Volume:01, Number:01, Nov-2011 Page 22 www.theinternationaljournal.org
IMPACT OF FOREIGN DIRECT INVESTMENT ON INDIA’S
AUTOMOBILE SECTOR-WITH REFERENCE TO PASSENGER CAR
SEGMENT
K. Rajalakshmi.
Research Scholar, Department of Management Studies,
SRM University, Kattankulathur, 603 203, India,
Dr. T. Ramachandran,
Professor & Head, Finance,
SRM University, Kattankulathur, India.
Abstract
FDI Inflows to Automobile Industry have been at an increasing rate as India has witnessed a
major economic liberalization over the years in terms of various industries. The automobile
sector in India is growing by 18 percent per year. The basic advantages provided by India in
the automobile sector include, advanced technology, cost-effectiveness, and efficient
manpower. Besides, India has a well-developed and competent Auto Ancillary Industry along
with automobile testing and R&D centers. The automobile sector in India ranks third in
manufacturing three wheelers and second in manufacturing of two wheelers.
The major investing countries are Mauritius (mainly routed from developed countries), USA,
Japan, UK, Germany, the Netherlands and South Korea. 24. India needs to worry on the
foreign direct investment (FDI) front. According to the statistics released by India’s Ministry
of Commerce and Industry, the country has received only $18.35 billion in FDI in the first 11
months (April-February) of the financial year 2010-2011, compared to $63 billion that came
in the 11 months of the previous financial year. Future prospect of Indian Automotive Sector
is looking bright. Indigenous automobile companies are replacing foreign multinational
companies in terms of consumer satisfaction. Since 2002, automotive sector has much to
deliver in the years to come. Direct Investment Inflows in India-Opportunities and Benefits,
Important Aspects of FDI in Automobile Industry, Recent FDI Trends in India, The major
foreign players who have a significant role in the development of Indian automobile industry,
were discussed and the passenger car segment growth, Production, sales and Investment were
analyzed.. Here the researcher using three statistical tool for analyzing the study, ARIMA,
Linear & Compound Model for analysis purpose to measure future prediction using time
series analysis.
Hence this study necessitated the causes and impact of FDI flows in automobiles sector and
also policy regulation, FDI flows in passenger car segment and recent FDI trend in this sector
were discussed.
Key words: FDI inflows, automobile sector, passenger car and policy regulation.
Volume:01, Number:01, Nov-2011 Page 23 www.theinternationaljournal.org
INTRODUCTION
International capital flows have significant potential benefits for economies around the world.
Countries with sound macroeconomic policies and well functioning institutions are in the best
position to reap the benefits of capital flows and minimize the risks. Much of these capital
flows is due to trade in equity and debt markets. FDI inflows mainly on the basis of
issue/transfer of equity/preference shares of Indian companies to foreign direct investors. In
recent years, India has emerged as a desirable location for FDI by investors from the United
States and many other countries. Its rapidly growing economy, low wages and educated
work force have attracted FDI in the services and manufacturing sectors to serve both the
Indian market and third country markets. Foreign investors’ enthusiasm for India, however,
has been tempered by widespread poverty, rigidity in the labour market, rising salaries and
high employee turnover in some industries, an antiquated infrastructure, weakens in the
overall educational system and excessive bureaucracy and corruption. (1- Petr Pav Anek
University of Nebraska, Omaha, Restructuring of Polish Passenger Car Industry through
FDI, Journal Eurasian Geography and Economics, p 353. sep 2007.) FDI is the process
whereby residents of one country (the home country) acquire ownership of assets for the
purpose of controlling the production, distribution and other activities of a firm in another
country (the host country).
Foreign direct investment (FDI) is a measure of foreign ownership of productive assets, such
as factories, mines and land. Increasing foreign investment can be used as one measure of
growing economic globalization. According to International Monetary Fund (IMF)
definition, FDI has three components, viz., equity capital, reinvested earnings and other direct
capital. A large number of countries, including several developing countries report FDI
inflows in accordance with the IMF definition, which include reinvested earnings and other
direct capital flows, besides equity capital. India has become the Centre of attraction for
global car makers given the immense opportunity with mid-income masses aspiring to own a
car as well as abundance of raw materials and low-cost labour. Favourable Foreign Direct
Investment (FDI) policy makes the entry of international players easy into India. Various
manufacturers are envisaging India as the hub for small car production which CARE
Research believes will drive the car exports from our country. (Research & Markets: The
'Indian Passenger Vehicle Industry' India Report 2010).
