Economic Position of India

Despite the slowdown in growth, investment remained relatively buoyant, growing at a rate higher than that of GDP. The ratio of fixed investment to GDP consequently increased to 32.2 per cent of GDP in 2008-09 from 31.6 per cent in 2007-08. This reflects the resilience of Indian enterprise, in the face of a massive increase in global uncertainty and risk aversion and freezing of highly developed financial markets. A decline in all major elements of private demand, including exports and consumption, necessitated a compensating widening of the fiscal deficit above the Fiscal Responsibility and Budget Management Act (FRBMA) target. The new, higher expenditures announced during the 2008-09 budget, which would have been offset by greater revenue mobilization, had to be supplemented by an additional fiscal expansion. This got reflected in an increase of 20.2 per cent in government final consumption expenditure during 2008-09. The effect of this and subsequent fiscal stimuli (e.g. excise and service tax reduction) on private demand would be expected to appear gradually with a lag. Needless to say it is an imperative to return to the FRBM targets for the fiscal deficit at the earliest, possibly by 2010-11. GDP of India The Indian economy is the 12th largest in USD exchange rate terms. India is the second fastest growing economy in the world. Indias GDP has touched US$1.25 trillion. The crossing of Indian GDP over a trillion dollar mark in 2007 puts India in the elite group of 12 countries with trillion dollar economy. The tremendous growth rate has coincided with better macroeconomic stability. India has made remarkable progress in information technology, high end services and knowledge process services. However cause for concern would be this rapid growth has not been an inclusive in nature, in the sense it has not been accompanied by a just and equitable distribution of wealth among all sections of the population. This economic growth has been location specific and sector specific. For e.g. it has not percolated to sectors were labor is intensive (agriculture) and in states were poverty is acute (Bihar, Orissa, Madhya Pradesh and Uttar Pradesh). Though India has the second highest growth rate in the world, its rank in terms of human

development index (which is broadly used has a measure of life expectancy, adult literacy and standard of living) has gone down to 128 among 177 countries in 2007 compared to 126 in 2006.

Indian GDP Trend Of Growth Rate

1960-1980: 3.5% 1980-1990: 5.4% 1990-2000: 4.4% 2000-2009: 6.4%

Contribution of Various Sectors in GDP

The contributions of various sectors in the Indian GDP for 1990-1991 are as follows: Agriculture: - 32% Industry: - 27% Service Sector: - 41% The contributions of various sectors in the Indian GDP for 2006-2007 are as follows: Agriculture: - 20% Industry: - 26% Service Sector: - 54% The contributions of various sectors in the Indian GDP for 2008-2009 are as follows: Agriculture: - 17% Industry: - 29% Service Sector: - 54% It is great news that today the service sector is contributing more than half of the Indian GDP. It takes India one step closer to the developed economies of the world. Earlier it was agriculture which mainly contributed to the Indian GDP. The Indian government is still looking up to improve the GDP of the country and so several steps have been taken to boost the economy. Policies of FDI, SEZs and NRI investment have been

framed to give a push to the economy and hence the GDP.

Globalization of the Indian economy

The structure of the Indian economy has undergone considerable change in the last decade. These include increasing importance of external trade and of external capital flows. The services sector has become a major part of the economy with GDP share of over 50 per cent and the country becoming an important hub for exporting IT services. The share of merchandise trade to GDP increased to over 35 per cent in 2007-08 from 23.7 per cent in 2003-04. If the trade in services is included, the trade ratio is 47 per cent of GDP for 2007-08. The rapid growth of the economy from 2003- 04 to 2007-08 also made India an attractive destination for foreign capital inflows and net capital inflows that were 1.9 per cent of GDP in 2000-01 increased to 9.2 per cent in 2007-08. Foreign portfolio investment added buoyancy to the Indian capital markets and Indian corporate began aggressive acquisition spree overseas, which was reflected in the high volume of outbound direct investment flows.

