CHAPTER 1

INTRODUCTION

1.1 Background

The first chapter deals with the Introduction of the Automobile Industry in
India. It shows The Evolution of the Automobile Industry and provides a summary
of the Automobile industry its nature and scope. This chapter briefly highlights on the
Chronology and typology of Indias automotive growth The other aspects discussed
are the growth of industry over the times, recent challenges (import-export duties and
taxes, increasing market share, and regulation norms) and future prospects. The
objective of this chapter is to throw light on the challenges faced by the Automobile
industry worldwide.

The history of the automobile actually began 5,000 years ago when the first
wheel was used for transportation, probably on Mesopotamian chariots in 3200 BC
(The Great Idea Finder 2005). The dawn of automobile in India actually goes back to
4000 BC when the first wheel was used for transportation in India in form of chariots.
Since then it has traveled a long way, from chariots to bullock cart, to the jet-age.

It was in 1898 that the first motorcar rode down India's roads in Mumbai.
Mumbai had its first taxicabs in the early 1900. Then for the next many years, cars
were imported to satisfy domestic demand. Till the First World War, about 4,000 cars
were directly imported to India from foreign manufacturers (Auto India Mart 2007).
The growing demand for these cars established the underlying requirements of the
Indian auto market that these merchants were quick to pounce upon. Between 1910
and 1920 the automobile industry made a humble beginning by setting up assembly
plants in Mumbai, Calcutta and Chennai. The import/assembly of vehicles grew
consistently after the 1920s, crossing the 30,000 mark in 1930 (India Infoline 2007).

The Hindustan Motors (HM) was set up in 1942 and in 1944; Premier
Autobackmobile (PAL) was established to manufacture automobiles in India.
However, it was PAL who produced the first car in India in 1946 by assembling

1
Dodge De Soto' and 'Plymouth' cars at its Kurla plant in Mumbai, as HM
concentrated on auto components and could produce their first car only in 1949. After
a short period of time, it was another company, Mahindra and Mahindra (M&M),
which manufactured sturdier utility vehicles, namely the American Jeep.

In 1950s, Government of India granted approval to only 7 car dealers to

operate in India. The1960s witnessed establishment of two and three wheeler industry
in India, and in the 1970s, things remained much the same. Since the 1980s, the
Indian car industry has seen a major resurgence with the opening up of Indian shores
to foreign manufacturers and collaborators. The 1990s became the melting point for
the car industry in here when large number of foreign players came into the country
through collaborations and partnerships. The Table 1 below shows the trend of
production growth in the industry. It can be seen in Figure 3 too that growth was steep
only after 1980s after the partial liberalization and steeper after total decontrol in
1991. Maximum decadal growth rate of 347.46% is seen between 1980 and
1990,when Maruti Udyog Ltd. entered market with other Japanese two-wheeler firms.

In the early 21st century, with the original four Asian Tigers at or near to fully
developed status, attention has increasingly shifted to other Asian economies such as
China and India, which are experiencing rapid economic transformation at the present
time and are thus leading a sort of redistribution of the epicenter of global innovative
activities. Not only so, it is also being widely contended that these emerging new
economies that have already shown capacities to alter the balance of the international
division of labour in their favour i.e. demonstrated capabilities which might
drastically change the worlds technological map. The apparent tendency is
conjectured to have risen from some substantial amount of cumulative deepening and
technological upgrading of the enterprises (at least in some industries, if not all)
within these economies.

India initiated economic reforms, beginning in the 1980s, which became

comprehensive in the early 1990s. The reforms included significant liberalizations of
the external control regime, opening up for increased imports and for foreign
investments. The manufacturing industry has evolved; being chiseled by Indias
liberalizing trade and investment regimes on the one hand, and the structural
readjustments from within (propelled mostly by the changes in global industry), on

2
the other. Several authors have documented the technological learning processes in
Indian firms in a spectrum of industries (e.g., Kale and Little (2007) in
pharmaceuticals, Arthreye (2005) in software industry, Parhi (2006) in the automotive
industry).

The Indian industrial sector has undergone fundamental regulatory changes in

recent times as a consequence of the economic reforms program put together between
1988 and 1991. India moved away from the control era towards the 'open' economy
model. The policy changes in the automobile industry took place in two phases, i.e.
pre-liberalization (total control and partial de-control) and post-liberalization periods.

The Automobile industry in India grew under a highly regulated and protected
economic environment over the period 1950 to 1985. There were quantitative
restrictions on imports of raw materials, components, and equipments through
licensing and a tariff structure designed to restrict the market. Also there were
restrictions on FDI, and imposition of indigenization of components production
protected the domestic market. The initial changes, introduced in 1985, eased the
licensing requirements, broad-based the classification of vehicles for issue of licenses,
allowed selective expansion of capacity and partially relaxed controls with regard to
foreign collaborations, imports of capital goods, raw materials and spares. Though
these measures represented a 'domestic liberalisation', the policy environment
continued being geared towards imposing trade and investment regulations,
constraining the growth of big business houses and regulating exchange rates
(Narayanan 2001).