Introduction & Background of the study
Foreign Direct Investment capital flows into India have increased dramatically since 1991,
when India’s opened it economy in FDI, and inflows have accelerated since 2000. FDI
inflows into India reached $ 11.1 billion in calendar year 2006 almost double in the year 2005
and are expected to continue increasing after 2010.(Global FDI has experienced a
corresponding resurgence since 2004, after declining for several years in the early 200s. FDI
inflows into India declined between 2001 and 2003, before experiencing a resurgence that
surpassed average global growth, with a year on-year increased.( UNTAD, world report
2006, data based on official Indian government.) During the nineties, foreign direct
investment (FDI) accounted for an increasing share of private capital flows to developing
countries. According to the World Investment Report 2002 (WIR02) published by United
Nations Conference on Trade and Development (UNCTAD), developing countries received
28 per cent of the world FDI inflows in 2001. Global FDI inflows have, however, declined by
Volume:01, Number:01, Nov-2011 Page 24 www.theinternationaljournal.org
51 per cent in 2001, which also affected the flow to developing countries. Developing
countries witnessed a 14 per cent decline in FDI inflows in 2001 to US $ 205 billion from US
$ 238 billion in 2000. A few developing countries like China and India, however, registered
increased FDI inflows in 2001, which is indicative of their attractiveness for international
investment.
Direct Investment Inflows in India-Opportunities and Benefits:
The government of India has taken measures to ensure proactive and positive policies to
boost the Foreign Direct Investment to telecommunications sector in India. Tremendous
growth has taken place in this sector in recent years. A number of telecom service providers
are working in both the private and public sector. The two most crucial causes behind the
huge success of the telecom sector are the growing demand for mobile phone service and
private sector participation in the telecommunication industry. The automobile sector in
India industry is one of high performing sector of the Indian economy. This has contributed
largely in making India a prime destination for many international players in the automobile
industry who wish to set up their business in India. The automobile industry in India is
growing by 18 percent per year. The production level of the automobile sector has increased
from 2 million in 1991 to 9.7 million in 2006 after the participation of global players in the
sector, now grown up to $ 5.3 billion in the March 2011. ( CMIE & Government of India,
Ministry of Commerce & Industry, Fact sheet on FDI)
TABLE:I-SHARE OF TOP INVESTING COUNTRIES FDI EQUITY INFLOWS
( Financial years ): (Amount in crores)
Ranks Country 2008-09
(April- March)
2009-10
(April-March)
2010-11
(April-Nov.)
Cumulative Inflows
(Apr’00-Nov.’10)
% age to total
Inflows (in
Terms of US $)
1. MAURITIUS 50,899 49,633 23,576 234,482 42 %
2. SINGAPORE 15,727 11,295 6,198 51,344 9 %
3. U.S.A 8,002 9,230 4,247 41,436 7 %
4. U.K 3,840 3,094 1,765 27,764 5 %
5. NETHERLANDS 3,922 4,283 3,643 23,769 4 %
6. JAPAN 1,889 5,670 4,141 21,036 4 %
7. CYPRUS 5,983 7,728 2,746 20,523 4 %
8. GERMANY 2,750 2,980 473 12,941 2 %
9. FRANCE 2,098 1,437 1,569 8,488 2 %
10. U.A.E 1,133 3,017 1,289 8,312 1 %
TOTAL FDI INFLOWS* 123,025 123,120 64,083 556,819 ---
Note: (i) includes inflows under NRI Schemes of RBI.
(ii) Cumulative country-wise FDI equity inflows (from April 2000 to November 2010) .
(iii) %age worked out in US$ terms & FDI inflows received through FIPPB/SIA+RBI’S Automatic
Route+ acquisition of existing shares only.