Impact of Global Developments

The subprime crisis that surfaced around August 2007 had affected financial institutions in the United States and Europe including the shadow banking system comprising inter alia investment banks, hedge funds, private equity and structured investment vehicles. The collapse of the Lehman Brothers in mid-September 2008 further aggravated the situation leading to a crisis of confidence in the financial markets. The resulting heightened uncertainty cascaded into a fullblown financial crisis of global dimensions that stymied prospects of an early recovery. The effect on the Indian economy was not significant in the beginning. The initial effect of the subprime crisis was, in fact, positive, as the country received accelerated Foreign Institutional Investment (FII) flows during September 2007 to January 2008. This contributed to the debate on decoupling, where it was believed that the emerging economies could remain largely insulated from the crisis and provide an alternative engine of growth to the world economy. The

argument soon proved unfounded as the global crisis intensified and spread to the emerging economies through capital and current account of the balance of payments (BoP). The net portfolio flows to India soon turned negative as Foreign Institutional Investors (FIIs) rushed to sell equity stakes in a bid to replenish overseas cash balances. This had a knock-on effect on the stock market and the exchange rates through creating the supply demand imbalance in the foreign exchange market. The current account was affected mainly after September 2008 through slowdown in exports. Despite setbacks, however, the BoP situation of the country continues to remain resilient. The global crisis also meant that the economy experienced extreme volatility in terms of fluctuations in stock market prices, exchange rates and inflation levels during a short duration necessitating reversal of policy to deal with emergent situations.

Monetary policy Developments

The outflow of foreign exchange, as a fallout of crisis, also meant tightening of liquidity situation in the economy. To deal with the liquidity crunch and the virtual freezing of international credit, the monetary stance underwent an abrupt change in the second half of 200809. The RBI responded to the emergent situation by facilitating monetary expansion through decreases in the CRR, repo and reverse repo rates, and the statutory liquidity ratio (SLR). The repo rate was reduced by 400 basis points in five tranches from 9.0 in August 2008 to 5.0 per cent beginning March 5, 2009. The reverse-repo rate was lowered by 250 basis points in three tranches from 6.0 (as was prevalent in November 2008) to 3.5 per cent from March 5, 2009. The reverse-repo and repo rates were again reduced by 25 basis points each with effect from April 21, 2009 (Figure 1.3ii). SLR was lowered by 100 basis points from 25 per cent of net demand and time liabilities (NDTL) to 24 per cent with effect from the fortnight beginning November 8, 2008. The CRR was lowered by 400 basis points in four tranches from 9.0 to 5.0 per cent with effect from January 17, 2009.

Fiscal Developments
The extraordinary situation that emerged due to the crisis had led to a sharp shrinkage in the demand for exports. Domestic demand also had moderated considerably leading to a downturn in industry and in the services sector as seen in the GDP growth, especially for the third and the fourth quarters of 2008-09.

The situation necessitated a fiscal response beyond the measures enunciated in the 2008-09 Budget, the roll-out and actual outlays, however, took place in the second half of 2008-09. These included the payout of a part of the arrears to government employees, following the Sixth Pay Commission Report and the debt relief (farm loan waiver) package to alleviate the debt burden of the distressed farmers. By increasing the fiscal deficit, this expenditure, inter alia, helped to sustain domestic demand. These were supplemented by further measures during December 2008 to February 2009 consisting of increased plan expenditure, reduction in indirect taxes, sector specific measures for textiles, housing, infrastructure, automobiles, micro and small sectors and exports and authorization to specified financial institutions like the India Infrastructure Investment and Finance Company Limited (IIFCL) to raise tax free bonds to fund infrastructure projects. With the release of provisional actual data on expenditure for the Union Government for 2008-09 and the revised estimates of GDP at market prices for 2008-09, the fiscal deficit to GDP ratio for 2008- 09 works out to 6.2 per cent, while the revenue and primary deficit are estimated to be 4.6 per cent and 2.6 per cent respectively. Consequently, the fiscal measures taken together provided a fiscal stimulus of about 3.5 per cent of GDP. Further, below the line items can also be said to