Liberalisation of economic policies and the outward orientation introduced

since 1991 brought about a dramatic change in this industry. These new measures
effectively dismantled the license raj, which had made it difficult for Indian firms to
import machinery and know-how, and had disallowed equity ownerships by foreign
firms (Krishnan 2002). In July 1991, approval of foreign technology agreements and
up to 5 I % foreign equity investment was allowed for the automotive sector. Further
in 1997, some more reforms were made where new foreign entrants required
establishing actual production facilities, the minimum foreign equity was raised to
$50 million, and the minimum indigenization was to be 50. Auto policy announced by
the government in 2002 (Ministry of Heavy Industries and Public Enterprises 2002)

3
permitted 100% foreign equity on an automatic basis. The Automotive Mission Plan
2006-2016 was released in 2007, which visualizes India emerging as a destination of
choice in the world for design and manufacture of automobiles and auto components
with output reaching a level of $ 145 billion accounting for more than 10% of the
GDP and providing additional employment to 25 million 2016.

1.2 Evolution of the Indian Automotive Industry: From Statics to Dynamics

This sub-section presents an evolutionary analysis of Indian automotive

industrys growth over the four decades since independence. The evolution of Indias
automotive industry from a fairly static/slow-paced growth (from 1940s till 1980s) to
the recent impressive showing of dynamism owes formidable precedence to history. If
one fishes through the not-so yet impressive documentation of Indian automotive
industries wholesome development since independence in 1947, one would most
certainly huddle with either political surmise of industrial developments or a
development (or sometimes industrial) economists explanation of the industrys
evolutionary characters. So far, most of the prologues on Indias automotive
industrys development story have been written by economists with industry as
specialization or by development thinkers with a political economy bent of mind. I do
not have specific preference for either as I would choose to borrow the economic
historians eye and combine both political and economic/industrial development
policy angle to describe Indian automotive industrys growth trajectory.

As will become clear from the ensuing discussions, Indias industrial

development is characterized by more complex processes than one can find in other
transition economies and industrialized nations. If one keenly observes the differences
in industrial development of some transition economies (for instance, Republic of
Korea) with India, among many distinct observations (e.g., a clear and favorable state
patronage to liberalization at the initial phase of development), an interesting aspect
would emerge, which to my knowledge has flayed the probing eyes of industrial
economists or political scientists. The state of development and its sustainability in
any economy is contingent upon the stock and accumulation of human capital. The
number of educated people among young generations during 1960s and 1970s could
make the key difference between the paces of industrial development in the

4
comparable nations. This may appear anecdotal, but it has interesting political
economy evolutionary outcome which I believe has shaped the economic and
industrial policies in the next decades.

1.2.1 Chronology and typology of Indias automotive growth

Indian automotive industrys building up characteristics from the pre-

independence period till date shows distinct phases. It all started in 1940s for the first
embryonic automotive industry to emerge in the pre-independent India. Almost after a
decade and a half since then, leading entrepreneurs and the government in the
independent India have extended efforts to create a manufacturing industry to supply
the automotive industry with components in 1953. This was the beginning of the take-
off phase of Indian economy. In the next three decades, the growth in the automotive
industry did not really kick-start as the national economic growth was constantly
following the Hindu rate of growth an annual growth that stagnated between 3.5
percent over 1950-1980. Despite the sluggish growth of the economy during that time,
the automotive industry began to witness a relatively fast growth during 1970-1980
mainly due to the leading production role of Telso, Ashok Leylands, Mahindra &
Mahindra, Hindustan Motors, Premier Automobiles, and Bajaj Auto. Having
experienced several decades of colonial power, openness to risk of admission in the
global automotive production were severely checked by the Indian government by
introducing several licenses, trade restrictions and barriers. However, the growing
demand for more cars since 1980s has changed the whole growth scenario. During
1980-1985 the first major change was sighted as Japanese manufacturers began to
build car and commercial vehicle factories in India in partnership with Indian firms.
At the same time, component manufacturers also entered the joint-venture scenario
with European and US firms.

