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A detailed understanding of the growth of the automobile industry in India from before independence to post independence.

Automobile Industry

The automobile industry consisting of cars, trucks, buses, two-wheelers and three-wheelers, is vital to the growth of the Indian economy. In the last decade their share in the Indian economy is around 5% of GDP.

Economic progress is indicated by the amount of goods and services produced which give the impetus for transportation and boost the sale of vehicles. Increase in automobile production has a catalyst effect by indirectly increasing the demand for a number of raw materials like steel, rubber, plastics, glass, paint, electronics and services.

Since transportation is the nerve center of every other industry, the well being of the automobile industry is a good indicator of the health of the economy. Economic studies have shown that every truck manufactured creates anywhere between eight to twelve jobs and a bus would create around seven, which would include salespeople, drivers, mechanics, cleaners and servicing staff.

Indian Automobile Industry

Before Independence
Before independence India was seen as a market for imported vehicles. The assembling of cars manufactured by General Motors and other leading brands was the order of the day. Indian auto industry focused on servicing, dealership, financing and maintenance of vehicles. Manufacturing started only after a decade from independence.

After Independence
Till the 1950s the Indian Railways played a pivotal role in meeting India's transportation needs. The railways used to carry 90 per cent of the total freight, while road transport accounted for the balance. But in the current context the dynamics have changed. Surface transport accounts for 65% of freight movement and 80% of passenger movements. The slow growth of railway infrastructure has been partly due to administrative reasons, partly due to difficulty in acquiring land and partly due to high capital cost involved for every additional railway line.

The Indian automobile industry faced several challenges and road blocks to growth since independence. Manufacturing capability was restricted by the rule of license and could not be increased. The total production of passenger cars was limited to 40,000 a year for nearly three decades. This production was also confined to three main manufacturers Hindustan Motors, Premier Automobiles and Standard Motors. There was no homegrown expertise or research & development initiative. It was difficult to import scientific know how and vital spare parts and cumbersome to recruit foreign technical experts.

The pricing was kept under control by the government. Here was the contradiction, a passenger car was thought to be a premium product only for the rich, yet it came under the purview of protection of a socialist regime.

Initially labor was unskilled and had to go through a process of learning through trial and error. But to the credit of these workers, it was they who developed the skill set required for future expansion in the industry.

The earlier automobiles were a domestic version of prominent International Brands. The Morris Oxford popular in the 1950s, became the Ambassador, the Fiat 1100 became the Premier Padmini. By 1960s nearly 98% of the product was developed indigenously.

By the end of 1970s, significant changes in the automobile industry were witnessed. Initiatives like joint ventures for light commercial vehicles did not succeed. New models like Contessa, the Rover and the Premier 118NE, hit the market.

Socialistic Pattern Of Growth
India by and large followed a socialist system till the later part of 1980s.The government focused on development through heavy, long gestation, capital intensive projects like steel manufacturing. The quality of the finished good and customer feedback were not given much priority. As a result the country missed a golden opportunity to accelerate to a faster growth trajectory by at least 2 decades.

The Pioneering Achievements
Mr. J.R.D Tata's role in the development of the Indian automobile industry has to be mentioned. The Tata group set up a high standard Engineering Research Centre (ERC) in 1965 to facilitate technological advancement. Mr. Tata pioneered the indigenization of scientific knowledge for trucks in collaboration with Mercedes Benz.

The launch of Maruti 800 in 1983 changed the dynamics of the passenger car sector in India. It was also known as the people’s car.

Stability In The Market
The Indian automobile industry has come a long way since independence. From being an importer of automobiles to a manufacturer. From having minimum foreign collaborations to joint ventures. This attribute cannot be considered as a weakness, but as sharing of best practices. This phenomenon can be compared to the business collaboration in the outsourcing industry.

Highlights of Indian Automobile Industries
  • India is the world's largest two wheel manufacturer.
  • India is the world's second largest tractor manufacturer.
  • India has the fourth largest car market in Asia.
  • India has the world's largest three wheeler market.
The Future
  • The Indian automobile industry is expected to grow to US$ 40 billion by 2015 from the current level of US$ 7 billion in 2008. By the year 2016 the industry is expected to contribute 10% of the nation’s GDP. The industry manufacturers over 11 million vehicles a year, employing more than three million people.
  • The greatest challenge and competition would be from the Chinese automobile industry. The Chinese automobile industry has been able to give stiff completion to India in terms of productivity, cost of manufacturing and technology. Again the present trend of excess manufacturing capability, reduced margins put additional pressure on the industry.
  • The global recession has had a dampener effect on the growth of the industry, but market experts believe it is only a short term phenomenon and are confident of the industry bouncing back.
  • On the positive side, India’s strength in software sector, combined with skilled labor and low cost of manufacturing should place it in a favorable position globally.
  • Recently Ratan Tata, Chairman (Tata Motors) created history by launching the world's cheapest car NANO. The cars pricing is around one lakh, gaining instant recognition in the automobile industry across the globe. It heralded the coming to age of the Indian Automobile Industry.

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