domestic Sales Trends

The sale of passenger vehicle was 10.6 million in FY 2004-05 graph depicted above (fig.1) it can be easily analyse that there
it raises to 26 million in FY 2014-15 as per SIAM. From the is not any drastic change registered by commercial vehicle and
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International Journal of Commerce and Management Research

three-wheeler vehicle segment. The commercial vehicle sale Gross Turnover Trends
was 6.14 lac and three-wheeler sale was 5.3 lac for the FY The gross turnover of the automobile manufactures in India
2014-15; while the two-wheeler sale was 62 million in FY expended at a CAGR of 7.03 percent with AAGR 8 of.54
2004-05 reaches to 15.97 crore in FY 2014-15 registering a percent over FY 2007-15.
dramatic growth.

Source: SIAM (compiled by researcher)

Fig 2: Gross Turnover of the Automobile Manufactures

The graph (fig. 2) shows that gross turnover was recorded $ Table 5: Number of Workers Employed in Automobile Industry
36.6 million in 2007-08, by 2014-15 it rise to US $ 58.9 Year All employees *
million. During 2007-15 many fluctuations can be easily 2006 408444
analysed. It was low in 2008-09 because of the global 2007 466666
economic crisis. According to the report of CRISIL, weak 2008 509742
global demand, especially in Europe, one of the largest export 2009 619608
markets, had impacted demand in 2011-12. In 2013-14, 2010 715550
sluggish demand in Europe and in import and excise duty rates 2011 791639
in Sri Lanka, which accounts for nearly 5 percent of the total Total 3511649
exports of player like MSIL (Maruti Suzuki India Ltd.), CAGR 14.15%
restricted growth to single digits. However, industry turnover Source: Ministry of Labour and
picks up its growth again in 2014-15, with annual growth rate Employment, Annual Survey of
of 6.6 percent. Industries
Compiled from various year
reports.(*overall division
Employment in India’s Automobile Sector 341+342+343)
Employment in India’s automobile sector offers an insight into
the growth of this significant industrial sector of the economy. As per Ministry of Labour and Employment report, number of
The rapid development of Indian automobile industry is workers employed in automobile industry (only manufactures
evident from the fact that this industry employs more than 30 of motor vehicle, bodies for motor vehicles, trailers and semi
million people (including direct and indirect) as per SIAM. trailers, parts and accessories for motor vehicle and their
Employment in India’s automobile sector is divided into engines) during 2006-11 were 3511649, rise with the CAGR of
organised category, which is 33 percent and the unorganised 14.1 percent.
category, which is 67 percent of the total.
The expansion of the domestic and exports markets, the liberal GDP and Automobile Industry
policies of the government, increase in FDI (Foreign Direct The role of automobile industry in India GDP has been
Investment) and rise in the production have opened up new phenomenon. It is one of the fastest growing sectors in India.
avenues in the job sector of Indian automobile industry. This It can be easily analysed the significance of a single industry
industry is responsible for 7to 8 percent of India’s total which is contributing more than 7 percent of the Gross
employed population.

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International Journal of Commerce and Management Research

Domestic Product of a country. As of 2014 to16, the India of the India’s GDP. Its contribution to country’s manufacturing
automobile industry had contributed almost 7.2 percent (fig. 3) GDP is approx. 22 percent.

Source: SIAM
Fig 3: Automobile Industry Contribution to India’s GDP

The above mentioned statistics have undoubtedly taken the 7. Jacob, Tom, Thomas Paul Kattokaran. Impact of Foreign
country’s economy forward in the last decade. This industry Direct Investment on Automobile Industry: An Indian
has indeed taken its people forward by creating millions of job Perspective, International Journal of Commerce and
in both direct and indirect way. With its rising contribution to Management Research. 2017; 3(1):34.
the GDP is considered as a sunrise sector for the Indian 8. Parhi, Mamata. Indian Automobile Industry: Innovation
economy. and Growth. India Science and Technology.2008, 2-3.
9. Revving up. India Automotive Industry- A Perspective.
Conclusion 2009, 7.
The automobile industry is among the most significant 10. The Boston Consulting Group and Society of Indian
industrial sectors on the modern economy. It is a symbol of Automobile manufacturers Report. Perspective on
technical marvel by mankind. Many other manufacturing Importance of Automotive Industry. 2013, 3.
industries depend upon this industry including steel, rubber,
glass, machine tools, robots, electronics, software and many
more.
This paper tries to examine the trends in the automobile
industry and its impact on the economy in terms of GDP,
Exports, FDI, Employment etc.; all these factors are positively
impacted by the growth of Indian automobile industry. As a
major employment and export generator, GDP contributor,
FDI earner, the automobile industry is instrumental in shaping
the country’s economy. As per AMP (Automotive Mission
Plan) 2016-26 the Indian automotive sector has the potential to
generate up to US$ 300 billion annual revenue by end of 2026,
create 65 million additional jobs and contribute over 12 percent
to India’s Gross Domestic Product. The amp 2016 -26 seeks to
make this industry the engine of “Make in India” initiative.

References
1. CRISIL CRB Customised Research Bulletin. CRISIL
Research. 2013, 8.
2. http://dipp.nic.in/foreign-direct-investment/fdi-
statistics.pdf.
3. http://labourbureau.nic.in.
4. http://www.economywatch.com/Indian-automobile-
industry/employment.html.
5. http://www.siamindia.com/statistics.aspx?mpgid=8&pgid
trail=9.
6. http://www.trade.gov/td/otm/assets/auto/India, 2009.
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