From the mid period of phase 3 and the beginning of phase 4 of economic
reforms (that is during 1985-1990) the industry marked the entry of Maruti Udyog
into the production of passenger car segment as persistent high import tariffs were
relaxed to a great extent, and with lesser import cost adding to the overhead
production cost, higher productions were possible leading to the start of growing
exports. This period (the phase 4 of economic reforms: 1988-2006) registered the

5
triumph of liberalization which kick-started the much awaited reform for the
automotive sector paving the way for the firms which were genuinely waiting for
join-ventures, private investment with duty-free technology transfer indirectly through
FDI and directly by importing the new technologies. It is during 1990-1995, Hero
Honda emerged as a major operator in the motorcycle market while Maruti Udyog
established itself as the leading passenger car maker. During 1995-2000, leading
international car makers entered the Indian market, a trend that continues to accelerate
till this date. During this time advanced technology was introduced to meet
competitive pressures, and environmental and safety imperatives. The automobile
companies started investing in service network to support maintenance of on-road
vehicles and auto financing started emerging as an important driver for demand.

Since 2000, significant trade and investment restrictions were removed to

speed up the momentum of liberalization of the automotive industry. Indigenous
production of cars started since then with an eye to the domestic and international
market needs. Increasing efficiency was achieved with growing investment in
research and development while satisfying the strictest environmental standards. As a
result, an influx of overseas technology know-how has improved the impetus for
improvements in quality and productivity, to a point where many global companies
now view India more favorably than China as a source point for components. It seems
that global Tier 1s are increasingly confident about India's ability to build more
complex parts, and are relocating more complicated systems work to India rather than
simply building basic parts there.

1.2.2 Growth Dynamics of Automotive Segment: Past and Recent Trends

The automobile industry in India has long been recognized as a core

manufacturing sector with the potential to drive national economic growth and foster
the development of technological capabilities through its powerful backward and
forward linkages, and the localization of high value added manufacturing processes
within domestic economies (Humphrey, 2000; Shapiro, 1994). In recent years, for
instance, the contribution of the automotive industry to GDP has risen noticeably -
from 2.77 percent in 1992-93 to 4 percent in 2003-2004.i

6
 The automotive industry in India comprises of all vehicles, including 2-3
wheelers, passenger cars and multi-utility vehicles, light and heavy commercial
vehicles, and agricultural tractors and other earth moving machineries, besides the
component segment for all these categories (see Genre Chart for the various types of
vehicles produced in India). The vehicles segment and the allied components segment
are sometimes alternatively termed as automotive industry. The industry is
characterized by a very high percentage (about 80%) of 2-3 wheelers production. To
mention, India ranks as the largest manufacturer of motorcycles and second largest in
manufacturing of scooters in the world.ii In tractor manufacturing also India is the
second largest producer in the world.

It was noted in the preceding section that the auto industry witnessed a radical
transformation in terms of competition with de-licensing and liberalization in the
1990s. Following this, two major developments took place. First, there was an
upsurge in the volumes of vehicles produced. And secondly, there was a flux of entry
of global auto manufacturers into India and in some cases, also along with their parts
suppliers.iii The major contributions came from the passenger car segment, followed
by the Multi Utility Vehicles (MUVs). As a result, the 4-wheeler segment (including
tractors), for the first time, crossed the million marks in 1996-97, registering a growth
of about 12.2 percent in the 1990-97 period (Intecos-cier, 2001). The 2- and 3-
wheeler segments also showed good performance during the same period with a
growth rate of nearly 9 percent (Intecos-cier, 2001).

Some of the more recent trends of production are presented in the Figure 1a,
which depicts that starting from a meagre 0.5 million (in number) in 1970s, the total
production of vehicles has gone up to as high as 6.5 million in 2002. The production
accelerated after 1980s when partial decontrol was introduced. The result is notable
from a modest 1 million during 1980s it became three fold in 1991. The effect of
complete decontrol took time to exert an all round impact on the economy as it shows
there was a short recessionary period 19911994, after which there was sign of
revival. Towards 1998-99, the industry again showed an upward trend reaching a
record high in 2002.

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1.3 Industry Definition

This class consists of units mainly engaged in manufacturing motor vehicles

or motor vehicle engines.

1.3.1 Products and Services

1. The primary activities of this industry are:

2. Motor cars manufacturing

3. Motor vehicle engine manufacturing

4. The major products and services in this industry are:

5. Passenger motor vehicle manufacturing segment (Passenger Cars, Utility

Vehicles & Multi Purpose Vehicles)

6. Commercial Vehicles (Medium & Heavy and Light Commercial Vehicles)

7. Two Wheelers

8. Three Wheelers

Genre of Indian Automotive Industry

Figure : 1.1

Indian Automotive Industry

Three Multi utility Commercial /Vehicles

wheelers Vehicles Passenger Car Two Wheeler
(LCVs/M&HCVs/Buses)

Luxury Motor
Small Medium Scooter Moped
Mini cars cycle
Passenger Goods Vans
Cars Cars s
carries Carrie

Source : SIAM

8
 Table No. 1.1

Automobile Exports Trends (Number

of
Vehicles)