have contributed a stimulus of about 1.3 per cent of GDP, even though these merely offset the effect of the increase in the prices of oil and fertilizer imports on domestic income and demand. The revenue and expenditure sides in the Interim Budget 2009-10, which was presented on February 16, 2009, were conditioned by the foregoing developments. Fiscal deficit for 2009-10 was estimated to go up to 5.5 per cent of GDP, thus providing a continuing stimulus, relative to 2008-09, of 2.8 per cent of GDP. Further tax reduction measures were announced by the Finance Minister during the discussions. These were of the order of 0.5 per cent of the GDP. The Finance Ministers speech also indicated that an additional fiscal stimulus of 0.5 per cent to 1 per cent of GDP as additional plan expenditure could be considered, if needed, to offset the shock induced declines in aggregate demand.

Balance of Payments
The overall balance of payments (BoP) situation remained resilient in 2008-09 despite signs of strain in the capital and current accounts, due to the global crisis. During the first three quarters of 2008-09 (April-December 2008), the current account deficit (CAD) was US$ 36.5 billion (4.1 per cent of GDP) as against US$ 15.5 billion (1.8 per cent of GDP) for the corresponding period of 2007-08. The capital account balance declined significantly to US$ 16.09 billion (1.8 per cent of GDP) as compared to US$ 82.68 billion (9.8 per cent of GDP) during the corresponding period in 2007-08. A positive development was higher private transfers and software earnings and increase in nonresident deposit flows and foreign direct investment vis--vis the corresponding period last year. Higher FDI flows in 2008-09 were also a reflection of the confidence of foreign investors in the growth prospects of the Indian economy. Together with lower crude oil prices and decline in imports, the overall impact on the balance of payments was somewhat muted. This is reflected in reserve decline of only US$ 20.4 billion on BoP basis (excluding valuation change) during 2008-09 (April-December 2008). The total foreign currency assets (FCA) had declined from US$ 299.2 billion on 31.3.2008 to US$ 241.4

billion on 31.3.2009, reflecting a fall of US$ 57.8 billion. However, more than two-thirds of the decline in FCA was due to a valuation change i.e. appreciation of US dollar against the international currencies in which reserves is maintained. The foreign exchange reserves stood at US$ 252 billion at end-March 2009.

Inclusive Growth
Regardless of the impact of the global financial crisis on India, the fact remains that some of the challenges that India faces are of a continuing nature. These inter alia include eradicating poverty, improving its physical and social infrastructure, education and creating productive employment opportunities. In consonance with the commitment to ensure faster social development and achieving an inclusive pattern of growth, the government continued its focus on several initiatives and programmes towards that end. Some of the major social sector initiatives for achieving inclusive growth and faster social sector development and to remove economic and social disparities in the Eleventh Five Year Plan, include the Bharat Nirman programme, Mid-day Meal Scheme, National Rural Health Mission, Jawaharlal Nehru National Urban Renewal Mission and the National Rural Employment Guarantee Scheme (NREGS). Central support for the social programmes has continued to supplement efforts made by the states. Under NREGS, over four crore households were provided employment in 2008-09. This is a significant jump over the 3.39 crore households covered under the scheme during 2007-08. Out of the 215.63 crore person-days of employment created under the scheme during this period, 29 per cent and 25 per cent were in favour of SC and ST population respectively. 48 per cent of the total person-days of employment created went in favour of women. The agriculture debt waiver and relief scheme implemented during the year was able to restore institutional credit to farmers and helped to support demand and revive investment in the rural and the agriculture sector.