Mauritius is the most preferred route for directing FDI into India while Singapore is the
second largest contributor. India needs to worry on the foreign direct investment (FDI) front. According to the statistics
released by India’s Ministry of Commerce and Industry, the country has received only $18.35
billion in FDI in the first 11 months (April-February) of the financial year 2010-2011,
Volume:01, Number:01, Nov-2011 Page 25 www.theinternationaljournal.org
compared to $24.63 billion that came in the 11 months of the previous financial year.
Although it is a significant dip, the government has not mentioned the reasons for the fall
except for saying that the “trend will be reversed as it has received a few proposals for FDI".
(Anand Sharma, Minister for Commerce & Industry- April 2011.) The FDI inflow in the full
financial year (April-March) of 2009-2010 was $25 billion. Going by the current data, it is
unlikely that India has recorded large numbers in March 2011, to beat last year’s FDI inflow.
Purpose and Scope of the study
The FDI in Automobile Industry has experienced huge growth in the past few years. The
increase in the demand for cars and other vehicles is powered by the increase in the levels of
disposable income in India. The automobile industry in India is growing by 18 percent per
year. The automobile sector in India was opened up to foreign investments in the year 1991.
100% Foreign Direct Investment (FDI) is allowed in the automobile industry in India. The
production level of, the automobile sector has increased from 2 million in 1991 to 9.7 million
in 2006 after the participation of global players in the sector.
India is the second largest country is the world with a population of over one billion people.
As a developing country, India’s economy is characterized by wage rates that are
significantly lower than those in most developed countries. These two traits combine to
make India a natural destination for foreign direct investment (FDI). Until recently, however
, India has attracted only a small share of global FDI, primarily due to government
restrictions on foreign involvement in the economy. But beginning in 1991 and accelerating
rapidly since 2000, India has liberalized its investment regulations and actively encouraged
new foreign investment, a sharp reversal from decades of discouraging economic integration
with the global economy.
We presents two methods of analysis, that hold special interest on FDI inflows in Automobile
industries and other study shows a special effects on passenger car segment growth rate.
Other chapter explains automobile industries growth, production, sales, export and Import
rates, Passenger car growth rates and other inflows and outflows.
METHODOLOGY
In our study we focused on FDI flows, which has become a very important source of
capital to developing countries.
This section of the study presents the empirical results of the impact of FDI flows in
India’s economic growth in automobiles sector after post liberalization era,
especially with passenger car segment.
The result will be based on regression analysis (ARIMA, Co-efficient, linear &
Compound Model).
The period of study is from 1991 to 2011 collection of FDI flows to India.
To collect data for the study is on FDI flows, selection of industry is based on more
FDI flows on Automobile Industry before and after recession.
Important Aspects of FDI in Automobile Industry
FDI up to 100 percent, has been permitted under automatic route to this sector, which has led
to a turn over of USD 12 billion in the Indian auto industry and USD 3 billion in the auto
parts industry, The manufacturing of automobiles and components are permitted 100 percent
FDI under automatic route. The automobile industry in India does not belong to the licensed
agreement . Import of components is allowed without any restrictions and also encouraged.
Hence , the study is focused on the data particularly in automobiles sector-sub sector of
Heavy and Light vehicles- passenger car segment.
Volume:01, Number:01, Nov-2011 Page 26 www.theinternationaljournal.org
OBJECTIVES
1. The main objective of this study is to analyze the FDI inflows in India in
Automobile Industries with special reference to passenger car segment.
2. To examine the trends and composition of FDI flows
3. To Examine the source of FDI on Economic Growth
4. To identify the problem faced by India in FDI growth in Automobile sector and
suggest the policy implication thereof.
5. To compare and analyze the FDI inflows in passenger car segment with growth
rate.
6. To rank the Companies based upon highest FDI inflows.
The Automotive industry in India is one of the largest in the world and one of the fastest
growing globally. In 2009, India emerged as Asia's fourth largest exporter of passenger cars,
behind Japan, South Korea, and Thailand.