Category 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Passenger
166,402 175,572 198,452 218,401 335,729 446,145 453,479
Vehicles

Commercial
29,940 40,600 49,537 58,994 42,625 45,009 76,297
Vehicles

Three
66,795 76,881 143,896 141,225 148,066 173,214 269,967
Wheelers

Two
366,407 513,169 619,644 819,713 1,004,174 1,140,058 1,539,590
Wheelers

Grand Total 629,544 806,222 1,011,529 1,238,333 1,530,594 1,804,426 2,339,333

Source: Society of Indian Automotive Manufacturing (SIAM)

Table No 1.1 depicts the Automobile export trends of passenger vehicles,

commercial vehicles, three wheelers and two wheelers. It is seen from the table that
every year there is increase in export of automobiles 2004-05 to 2010-11. In 2004-05
the aggregate export was 629,544 vehicles whereas in 2010-11 it rose up to 2339333
vehicles.

9
 Table No. 1.2

Automobile Domestic Sales Trends (Number

of Vehicles)

Category 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Passenger
1,061,572 1,143,076 1,379,979 1,549,882 1,552,703 1,951,333 2,520,421
Vehicles

Commercial
318,430 351,041 467,765 490,494 384,194 532,721 676,408
Vehicles

Three
307,862 359,920 403,910 364,781 349,727 440,392 526,022
Wheelers

Two
6,209,765 7,052,391 7,872,334 7,249,278 7,437,619 9,370,951 11,790,305
Wheelers

Grand Total 7,897,629 8,906,428 10,123,988 9,654,435 9,724,243 12,295,397 15,513,156

Source: Society of Indian Automotive Manufacturing (SIAM)

Table No 1.2 depicts the Automobile domestic sales trends of passenger

vehicles, commercial vehicles, three wheelers and two wheelers. It is seen from the
table that every year there is increase in the sale of automobiles 2004-05 to 2010-11.
In 2004-05 the aggregate sale was 7,897,629 vehicles whereas in 2010-11 it rose up to
15,513,156 vehicles.

10
 Table No. 1.3

Automobile Production Trends (Number of

Vehicles)

Category 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Passenger
1,209,876 1,309,300 1,545,223 1,777,583 1,838,593 2,357,411 2,987,296
Vehicles

Commercial
353,703 391,083 519,982 549,006 416,870 567,556 752,735
Vehicles

Three
374,445 434,423 556,126 500,660 497,020 619,194 799,553
Wheelers

Two
6,529,829 7,608,697 8,466,666 8,026,681 8,419,792 10,512,903 13,376,451
Wheelers

Grand Total 8,467,853 9,743,503 11,087,997 10,853,930 11,172,275 14,057,064 17,916,035

Source: Society of Indian Automotive Manufacturing (SIAM)

Table No 1.3 depicts the Automobile export trends of passenger vehicles,

commercial vehicles, three wheelers and two wheelers. It is seen from the table that
every year there is increase in production of automobiles 2004-05 to 2010-11. In
2004-05 the aggregate production was 8,467,853 vehicles whereas in 2010-11 it rose
up to 17,916,035 vehicles.

11
Key Statistics:

The production of automobile has greatly increased in the last decade. It

passed the 1 million mark during 2003-04 and has more than doubled since.

Table No. 1.4

Production of Automobile from 2000 to 2010

Year Our production % Change Commercial % Change

2010 2814584 29.39 722199 54.86

2009 2175220 17.83 466330 -4.10

2008 1846051 7.74 486277 -9.99

2007 1713479 16.33 540250 -1.20

2006 1473000 16.53 546808 50.74

2005 1264000 7.27 362755 9.00

2004 1178354 29.78 332803 31.25

2003 907968 28.98 253555 32.86

2002 703948 7.55 190848 19.24

2001 654557 26.37 160054 -43.52

2000 517957 -2.85 283403 -0.58

Source : SIAM

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 Table No. 1.5

Automobile Exports

Type of 2004- 2005- 2006- 2007- 2008-

Units
Vehicle 2005 2006 2007 2008 2009

Passenger
166,402 175,572 198,452 218,401 335,739 Number
Vehicles

Commercial
29,940 40,600 49,537 58,994 42,673 Number
Vehicles

Three
66,795 76,881 143,896 141,225 148,074 Number
Wheelers

Two
366,407 513,169 619,644 819,713 1,004,174 Number
Wheelers
Total 629,544 806,222 1,011,529 1,238,333 1,530,660 Number

Source: Society of Indian Automotive Manufacturing (SIAM)

Product and Service Segmentation

The automotive industry of India is categorized into passenger cars, two

wheelers, commercial vehicles and three wheelers, with two wheelers dominating the
market. More than 75% of the vehicles sold are two wheelers. Nearly 59% of these
two wheelers sold were motorcycles and about 12% were scoters. Mopeds occupy a
small portion in the two wheeler market however; electric two wheelers are yet to
penetrate.

