7 PM | What’s ailing India’s automobile market | 14 August, 2019

Context: Problems facing by automobile industry

  • The Indian automotive industry has emerged as a ‘sunrise sector’ in the Indian economy. India is emerging as one of the world’s fastest growing passenger car markets and second largest two wheeler manufacturer.
  • It is also home for the largest motor cycle manufacturer and fifth largest commercial vehicle manufacturer. India is emerging as an export hub for sports utility vehicles (SUVs).

 Structural problems facing by automobile industry in India:

  • Poor road infrastructure: Amongst the many issues facing the Indian automotive industry, the biggest by far is the poor road infrastructure.
  • India’s road network, comprising of a modest national highway system (that is only 2% or less of the total roadway length) is unhappily and decrepit, and can barely keep pace with the auto industry’s rapid growth.
  • Need for innovation: The competitiveness in the sector will largely depend on the capacities of the industries to innovate and upgrade. But the productivity and capacity utilization are the prime determinants of the competitiveness and influence the national per capita income. But in India the per capita income is low to reap the benefits
  • Increasing Competition & WTO Regime, Cyclicality of businesses, Increasing Customization & Application Proliferation Accelerated Infrastructure development Stiff Emission & Other Regulatory changes.
  • Operating Cost Pressures Increased Customer awareness Accelerated Technology up gradation requirements & other Change needs Competition from alternative modes like so many challenges facing by automotive industry in India
  • Consumer sentiment index: Customer Sentiment Index, 12 month rolling average of the Index historical low. The end customers are very important to ensure the survival of the Motor Vehicle Manufacturing industry.
  •  Economic downturns and other events can affect the expenditure decision of households. When customers are not happy or optimistic about the future of the economy, they will tend to postpone expenditure until times are better.
  • Domestic goods price metal/ iron and steel: Steel is a major input used when manufacturing a motor vehicle. Rises in the price of steel puts cost pressures on manufacturers, which often leads to a fall in profitability.
  • Over the past five years, the price of steel has been rising rapidly. These rises in price eventually pass from the manufacturers to the end customers.
  • Import and export taxes: Over the last few years India s tariff policies and conditions of import of vehicles have served the purpose of attracting investments.
  • Industry is keen that the existing tariff structure roadmap and conditions of import of vehicles are retained without any modifications because of certain systematic deficiencies which make manufacturing less cost competitive in India as compared to some of the neighboring countries like China, Thailand, Indonesia, etc
  • World price energy/ crude oil: The hike or the effect of increasing prices of crude oil at world level per barrel will affect the market scenario of the Automobile industry adversely. The price of oil and petrol affect the driving habits of consumers and the type of car they buy.

Present contemporary challenges facing by automotive industry:

  • Technological paradigm: The fundamental technological paradigm it relies on, volume production, has become progressively more unprofitable in the face of increasingly segmented niche markets.
  • Environmental concerns: The regulatory focus on greenhouse gas emissions, as well as the increasingly tight regulations on air pollutants, is creating pressure for automakers to reduce fuel consumption, as well as emissions from internal combustion engines. The trend is moving towards developing drive trains based on new technologies such as hybrids and fuel cells.

Measures to tackle slowdown of automotive industry:

  • Government initiatives: Through the Automotive Mission Plan, the National Electric Mobility Mission Plan (NEMMP), and other initiatives, the government seeks to achieve two objectives-facilitate long-term growth in the industry and reduce emissions and oil dependence.
  • Manufacturing hub: The World Economic Forum ranks India 30th on the global manufacturing index, which assesses the manufacturing capabilities of more than 100 countries.
  • The government’s “Make in India” initiative has played an important role in elevating country’s position. In the past three to four years, India improved on nine out of ten parameters for ease of doing business.
  • Tax incentives: Tax breaks will result in higher disposable income among the middle class that should translate into higher spending. This will increase the demand for two-wheelers and tractors.
  • Latest data from the RBI shows that the personal vehicle loan portfolio made up by cars and two-wheeler loans grew 6.5% in fiscal 2018-19 as against 11.3% in the previous fiscal. So government should promote retail loan business to promote vehicle purchases.

Way forward:

  • Easier and faster mobility of people and goods across the regions, countries and continents is a cherished yearning of mankind. The automobile industry s potential for facilitating this mobility is enormous.
  • Wheels of development across the globe would have to be powered by this industry. However, a seamless development of this industry across countries and continents alone will help in realization of this objective.
  • For such seamless and barrier-free development of the sector, countries will have to come together and develop better understanding. Industry across countries will have to meet challenges of newer technologies, alternative fuels and affordability of automobiles by people at large through constructive cooperation.
  • A market trend is growing at a faster rate. The opening of the Indian automobile market for foreign companies the competition is expected to enhance further. The opportunities can be grabbed through the diversification of export basket in untouched foreign destinations.

Source: https://www.livemint.com/opinion/online-views/what-s-ailing-india-s-automobile-market-1565721140838.html.

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