KEY INDICATORS FOR MEASURING ECONOMIC GROWTH

Automobile Industry Of India

Trends in auto mobile industry

Porter's Five Forces Analysis - Indian Automobile Industry

A Porter's Five Forces Analysis explores five principal industry factors to determine the attractive of a given industry in a given market. In this P5F exercise, we look at the automobile industry in India. This is independent of any manufacturer. As such, it applies to every Indian car manufacturer. In any P5F analysis, one must examine the following: 1. The threat of new entrants 2. The bargaining power of buyers/customers 3. The threat of substitute products

4. The amount of bargaining power suppliers have 5. The amount of rivalry among competitors 1. The threat of new entrants In most markets, the capital and expertise needed to setup an auto or parts manufacturing facility, would be a great enough barrier to entry to prevent many new entrants from setting up. However, given India's incredible growth forecasts, infrastructure progress (especially new and better roads), and ever-expanding financing options to rural residents, the market is attractive. As such, we expect the threat of new entrants to be high. Result: Unfavorable 2. The bargaining power of buyers/customers Buyers in India have a wide variety of choice. There are more than 20 foreign manufacturers selling in India (including ultra high-end such as Rolls-Royce and Lamborghini). Of course there are also a plethora of incredibly cheap choices, like the famous Tata Nano. Result: Unfavorable 3. The threat of substitute products India is famous for its two-wheelers (bikes and mopeds) and three-wheelers. These are very real and obvious threats to auto manufacturers. Result: Unfavorable 4. The amount of bargaining power suppliers have It is likely that the suppliers to the manufacturers have considerable bargaining power. They are not held ransom by one single manufacturer as they can market their products to any of the others in India.

Result: Unfavorable 5. The amount of rivalry among competitors High. The industry is not yet in its shake-out phase and is still struggling to find the up-andcoming stars and possibly topple the leaders. Result: Unfavorable India's auto industry is much like China's, as far as Porter's Five Forces is concerned. Like China's, the P5F analysis ignores the massive future prospects which could indeed render this analysis irrelevant.

Role of Automobile Industry in India GDP

The Role of Automobile Industry in India GDP has been phenomenon. The Automobile Industry is one of the fastest growing sectors in India. The increase in the demand for cars, and other vehicles, powered by the increase in the income is the primary growth driver of the automobile industry in India. The introduction of tailor made finance schemes, easy repayment schemes has also helped the growth of the automobile sector.

Some Facts
India has become one of the international players in the automobile market In the year 2006-07, the Indian Automobile Industry produced 2.06 million four wheelers and 9 million two and three wheelers The four wheelers include passenger cars, multi-utility vehicles, sports utility vehicles, light, medium and heavy commercial vehicles, etc The three wheelers include mopeds, motor-cycles, scooters, and three wheelers India ranks 2nd in the global two-wheeler market

India is the 4th biggest commercial vehicle market in the world India ranks 11th in the international passenger car market India ranks 5th pertaining to the number of bus and truck sold in the world It is expected that the Automobile Industry in India would be the 7th largest automobile market within the year 2016

Role of Automobile Industry in India GDP-Sales Trends

In the year 2006-07 the number of Passenger Car sold were 10,76,408 In the year 2006-07 the number of Passenger Vehicles sold were 13,79,698 In the year 2006-07 the number of Commercial Vehicles sold were 4,67,882 In the year 2006-07 the number of Three Wheelers sold were 4,03,909 In the year 2006-07 the number of Two Wheelers sold were 78,57,548 In the year 2006-07 the number of automobile sold were 1,01,09,037

Role of Automobile Industry in India GDP-Growth

The growth rate of the Passenger Cars in the year 2007 is 13.50% The growth rate of the Utility Vehicles in the year 2007 is 10.10% The growth rate of the Multi Purpose Vehicles in the year 2007 is 24.40% The growth rate of the Light Commercial Vehicles in the year 2007 is 16.05% The growth rate of the Commercial Vehicles in the year 2007 is 3.43% The Maruti Udyog Ltd is the largest car manufacturer in the country and the rate of growth in the year 2007 was 20.7% The Mahindra & Mahindra Ltd's cumulative sales for the year 2007 was 1,06,094 units and the rate of growth was 35.8% The Honda Siel Cars India Ltd, the leaders in India pertaining to the manufacturing of premium cars, registered a growth of 16.1 % during the year 2007 and sold 41,638 units