The passenger vehicles are further categorized into passenger cars, utility
vehicles and multi-purpose vehicles. All sedan, hatchback, station wagon and sports
cars fall under passenger cars. Tata Nano, is the worlds cheapest passenger car,
manufactured by Tata Motors - a leading automaker of India. Multi-purpose vehicles
or people-carriers are similar in shape to a van and are taller than a sedan, hatchback
or a station wagon, and are designed for maximum interior room. Utility vehicles are
designed for specific tasks. The passenger vehicles manufacturing account for about
15% of the market in India.

Commercial vehicles are categorised into heavy, medium and light. They
account for about 5% of the market. Three wheelers are categorised into passenger

13
 carriers and goods carriers. Three wheelers account for about 4% of the market in
India.

Table No. 1.6

Growth of Automobile from 2002 to 2008

Segment 2003-04 2004-05 2005-06 2006-07 2007-08 Unit

Passenger Vehicles (PVs)
Passenger Car 10.22 10.39 9.91 10.65 12.42 %
Utility Vehicles (UVs) 2.15 2.23 2.18 2.18 2.39 %
Multi Purpose Vehicles (MPVs) 0.87 0.82 0.75 0.82 0.98 %

Total Passenger Vehicles 13.25 13.44 12.83 13.65 15.79 %

Commercial Vehicles (CVs)

Medium and Heavy Commercial
Vehicles (M&HCVs)
Passenger Carriers 0.36 0.32 0.32 0.28 0.43 %
Goods Carriers 2.01 2.19 2.01 2.44 2.10 %
Total M&HCVs 2.37 2.51 2.33 2.73 2.53 %
Light Commercial Vehicles
(LCVs)
Passenger Carriers 0.28 0.25 0.25 0.24 0.32 %
Goods Carriers 1.17 1.27 1.36 1.67 1.77 %
Total LCVs 1.45 1.52 1.61 1.90 2.10 %
Total Commercial Vehicles 3.82 4.03 3.94 4.63 4.63 %
Three Wheelers
Passenger Carriers 2.56 2.17 2.39 2.34 2.51 %
Goods Carriers 1.61 1.73 1.65 1.65 1.51 %
Total Three Wheelers 4.17 3.90 4.04 4.00 4.01 %
Two Wheelers
Scoters/Scooterettee 13.01 11.68 10.21 9.31 11.57 %
Motorcycles/Step-Throughs 61.24 62.86 65.24 64.83 59.35 %
Mopeds 4.52 4.08 3.74 3.52 4.47 %
Electric Two Wheelers - - - 0.07 0.19 %
Total Two Wheelers 78.76 78.63 79.18 77.73 75.57 %
Grand Total 100.00 100.00 100.00 100.00 100.00 %
Source: Society of Indian Automotive Manufacturing (SIAM)

14
 Table No. 1.7

Total Number of Vehicle Registrations in India from 2001 to 2008

Year Cars,
All Two Goods Other
Jeeps and Buses Units
Vehicles Wheelers Vehicles Vehicles
Taxis
2001 54,991 38,556 70,58 634 2,948 5,795 Thousands

2002 58,924 41,581 76,13 635 2,974 6,121 Thousands

2003 67,007 47,519 85,99 721 3,492 6,676 Thousands

2004 72,718 51,922 94,51 768 3,749 6,828 Thousands

2005* 80,045 57,417 10,460 822 4,053 7,337 Thousands

2006* 88,068 63,487 11,571 879 4,345 7,891 Thousands

2007* 96,808 70,141 12,810 936 4,652 8,464 Thousands

2008* 106,591 77,588 14,222 1,003 5,018 9,065 Thousands

Source: Department of Road Transport & Highways, includes tractors, trailers, three
wheelers (passenger vehicles), and vehicles which are not separately
classified, *ImaginMor estimates

Exports

India exports automobiles in about 203 countries. The total revenues from
exports of automobiles, in the year 2008-2009 were USD 6,001.81 million with a
growth of 33.85% from the previous year. The total exports from India in the year
2008-2009 were USD 185,295.36 million and in the year 2007-2008 were USD
163,132.18 million. The automobile industry in India contributes 3.24% of total
exports in the year 2008-2009 compared to 2.75% in the year 2007-2008.