India manufactures over 17.5 million vehicles (including 2 wheeled and 4 wheeled) and
exports about 2.33 million every year. It is the world's second largest manufacturer of
motorcycles, with annual sales exceeding 8.5 million in 2009. India's passenger car and
commercial vehicle manufacturing industry is the seventh largest in the world, with an
annual production of more than 3.7 million units in 2010. According to recent reports, India
is set to overtake Brazil to become the sixth largest passenger vehicle producer in the world,
growing 16-18 per cent to sell around three million units in the course of 2011-12. Foreign
Direct Investment in the automobile industry of India has helped in the growth of this sector
in terms of production, domestic sales and export. FDI is also permitted in the manufacture of
auto components in India. ( Economy Watch 25th
July 2011.)
Industry composition Passenger cars and utility vehicles are the main segments of the Indian passenger vehicle
industry with the former accounting for ~80% the total volumes. Within the passenger car
segment, the mini and compact segment together accounts for around 80% of total
volumes. Over the last 5- years the compact car segment in particular has been the
focus for most OEMs, leading to a large number of product introductions and the
segment has outperformed the rest of the industry in terms of growth. Being the largest
segment by volume, the compact car segment is also intensely competitive with the
presence of seven players with as many 16 offerings. The segment has also witnessed the
highest number of launches over the past 12- months with major ones being Ritz, A
Zen Estilo (from MSIL), i10, i20 (from HMIL) and Indica Vista (from Tata Motors
Limited - TML). This segment has also been the bread and butter for India’s small car
exports, especially from MSIL and HMIL. Overall, the top three market players in the
passenger car segment – MSIL, HMIL and TML - currently dominate the segment. Over a
period of time however, this segment (mini + compact) is likely witness some fragmentation
as it attracts new players and more aggressive model launches from hitherto smaller/
marginal players. In H1, 2010, this segment is likely to witness the entry of General
Motors, Volkswagen, Ford India and Nissan. Going forward, all serious players in the
Indian market are expected to introduce products in the compact segment, leading to some
fragmentation of the overall segment. (Anjan Ghosh, Subrata Ray, Shamsher ,Dewan,
ICRA)
Passenger Car Market in India:
Car manufacturing has entered into another dramatic phase in India in recent times. The
global auto majors like Ford, Toyota, Suzuki and Hyundai have set up manufacturing plants
in India and are using India as an important production base to source their market
Volume:01, Number:01, Nov-2011 Page 27 www.theinternationaljournal.org
requirements both for India as well as the global market. The growth of auto parts
manufacturers in India has also been phenomenal on the sidelines of automobile manufacture
ring. ar manufacturing has come a long way in India since its beginning in late 1940s. From
a modest beginning that comprised of a couple of car manufacturers based totally on foreign
technology, today the country boasts of quite a handful of players, mostly native companies
that are in the business of car manufacturing. The two auto manufacturers Hindustan Motors
and Premier Automobiles that started off in the 1940s have enhanced their production,
technological and manufacturing proves that enables them to offer better and efficient cars to
the consumers of this age. Mahindra & Mahindra, Tata Motors and a host of foreign car
makers like Ford, Toyota, Suzuki, Honda, Hyundai and Skoda are gradually enhancing their
scale of operations and presence in the country sensing the growing business opportunity for
the car makers in India.
Analysis On Auto-ARIMA ( Auto Regressive Integrated Moving Average Model)
Autoregressive Integrated Moving Average or ARIMA (p,d,q) models are the extension of the
AR model that uses three components for modeling the serial correlation in the time series
data. In interpreting the results of an ARIMA model, most of the specifications are identical
to the multivariate regression analysis. ARIMA is a much more computationally intensive
and advanced econometric approach. This section of the study presents the empirical results
of the impact on capital inflows on India in General and at Automobile Industry.
