The passenger vehicles market in India appears to be on steroids. In the first six months of the current financial year, the sales of passenger vehicles (including cars and a variety of utility vehicles) have grown by over 26 per cent. With 1.4 million units already sold in April-September 2010, the country’s automobile industry may well reach the magical three-million sales mark for the full year ending March 2011. The sales in the second half of the year are normally 10-15 per cent more than what the industry achieves in the first half. If the current demand buoyancy at home continues, automobile manufacturers may well beat most estimates for the Indian passenger vehicles market, according to which the country will witness sales of about five million units by 2015. Achieving 60 per cent of the target five years ahead of schedule is certainly an occasion to pause and ponder over the direction the Indian automobile industry is taking in a rapidly growing economy.
Remember the upside of the figures for the first six months. The 26 per cent growth has been achieved over a healthy base recorded in 2009-10, when sales for the full year increased by 27 per cent. Analysts had then argued that nothing much should be read into that handsome rate of growth because it was achieved over a relatively low growth rate of 6.7 per cent in 2008-09, when the global economic downturn had its impact also on the Indian market. The sales in the first half of the current financial year, therefore, are reflective of improved buoyancy in the Indian economy, in which growth projections are being periodically revised upwards, the stock markets are exuding a new degree of optimism and consumer sentiment has improved dispelling the earlier gloomy outlook.
This revival also needs to be juxtaposed with the fact that the 26 per cent sales growth in the first half of 2010-11 has been achieved in spite of less than four per cent growth in exports. The sales growth scenario for the years ahead may look even rosier if the European markets, which account for the biggest chunk in the industry’s exports, improve or the Indian auto makers build new export markets for their vehicles in the next few years to cushion the impact of a visible slowdown in the developed countries of the West. Indeed, the imperative for the Indian automobile industry is to pay heed to the recent projections of a two per cent growth rate for the developed countries, in sharp contrast to over eight per cent forecast for the developed Asian economies. The time is ripe for the automobile industry to shift gears. Instead of focusing on developed markets, it should improve its presence in developing Asian markets. The good news is that auto exports from India are still about less than a fifth of the industry’s total sales, giving it a healthy cushion whenever export markets dry up or the hardening rupee makes exports a little less remunerative, even though the high import intensity in India’s automobile exports somewhat reduces the full adverse impact of any exchange rate fluctuation either way. This is also the time to build domestic capacities, not only for producing the vehicles and automotive components, but also for expanding public infrastructure like better roads and mass transport systems. With a growing domestic market and a robust engineering capability, building a strong manufacturing base for vehicles and components along with better roads and a network of public transport system is a win-win strategy whose fruits will be enjoyed not only by the industry players but also by an economy that is poised for continued high growth in the next few years. Better roads and a reliable public transport system will complement a thriving auto industry and make its growth more sustainable.