15
 Table No. 1.8

Top 20 Export destinations in 2007-2008 and growth from previous year

Value in USD Millions Percentage

Rank Country Growth
2007-2008 2008-2009

1 United States of America 593.64 525.24 -11.52

2 Italy 332.35 359.68 8.22

3 Sri Lanka 249.14 216.11 -13.26

4 South Africa 224.93 188.57 -15.79

5 United Kingdom 165.57 246.32 48.77

6 United Arab Emirates 164.44 192.74 17.21

7 Algeria 147.34 265.63 80.28

8 Bangladesh 137.26 164.86 20.11

9 Egypt 134.43 143.54 5.99

10 Germany 133.52 409.63 206.8

11 Colombia 118.88 120.71 1.54

12 Nepal 111.33 98.13 -11.86

13 Mexico 93.80 94.10 0.32

Source: Ministry of Commerce and Industry

16
 Types of Excise Duties

Basic Excise Duty: This is the duty leviable under First Schedule to the Central
Excise Tariff Act, 1985 at the rates mentioned in the said Schedule.

Special Excise Duty: This is the duty leviable under Second Schedule to the Central
Excise Tariff Act, 1985 at the rates mentioned in the said Schedule. At present this is
leviable on very few items.

Table No. 1.9

Basic Central VAT (CENVAT) or Excise Tax Structure for Automobiles

Commercial 2 Wheelers 3
Year MUVs Cars Unit
Vehicles 75 CC > 75CC Wheelers

2001-02 16 32 32 16 16 16 %

2002-03 16 32 32 16 16 16 %

2003-04 16 24+1* 24+1* 16+1* 16+1* 16 %

2004-05 16 24+1* 24+1* 16+1* 16+1* 16 %

2005-06 16 24+1* 24+1* 16+1* 16+1* 16 %

2006-07 16 24+1* 24/16**+1* 16+1* 16+1* 16 %

2007-08 16 24+1* 24/16**+1* 16+1* 16+1* 16 %

Source: Society of Indian Automotive Manufacturing (SIAM) - Based on Government

of India Notifications, Additional higher & Secondary Education Cess of
1%, *National Calamity Contingent Duty (NCCD) of 1 %, **16% on cars (up to
4000mm in length &1200cc for petrol & up to 4000mm in length & 1500cc for
diesel) and 24% for rest

17
Customs Duty

Customs Duty (Import duty and Export tax) is a type of indirect tax levied on
goods imported into India as well as on goods exported from India. Taxable event is
import into or export from India. In India, the basic law for levy and collection of
customs duty is Customs Act 1962. It provides for levy and collection of duty on
imports and exports, import/export procedures, prohibitions on importation and
exportation of goods, penalties, offences, etc.

Table No. 1.10

Basic Customs Tax Structure for Automobiles

Two Three
Year CVs1 MUVs2 Cars Unit
Wheelers Wheelers

2001-02 35 105/60/35 105/60/35 105/60/35 105/60/35 %

2002-03 30 105/60/35 105/60/35 105/60/35 105/60/35 %

2003-04 25 105/60/35 105/60/35 105/60/35 105/60/35 %

2004-05 20 105/60/35 105/60/35 105/60/35 105/60/35 %

2005-06 15 100/60/15 100/60/15 100/60/15 100/60/15 %

2006-07 12.5 100/60/12.5 100/60/12.5 100/60/12.5 100/60/12.5 %

2007-08 10 100/60/10 100/60/10 100/60/10 100/60/10 %

Source: Society of Indian Automotive Manufacturing (SIAM) - Based on Government

of India Notifications, *For Used Vehicle/New CBU/CKD & Components
respectively, 1CVs = Commercial Vehicles 2MUVs = Multi-Utility Vehicles

18
1.4 Supply Chain

Supply Chain of Automobile Industry:

Figure No.1.2

Source: ImaginMor, Inderscience Enterprises Ltd and United Nations Industrial

Development Organisation

The supply chain of automotive industry in India is very similar to the supply
chain of the automotive industry in Europe and America. The orders of the industry
arise from the bottom of the supply chain i. e., from the consumers and goes through
the automakers and climbs up until the third tier suppliers. However the products, as
channeled in every traditional automotive industry, flow from the top of the supply
chain to reach the consumers. Automakers in India are the key to the supply chain and
are responsible for the products and innovation in the industry.

19
 The description and the role of each of the contributors to the supply chain are
discussed below.

Third Tier Suppliers: These companies provide basic products like rubber, glass,
steel, plastic and aluminum to the second tier suppliers.

Second Tier Suppliers: These companies design vehicle systems or bodies for First
Tier Suppliers and OEMs. They work on designs provided by the first tier suppliers or
OEMs. They also provide engineering resources for detailed designs. Some of their
services may include welding, fabrication, shearing, bending etc.

First Tier Suppliers: These companies provide major systems directly to assemblers.
These companies have global coverage, in order to follow their customers to various
locations around the world. They design and innovate in order to provide black-box
solutions for the requirements of their customers. Black-box solutions are solutions
created by suppliers using their own technology to meet the performance and interface
requirements set by assemblers.