TABLE-2. COEFFICIENT OF FOREIGN CAPITAL-TOTAL - INFLOW AND OUT
FLOW ( 1991 TO 2015) USING ARIMA MODEL - (Rs. In Crore)
Year
Actual
value of
inflow
Predicted value
Actual
value of
Outflow
Predicted value
Actual
value of
Net
inflow
Predicted
value
1,992 60,505 -1,55,271.098 48,615 -1,31,877.140 11,890 -25,079.45
1,993 70,275 61,098.900 54,785 92,921.258 15,490 -18,598.745
1,994 91,827 52,640.909 63,335 76,282.790 28,492 -21,807.390
1,995 81,360 1,17,198.997 58,252 1,07,692.489 23,108 6,917.333
1,996 81,642 1,08,455.913 73,081 96,642.351 8,561 8,800.479
1,997 1,28,559 1,51,579.714 89,404 1,37,271.414 39,154 36,561.471
1,998 1,46,102 2,12,147.760 1,11,783 1,49,946.780 34,319 48,156.863
1,999 1,43,561 2,32,706.113 1,09,331 1,87,448.704 34,230 50,828.681
2,000 1,75,822 2,56,129.239 1,31,616 1,76,229.188 44,206 76,925.007
2,001 2,47,491 3,13,318.062 2,06,996 2,27,788.249 40,495 82,695.852
2,002 2,06,404 3,90,947.185 1,65,324 3,15,099.464 41,080 99,350.339
2,003 2,24,237 3,41,872.055 1,71,871 2,20,576.820 52,366 1,13,981.989
2,004 3,47,974 4,26,644.392 2,70,747 2,99,832.950 77,227 1,28,402.298
2,005 4,41,675 5,41,203.155 3,16,308 4,03,013.234 1,25,367 1,38,270.848
2,006 6,39,946 6,07,819.413 5,27,981 4,18,849.742 1,11,965 1,45,861.846
2,007 10,51,767 8,08,841.775 8,48,094 7,14,396.971 2,03,673 1,43,019.357
2,008 17,36,225 11,48,912.822 13,02,452 9,93,305.586 4,33,773 1,79,498.170
2,009 13,73,684 16,85,479.290 13,41,303 14,66,344.357 32,381 1,38,829.906
2,010 -- 10,41,602.181 -- 12,54,130.644 #NULL! 80,140.962
2,011 -- 11,16,898.632 -- 12,74,370.212 #NULL! 3,41,461.281
2,012 -- 11,87,667.054 -- 13,04,521.246 #NULL! 1,45,486.138
2,013 -- 12,56,465.449 -- 13,42,413.837 #NULL! 1,98,599.450
Volume:01, Number:01, Nov-2011 Page 28 www.theinternationaljournal.org
2,014 -- 13,24,406.735 -- 13,86,353.132 #NULL! 2,75,908.057
2,015 -- 13,91,975.117 -- 14,35,015.334 #NULL! 2,17,946.953
FINAL PARAMETER: Sum of squares / Residual variance= 651590.8/4383852
TABLE –2 (A)-Covariance Matrix:
(B) Co-efficient Standard Error of
B
T-Ratio
T - Value
Approx:
P – Value
AR 1 0.435 0.844 0.515 0.614
MA 1 -0.582 1.400 -0.416 0.683
YEAR 67281.191 22304.679 3.016 0.009
CONSTANT -134179403.642 44620701.505 -03.007 0.009
Graph-1-TSPLOT-FDI INFLOW:
Note: Red line indicates the inflows from 1991 to 2011.
Green lines indicates the prediction up to 2014.
TABLE –2 (B)-Arima Results for Outflows:
(B) Co-
efficient
SEB
Standard
Error of B
T-Ratio
T - Value
Approx:
P – Value
AR 1 0.781 0.24 3.25 0.005
MA 1 -0.591 0.46 -1.27 0.223
YEAR 65512.096 23020.91 2.84 0.012
CONSTANT -130631903.06 46053643.07 -2.83 0.013
Note: 0 to 0.01 = ** denotes significant at 1 % level
0.011 to 0.05 = * denotes significant at 5 % level
> 0.05 = denotes No significant.
Year
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
2000000
1000000
0
-1000000
Inflow
Fit for INFLOW from
ARIMA, MOD_8 CON
Volume:01, Number:01, Nov-2011 Page 29 www.theinternationaljournal.org
The three main confidents levels used to test for significance are 90%, 95% and 99% . if a
coefficient’s t-statistic exceeds the Critical level, it is considered statistically significant.
