The Indian automobile industry has come under global focus,
ranking second only to China
as the fastest growing market in the world. The spate of new launches by the
auto majors and rising sales graphs over the past few months indicate that the
fiscal stimulus seems to have worked wonders for this industry.
Demand started growing in September last year when sales by
major manufacturers rose to record levels during the festival season. The pace
continued to gain momentum, despite rising fuel prices, and the auto industry
became a major driver of growth in India.
Automobile production seems to have done its bit to ensure
that overall growth of the manufacturing sector was significantly higher in
2009. Latest data shows this industry grew 46 percent, giving an impetus to
manufacturing, which shot up by 18.5 percent in December 2009.
This, in turn, led to industrial output rising by 16.8
percent during the month. Overall, India's gross domestic product
(GDP) growth is now expected to reach a higher-than-expected 7.5 percent during
2009-10, despite the downturn in agriculture.
One of the important aspects of growth in the auto sector is
the resulting expansion in availability of jobs. Both two-wheeler and
four-wheeler companies have over the years spawned a wide range of ancillary
units to meet their component requirements.
The spurt in demand for automobiles has also stepped up
demand for auto components and other related industries that provide employment
in large numbers in both rural and urban areas. One can presume that revival of
demand for two-wheelers and passenger cars has also ensured job growth.
At the global level, the resurgence in the automobile
industry ensures India
continues to retain its rising status as one of the world's largest growing
markets. Little wonder then that new models are being churned out even by
foreign auto majors like General Motors that have filed for bankruptcy.
Even luxury market manufacturers like Mercedes and Porsche
are scrambling for a share of the Indian pie by rapidly launching new models in
this country. The latest launch by Ford of the Figo in the entry level segment
follows a host of other new models being unveiled by other manufacturers who
are now trying to get a toehold in all categories of passenger cars. With production
being ramped up by nearly all players, India is also emerging as an export
hub for cars being supplied to the Asian region.
One must not forget two-wheelers that have a high demand in
both rural and urban areas. Motorcycle sales shot up during 2009 by 19 percent
and major players like Honda are making higher investments to expand existing
units.
India is
currently the second largest motorcycle market, behind China. The
National Council of Applied Economic Research (NCAER) estimates that this segment
will expand at double-digit levels for the next two years and pegs growth for
motorcycles at a minimum of 14 percent in 2011-12. It also predicts that sales
of motorcycles will continue to be far in excess of scooters and mopeds.
Despite this encouraging outlook, there is a major cloud
hanging over this industry and that is the slow development of both urban and
rural road networks. Even though Road Transport and Highways Minister Kamal
Nath is upbeat about road construction's progress, there is no doubt this
infrastructure is lagging far behind the production of personal and commercial
vehicles.
In fact, metropolitan centres like Delhi and Mumbai have virtually reached a
stage of gridlock as the cars are rapidly multiplying and the road space for
them is becoming smaller every day. Similarly, inter-state highways are much
fewer than are required while rural roads are being developed even more slowly.
No doubt the government has recognised this lacuna and
efforts are being made to speed up the pace of road infrastructure development.
The launch of the Golden Quadrilateral project during the previous National
Democratic Allaince (NDA) regime had also raised hopes that roads would become
a priority. But actual implementation of the scheme has been much slower than
planned.
The other major question that one must look at is whether
the focus on passenger cars should not be replaced by an effort to improve the
public transport system. One of the reasons why both Delhi and Mumbai are facing traffic
congestions is the inability of public transport to meet the needs of
commuters. The quality of buses needs to be upgraded significantly.
The contribution of the automobile industry to overall
economic growth cannot be denied as it provides 4.2 percent of the GDP. But it
serves as a reminder that the other priority sectors need to be given
sufficient incentives to grow at the same pace. The fast-paced growth of the
passenger car industry is certainly welcome, but it should really serve as a
reminder that the country needs to provide equally efficient transport to the
general public.
* Sushma Ramachandran is an economic and corporate analyst. She can
be reached at sushma.ramachandran@gmail.com
* The views expressed by the author in this feature are
entirely his/her own and do not necessarily reflect the views of SME Times.