First tier suppliers are responsible not only for the assembly of parts into
complete units like dashboard, breaks-axel-suspension, seats, or cockpit but also for
the management of second-tier suppliers.

Automakers/Vehicle Manufacturers/Original Equipment Manufacturers

(OEMs): After researching consumers wants and needs, automakers begin designing
models which are tailored to consumers demands. The design process normally takes
five years. These companies have manufacturing units where engines are
manufactured and parts supplied by first tier suppliers and second tier suppliers are
assembled. Automakers are the key to the supply chain of the automotive industry.
Examples of these companies are Tata Motors, Maruti Suzuki, Toyota, and Honda.
Innovation, design capability and branding are the main focus of these companies.

Dealers: Once the vehicles are ready they are shipped to the regional branch and from
there, to the authorised dealers of the companies. The dealers then sell the vehicles to
the end customers.

Parts and Accessory: These companies provide products like tires, windshields, and
air bags etc. to automakers and dealers or directly to customers.

20
Service Providers: Some of the services to the customers include servicing of
vehicles, repairing parts, or financing of vehicles. Many dealers provide these services
but, customers can also choose to go to independent service providers.

1.5 Maharashtra Automotive Cluster

The automotive cluster in the Maharashtra is one of the largest and promising
clusters in the State. For example, in terms of the share in India, the cluster accounts
for 50.9% in net added value, and 35.1% in output, this ate higher than any other
cluster in Maharashtra. The cluster also contributes to 10.4% of total employment in
the State, making it one of the largest contributions in employment (the top being
metal industry at 13.7%). It is also one of the fastest growing cluster at CAGR 3.2%
during 1991-2007, following wood related cluster (6.79%) and other manufacturing
(6.42%).(Maharashtra State Government,2009)

The automotive cluster in the State of Maharashtra has a relatively long

history as the cluster is the largest of its kind in India; its evolution generally
coincides with the development of the completely automotive cluster in India, which
was shown in the previous section. The origin of the cluster date back to as early as
1940s. Many of the major domestic automakers, such as Tata Motors, Bajaj Motors,
Force Motors were established in the State (Mahindra & Mahindra was originally
founded in Punjab, but later moved to the State).

Objectives of Study

The following can be said as the principal objectives of the study.

1. To review the historical perspective followed by the growth of automobile
industry in India with special reference to Maharashtra state.
2. To study the sales progress of the industry in rural and urban markets of
Maharashtra state.
3. To evaluate car owners' perception and behavior pertaining to the purchase
and use of passenger cars.
4. To identify and analyze the factors influencing the purchase of cars.

21
 5. To analyze the level of satisfaction among the respondents and to identify the
switch over brand option, if any and
6. To make suggestions in the light of the findings of the study.

1.6 Methodology

Statement of the Problem

Due to the emergence of globalization and liberalization there is a stiff

competition among the variety of car industries which are focusing attention in
capturing the Indian markets. Cars though considered as luxury once, now occupies a
part of day-to-day life and has become a necessity. Maharashtra, which is selected for
the study, is one of the main growing markets for car manufacturers. People who were
not ready to spend their money on luxuries have now changed their attitude that
'yesterdays luxuries are today's necessities.' To be a successful marketer it is
absolutely essential to read the minds and perceptions of the prospective buyers of
cars. In addition to the above, the due weightage which is given by the Government
for the growth of passenger car industry and the involvement of the consumers in the
selection of a particular brand of car have also made the researcher to undertake a
study on the passenger car industry with special reference to the perceptions,
behaviour and satisfaction of owners of cars.

Scope of the Study

Nowadays, car has become a necessity and forms a part of life. Therefore,
there is a significant scope to examine the perception and purchase behaviour of the
consumers of cars. The study is restricted to Maharashtra state, the automotive cluster
in Maharashtra (the West cluster) is the strongest in many aspects in comparison with
other automotive clusters in India, i.e., The North cluster (around Delhi) and the
South cluster (around Chennai). For instance, in terms of the all segments combined,
the West cluster (around Maharashtra) enjoys a lions share of for 43.6% of gross
turnover, 81. 5 of R&D expenditure, and 53% of cumulative investment in 2008-
2009. The cluster is especially strong in the 4 wheel vehicles segment (including
passenger vehicles and commercial vehicles ), with 46.6% of gross turnover 46% of

22
installed capacity, 84% of R & D expenditure and 53.2% of investment. In contrast,
the North cluster has strength in motorcycle (2 & 3wheelers) segment, while the
South cluster is the third position in total as well as in the two segments.

