It is advantage India Inc in global automotive markets

India’s $906 billion economy has grown at more than 9 percent since April 2005, making it the second fastest after China among the world’s top 15 economies. Booming technology exports, rising domestic consumption from a burgeoning 300 million-strong middle class and continued macro-level economic reform are key drivers of this sustained growth of the country.

With 70 percent of India’s 1.1 billion people still under the age of 35, it is on the threshold of unlocking some of the biggest investment opportunities for international investors keen to capture a slice of rising domestic demand and booming exports. 

Growth across sectors

The exciting phase that India is going through is marked by growth that has come about as a result of almost homogenous contribution from across industry sectors. Information technology and IT services are the most visible faces of growth in the Indian economy, a sector that is of the size of about $40 billion and annual growth rate of 30 percent.

Less visible sectors, however, are growing equally fast. Consumer finance is a sector worth more than $40 billion in India, and maintaining a growth track of 35 percent. With increasing per capita income and low interest rates, the sector is expected to continue its high growth. Healthcare is a $30 billion industry, growing at 42 percent annually, and expected to increase to more than $50 billion in the next five years. The size of Indian automotive sector is approximately $34 billion today, and it is expected to grow at approximately 15 percent compound annual growth rate (CAGR).

The world’s fastest growing mobile phone market that adds more than 5.5 million new customers each month, is driving the $23 billion telecom industry in the country, which grew at 22 percent in 2006-07 and is set to almost double to $43.6 billion in four years. The media & entertainment industry grew 20 percent in 2006-07 to $9.7 billion. Bollywood, the film production industry centred in Mumbai, produces four times as many films as Hollywood, and was worth $1.5 billion last year.

Automotive growth

The annual domestic motor vehicle sales between April 2006 and March 2007 saw the industry sell 1,076,408 units of passenger cars, 467,882 units of commercial vehicles and 6,553,664 units of motorcycles. India’s car production capacity is expected to surpass two million units by 2008 from the current capacity of 1.4 million units. India is expected to move ahead of the UK and Canada as a car-producing country by 2008. India is also the third largest car market in Asia-Pacific after China and Japan.

Such growth trends in the Indian economy are attributed to its key strength that comes from a dynamic and competitive private sector that accounts for more than 75 percent of its GDP. It offers considerable scope for collaborations, a sound and independent legal system apart from the large and growing consumer market. The vast pool of English-speaking skilled managerial and technical manpower matches, if not surpasses, the best in the world. These factors have led numerous multinational companies to not only establish operations in India but also to count it among their key markets.

The automobile sector is not alien to this aspect. The Indian automotive industry, currently producing about eight million vehicles annually, is the second fastest growing in the world after China. The country is fast emerging as a low-cost destination for global manufacturing and sourcing base for small cars.

Auto sector – cruising ahead

India is already the third largest manufacturer of small cars in the world after Japan and Brazil. About 70 percent of the cars sold in India belong to the small cars segment. The reduction