The Daimler Chrysler sales for the year 2007 was 1,681 units in India and the growth rate was more than 22% The General Motors India, registered a 114% increase in the national sales in the August of 2007 The Hero Honda sold more than 2 million units in the Jan-Aug period of the year 2007 The export pertaining to the motorbikes was 3,21,321 units in the year 2007 It is estimated that in the year 2007-08 the motorcycle sales would be 7 million, the car sales would be 1.55 million, and the two-wheelers sales would be 8.3 million

Role of Automobile Industry in India GDP-Foreign Investments

The Indian Automobile industry is at present engaged in mergers and acquisitions on the international scale The Indian automobile industry's foreign sector worth US$ 515 million The Mahindra and Mahindra company will be establishing a utility assembly plant in collaboration with Bramont, a local company at Manuas, in North Brazil In Egypt, the Mahindra and Mahindra company has set up assembly plants in collaboration with the Bavarian Motors The Tata Motors have entered the passenger car market in Saudi Arabia with the launch of Tata Indigo, Tata Indica, and Tata Indigo Marina The TVS Motor Company has established a two-wheeler manufacturing unit at Karawang, in Indonesia The Maruti Udyog Ltd has captured nearly 60% of the small car market in Indonesia The Nissan Motor facility in South Africa was acquired by the Tata Motors to manufacture Tata vehicle for European and South African market The Jaguar and Land Rover companies owned by the Ford Motor Company was acquired by the Tata Motors Ltd for estimated price of US$ 1.5 billion

Industry Background
In 2008, Hyundai Motors alone exported 240,000 cars made in India. Nissan Motors plans to export 250,000 vehicles manufactured in its India plant by 2011. Similar plans are for General Motors.

Turnover of Automobile Manufacturers (In USD Million)

Year 2002-03 2003-04 2004-05 2005-06 2006-07 In USD Million 14,880 16,544 20,896 27,011 34,285

The figures show that the automobile sector in India has been growing robustly. The market shares of the different types of vehicles will clearly depict the demand pattern in this sector.

Domestic Market Share for 2008-09

Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers 15.96% 3.95% 3.6% 76.49%

COMPANY Bajaj Auto Ltd.

The Bajaj Group is amongst the top 10 business houses in India. Its footprint stretches over a wide range of industries, spanning automobiles (two-wheelers and three-wheelers), home appliances, lighting, iron and steel, insurance, travel and finance. The group's flagship company, Bajaj Auto , is ranked as the world's fourth largest two- and three- wheeler manufacturer and the Bajaj brand is well-known in over a dozen countries in Europe, Latin America, the US and Asia.

Activities
Bajaj Auto Ltd. is the largest exporter of two and three wheelers. With Kawasaki Heavy Industries of Japan, Bajaj manufactures state-of-the-art range of two-wheelers. The brand, Pulsar is continually dominating the Indian motorcycle market in the premium segment. Its Discover DTSi is also a successful bike on Indian roads . Since 1986, there is a technical tie-up of Bajaj Auto Ltd. with Kawasaki Heavy Industries of Japan to manufacture state-of-art range of latest two-wheelers in India. The JV has already given the Indian market the KB series, 4S and 4S Champion, Boxer, the Caliber series, and Wind125. Bajaj Auto & Allianz have signed their third joint venture partnership, ' Bajaj Allianz Financial Distributors Ltd. ', encouraged by the tremendous performance of the Bajaj Allianz Life Insurance & Bajaj Allianz General Insurance and by the strong trust of consumers in the Bajaj Allianz brand. Bajaj Auto's two and three wheelers are manufactured in three modern mass production facilities at Pune, Aurangabad and at a state of the art plant at Chakan. The combined installed capacity at

the company's manufacturing locations exceeds three million vehicles. Further expansion is underway with a plant being put up at Pantnagar in Uttranchal and also another plant at Chakan for a new range of three and four wheeler goods carriers.