Alternatively, the P-Value calculates each t-statistic tic’s probability of occurrence, which
means that the smaller the P-Value, the more significant the Coefficient. The trend of capital
flows has been shown in Graph 1. Shows are positive except the year 2008-09. The FDI is
stable and positive after the liberalization. So FDI is only capital inflows into India is stable
in nature. the flow of Foreign Direct Investment to India in the month of March increased at a
faster pace. The FDI Inflows to the country in the month of March 2006 was at US $1,244
Millions.
Graph-2-TSPLOT-FDI-OUTFLOW:
TABLE-2(C)-ARIMA Model result for Net Inflows:
(B) Co-
efficient
Standard Error
of B
T-Ratio
T – Value
Approx:
P - Value
AR 1 -0.736 2.7 -0.282 0.782
AR 2 -0.468 1.0 -0.462 0.651
MA 1 -0.785 2.9 -0.272 0.789
YEAR 11637.30 3336.2 3.488 0.004
CONSTANT -23206600.82 6674110.3 -3.477 0.004
Covariance Matrix:
AR1 AR2 MA1
AR1 7.3330643 -.1429977 7.6479627
AR2 -.1429977 1.0257873 .2408472
MA1 7.6479627 .2408472 8.2897277
Year
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
2000000
1000000
0
-1000000
Outflow
Fit for OUTFLOW from
ARIMA , MOD_10 CON
Volume:01, Number:01, Nov-2011 Page 30 www.theinternationaljournal.org
Graph-3- NET INFLOW:
The R-Squared, or coefficient of Determination indicates the percent variation in the
dependent variable that can be explained and accounted for by the independent variables in
this regression analysis. The multiple Correlation coefficient (Multiple R) measures the
correlation between the actual dependent variable (Y) and the estimated or fitted (Y) based on
the regression equation.
Foreign Direct Investment capital flows into India have increased dramatically since 1991,
and inflows have accelerated since 2000. FDI inflows to India reached $11.1 billion in
calendar year 2006 almost double the 2005 figure and expected to continue increasing at
2011-12.
Consistent with the global pattern, FDI inflows into India declined between 2001 and 2003,
before experiencing a resurgence that surpassed average global growth, with year on year
increases of 45 to 72 percent, respectively, in fiscal year 2004-05 and 2005-06. During the
last 15 years, India has attracted more than US$ 40 billion of foreign investment (Table-2).
At a time, when the flow of private capital to developing countries has shrunk considerably,
private flows to India have strengthened, and are currently running at 3,02,456 $US million at
2009 and outflow of 2,93,310 $US million increased and net inflow $US 32, 381 at 2008-09
increased to $US 37,763 million at 2009-10.
Year
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
500000
400000
300000
200000
100000
0
-100000
Net inflow
Fit for NETINF from
ARIMA, MOD_15 CON
Volume:01, Number:01, Nov-2011 Page 31 www.theinternationaljournal.org
TABLE-3. AUTO COMPONENTS INDUSTRY INVESTMENTS
Investments, Import & Export Market size - In US $ billion
Year Investment
US $ billion
Growth
Rate %
Import
Market
size
G.R
%
Export
Market
size
G.R
%
2002-03 -- - - - -
2003-04 3.1 17 1.4 - 1.2 -
2004-05 3.8 21 1.9 33 1.7 42
2005-06 4.4 17 2.5 31 2.5 47
2006-07 5.4 23 3.6 45 2.7 8
2007-08 7.2 33 5.2 45 3.5 30
2008-09 7.3 1 6.3 30 3.8 9
2009-10 9.0 23 8.2 20 3.8 0
2010-11 10.3 14 10.0 23 5 32
Source: ACMA- Growing Capabilities of Indian Auto components.p-20.
( $ 2.5 bn Investment is expected annually.)