Knowledge of the buying behaviour of the different market segments helps a

seller to select their target segment and evolve marketing strategies to increase the
sales. Advertisers and marketers have been trying to discover why consumers buy and
what they buy. This study tries to analyze the influence of perception in the
consumers mind and how this information can be used successfully by marketers to
gain entry
into the minds of the consumers. The scope of this research has a very good future.

Hypothesis Tested

1. The average scores of the influencing factors among the respondents of the
different educational qualifications do not differ significantly.
2. The average scores of influencing factors among the respondents of the
different occupational status do not differ significantly.
3. There is significant difference between the various family sizes and the
influencing external factor.
4. There is no significant difference between the different brands of cars owned
by the respondents and the factors which influenced the purchase of that
specific brand of car

1.7 Sampling Design

This study was conducted among the car owners residing at Maharashtra state.
Sample is collected from Mumbai, Aurangabad, and Nagpur a sample of 200 each is
collected from these regions. Simple Random sampling technique was adopted in the
study to select the sample respondents. As the size of the universe is restricted, the
study has been conducted on the respondents who are the owners of all the segments
of passenger cars. Thus 600 completed interview schedules were used for the present
study. Data were collected through an Interview Schedule regarding perception of the
respondents on usage of cars. The collected data are analyzed through descriptive

23
statistical tools such as Percentage, Mean, Median and Standard deviation have been
used to describe the profiles of consumers, preferred product attributes and level of
satisfaction. The ANOVA, t-Test and F-test have been used to test the significant
differences between the groups of respondents in their perception and satisfaction for
selected independent variables like age, sex and income. The Chi-Square test has
been used to test the association between the consumer demographic characteristics
and the preferred product attributes and satisfaction. Multiple regression analysis has
been used to study the influence of income and lifestyle on the overall satisfaction
level of the respondents.

Correlation analysis has been used to establish the relationship between 'the
factors which influenced the purchase' and 'the factors which favoured the level of
satisfaction'. Factor analysis is employed to identify the key factors responsible for the
consumers' purchase of cars and level of satisfaction after purchase. Cluster analysis
has been used to identify the consumers with similar tastes and preferences with
respect to purchase of car.

Limitation of Study

Customers may not always follow what they have always stated in their
response. Thus the degree of reliability of the responses can not always be taken as
accurate and sound. The study is constrained with certain limitations stated as
follows:-

1. The study is limited to Maharashtra state only.

2. The period of study is limited.
3. The survey findings cannot be construed as being representative of the opinion
of the general society at large.
4. People tend to hide certain information as may feel uncomfortable while
disclosing such an information.
5. The researcher focused only on selected brands of passengers cars otherwise
the scope of the study would have become extremely large.

24
PRESENTATION OF THE STUDY

The present study is divided into seven chapters:-

Chapter 1: Introduction

The first chapter deals with the Introduction of the Automobile Industry in
India. It shows the The Structure of the Automobile Industry and provides a brief
history of the Automobile Industry, it also highlights the objective of the study,
hypothesis, scope and limitation of the study.

Chapter 2: Review of Literature.

This chapter contains a review of selected literature related to Automobile

Industry and associated studies are also presented to help define the nature of the
problem. Information from different sources including historical accounts and other
manuscripts has been collected to describe the conditions as they existed during
successive historical periods.

Chapter 3: Govt. Policies and Growth of Automobile Industry

The Third chapter deals with the Govt. Policies and Growth of Automobile
Industry in Maharashtra State, The detailed analysis of sale of Automobiles in
Maharashtra State highlighting the policies of state government to promote
Automobile Industry in Maharashtra state.

Chapter 4 : Progress of Automotive Cluster in Maharashtra State

This chapter deals with the Progress of Automotive Cluster in Maharashtra

State. It gives the detail analysis of cluster in different areas of Maharashtra State.

25
Chapter 5: Data Collection and Analysis.

The Fifty chapter presents the Analysis and Interpretation of Data. The data is
presented and tabulated in charts and graphs. The analysis and interpretation are made
with the help of standard tools like percentages, averages, deviations, chi square test,
and ranking technique etc.

Chapter 6 : Summary of conclusions and suggestion.

The Sixth and the final chapter of the study shows the Summary of Findings
and Recommendations which may be considered to the development of Automobile
Industry. The findings and Recommendations of the study may be utilized by
government of Maharashtra, Automobile Industry, researchers and academicians to
access the ground realities of Automobile Industry in Maharashtra.

Concluding Remark:

This Chapter highlights the Introduction of the Automobile Industry in India.

It shows The Evolution of the Automobile Industry and provides a summary of the
Automobile industry its nature and scope. This chapter briefly highlights on the
Chronology and typology of Indias automotive growth The other aspects discussed
are the growth of industry over the times, recent challenges (, import-export duties
and taxes, increasing market share, and regulation norms) and future prospects.

26
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