Bajaj Autos Export Destinations

The major export destinations of Bajaj Autos are spread in Africa and South America.

SWOT ANALYSIS of Bajaj Autos

STRENGTH Large domestic market Sustainable labour cost Government subsidies for manufacturing plant Strong engeeniering skills in design etc

WEAKNESS: Low labour productivity High interst cost and highoverhead make the production uncompetitive Various forms of taxes push up the cost of production Low investment in research and development Infrastructure bottleneck

OPPORTUNITIES: Commercial vehicles ban on overloading Heavy trust on minning and construction activity Increase in income level Cut in excise duty Rising rural demand

THREAT:
Rising interst cost Rising interst rate

Ratio Analysis of Bajaj Autos

We adopt the ratio analysis method to analyze the financial position of Bajaj Auto Ltd

Objectives of Ratio Analysis

Standardize financial information for comparisons Evaluate current operations Compare performance with past performance Compare performance against other firms or industry standards

Study the efficiency of operations Study the risk of operations

Liquidity and Solvency ratios This ratio suggests the short-term liquidity position of the firm. The following ratios are to be calculated.

(i)

Current Ratio. Current Ratio = Current Liabilities Current Assets

Year Current Assets Current (Rs. In cr.) Liabilities (Rs. In 2008 1780.67 2019.29 cr.) 2009 2401.15 2602.35

Current Ratio 0.38 times. 052 limes.

Analysis:- Current ratio is higher in 2009 as compared to 2008. There is decreased all current assets except other receivables which increased in 2009. The net current assets increased by Rs.238.62 cr. in 2009 and at same time current liabilities increased by Rs.200.9 cr. in 2009. It means Bajaj Auto Ltd., has sufficient current assets to pay current liabilities. Short term solvency of the company is satisfactory.

(ii) Debt Equity Ratio Year 2008 2009 Analysis:This ratio says that both year 2008 and 2009 as same. In 2009 increased debt by Rs.236 cr. That is increased in Debenture, Long Term loan, Redeemable Preference shares. And equity means Debt 1334.34 1570.00 Equity Debt Equity ratio 0.84 times. 0.84 limes.

Equity share capita, Preference shares other than redeemable, Reserves and surplus, Losses and Fictitious assets increased by Rs.282.1 cr. in 2009 tear. (iii) Inventory Turnover Ratio. Inventory turnover ratio = Sales Inventory Year 2008 2009 Analysis:The inventory' turnover ratio in the year 2008 was 28.19 which indicate that 28.19 times in a year the inventory of the firm is converted into receivables or cash. However, in 2009, the inventory turnover ratio slightly decreased to 27.47. This was due to the fact that the Bajaj Auto Ltd. in 2009 invested more then 0.72 times the inventory in 2008. Sales Turnover Inventory Inventory Turnover Ratio 9856.66 349.61 2849 9310.24 338.84 27.47

(v) Fixed assets Turnover Fixed asset Turnover = Sales Fixed Assets Year Sales (Rs. in cr.) 8827.15 8700.17 Fixed Assets (Rs. in cr.) 4906.42 5752.26 Fixed Assets Turnover

2008 20O9 Analysis:-

1.79 % 1.51 %

According to the calculations above the productivity of fixed assets in year 2009 is not better than it was in previous years. In 2008, it was 1.79% and now it has been slightly decreased to 1.51%. This change was brought about by decreased in total sales by Rs.126.98 cr. where as the fixed assets increased only by Rs.845.84 cr.

Bibliography
http://www.bajajauto.com/ http://www.economywatch.com/indianeconomy/indian-economyoverview.html http://www.ibef.org/economy/economyoverview.aspx http://business.mapsofindia.com/automobile/