TABLE-3 (A) Correlations
Investme
nt
Import
Market
size
Export
Market
size
Investment Pearson
Correlation
1 .993(**) .971(**)
Sig. (2-tailed) . .000 .000
N 8 8 8
Import Market
size
Pearson
Correlation
.993(**) 1 .959(**)
Sig. (2-tailed) .000 . .000
N 8 8 8
Export Market
size
Pearson
Correlation
.971(**) .959(**) 1
Sig. (2-tailed) .000 .000 .
N 8 8 8
** Correlation is significant at the 0.01 level (2-tailed).
TABLE-3(C)-Compound Model Result for Investments, Import & Export (Market size-
in US $ Billion)
Linear
Model
Compound
Model
L C L C
Investment Import Export
R Square 0.977 0.985 0.965 0.992 0.963 0.924
F Value 254.75 391.03 163.25 743.73 158.07 73.21
P Value 0.000 0.000 0.000 0.000 0.000 0.000**
A 1.65 2.68 -0.721 1.09 0.78 1.206
B 1.03 1.18 1.24 1.33 0.49 1.203
** denotes significant at 1 % level.
Volume:01, Number:01, Nov-2011 Page 32 www.theinternationaljournal.org
Annual rise in Investment is 0.03 percent increased and annual growth 18 percent increased.
In Import annually increased to 24 percent and growth by 33 percent.
Annual rise in Export has been decreased and growth increased to 20 percent.
TABLE -4 PASSENGER CAR,
COMPANY WISE TRENDS IN SALES FROM 2003 TO 2010 - ( RS. Crore)
Year Maruti
Suzuki
Hyundai
Motor
Tata
Motors
Honda
Siel Car
Ford
India
GM Toyota
Kirloskar
Mahindra
Renault
2003- 04 10355.30 5490.52 3464.24 1516.33 1100.23 884.44 726.58 --
2004-05 12407.50 6930.17 4664.67 2525.26 1365.13 845.05 726.58 --
2005-06 13734.20 7867.72 5152.31 2928.83 1539.92 614.15 792.12 --
2006-07 16034.10 9283.09 6098.51 4634.08 2400.78 727.42 652.16 --
2007-08 19549.00 11179.41 6092.96 4835.12 2188.00 1716.45 641.50 1219.07
2008-09 21186.56 16336.82 7100.00 4191.08 1865.00 1664.53 806.71 677.21
2009-10 29602.10 20565.81 9585.45 4850.82 2196.74 2052.18 806.71 280.50
Year Hindustan
Motors
N.H
Fiat
India
International Cars
&Motors
Premier Mercedes
Benz
India Pvt
Total
Sample
Companies
Total
Sales
No .of
Sample
cos.
2003-
04
612.71 325.96 --- --- 335.15
2004-
05
802.42 325.96 --- 1.55 498.58 31092.87 31100 11
2005-
06
625.41 ---- 3.47 7.14 493.59 34867.15 35900 12
2006-
07
597.80 71.56 21.89 16.85 643.84 42296.41 42300 15
2007-
08
609.45 105.77 93.96 9.70 922.26 51331.94 51350 16
2008-
09
492.74 151.71 197.46 9.48 956.84 58591.13 58600 16
2009-
10
517.33 37.11 48.27 29.56 1164.84 77100.00 77200 17
Source: CMIE April 2010.page 356
TABLE -4 (A) PASSENGER CAR
COMPANY WISE TRENDS IN SALES FROM 2003 TO 2010 - ( RS. Crore)
Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
Maruti Suzuki 7 10355.30 29602.10 17552.6800 6551.60197
Hundai Motor 7 5490.52 20565.81 11093.3629 5471.66008
Tata Motor 7 3464.24 9585.45 6022.5914 1958.40021
Honda siel car 7 1516.33 4850.82 3640.2171 1319.38515
Volume:01, Number:01, Nov-2011 Page 33 www.theinternationaljournal.org
Ford India 7 1100.23 2400.78 1807.9714 486.32894
GM 7 614.15 2052.18 1214.8886 577.24742
Toyota Kirlosker 7 641.50 806.71 736.0514 69.86429
Mahindra 3 280.50 1219.07 725.5933 471.15191
Hindustan motors 7 492.74 802.42 608.2657 99.77975
N.H Fiet India 6 37.11 325.96 169.6783 126.85159
International Cars and Motors 5 3.47 197.46 73.0100 77.44004
Premier 6 1.55 29.56 12.3800 9.75164
Mercedes Benz 7 335.15 1164.84 716.4429 302.48816
Total Sample companies 6 31092.87 77100.00 49213.2500 17041.74720
Total Sales 6 31100.00 77200.00 49408.3333 16904.62708
No. of samples cos 6 11.00 17.00 14.5000 2.42899
Valid N (listwise) 3
TABLE-4 (B): COMPANY WISE TRENDS IN SALES FROM 2003 TO 2010
TOTAL COMPANIES TOTAL SALES
Linear Model Compound
Model
Linear Model Compound
Model
R Square 0.947 0.988 0.946 0.989
F Value 71.34 329.61 70.51 365.75
P Value 0.001 0.000 0.001 0.000**
A 9324.85 20884.0 9853.33 21214.4
B 8864.09 1.1969 8790.00 1.1941
Linear Model , companies trends in annual sales has been decreased to 12 % and in
compound mode, l the growth rate has been increased to 19 % in last two years from 2009 to
2011. In Compound model, P value is significant. The composition of the domestic market
makes India an attractive FDI destination for automobile components manufacturers. All the
companies like Maruti, Hyundai, Tata motors, Honda Siel, GM and Toyota sales has been
increased from 2003-04 to 2009-10, Mahindra Renault, sales started only from 2007-08 and
decreased to only 280 Crore on 2009-10. It is because of poor car and petrol maintenance.
Hindustan Motors car sales also decreased from 2007-08 to 2009-10 from Rs. 609 Crore to
Rs. 517.33 Crore. Fiat sales also decreased on 2009-10 and has planned to look at
strengthening ties in the near future, whether this will result in a cross-holding equity alliance
on the lines of VW-Suzuki remain to be seen though observes say it is a strong possibility.
It was in December 2009 when VW took nearly 20 percent in Suzuki while the latter
settled for 2.5 percent as part of a cross holding deal.
Mitsubishi, likewise has joined hands with Peugeot and reports have been doing the
rounds that the two could end up working on a global car in India eventually,.
Renault’s cross-holding deal with Nissan has been the most successful alliance for years
now.
VW may not have quite got it right with Suzuki but has a host of other brands Skoda,
Audi, MAN, Scandia and more recently Porsche.
Maruti has increased sales and has already invested in developing infrastructure at
Mundra port in Gujarat from where it exports A-star car to Europe.
Volume:01, Number:01, Nov-2011 Page 34 www.theinternationaljournal.org
In addition to the favorable market and manufacturing environment in India, the presence
of a large number of leading motor vehicle manufacturers has attracted a substantial base
of non-Indian automotive parts producers .
The size of the local vehicle assembly industry also offers sufficient production volumes
to warrant the level of investment necessary to support component manufacturing
operation in India.
TABLE-5- KEY STATISTISTICS FOR PASSENGER CARS FROM 2004 TO 2010
Year Production
‘000 nos
Export
Quantity
‘000 nos
Exports
Value
Rs. Crore
Imports
Quantity
‘000 nos
Imports
Value
Rs. Crore
Sales
Value
Rs.Crore
2004-05 1030.1 20.8 433.1 0.1 1.7 31100
2005-06 1118.4 12.2 222.9 -- 1.8 35900
2006-07 1326.3 39.2 666.7 0.2 23.3 42300
2007-08 1543.0 40.4 646.9 0.2 21.9 51350
2008-09 1652.0 63.2 1370.0 0.1 13.3 58600
2009-10 2118.2 112.5 3275.7 -- 1.6 77200
Source: CMIE Industry Market size & shares, April 2011, Page 357.
Tata Motors, Mercedes Benz, GM, Hindustan Motors, Fiat, ford India and Honda Siel Cards
sales were estimated using production data from Society of India automobile Manufacturers.
TABLE-5-(A)- Descriptive Statistics
N Minimum Maximum Mean Std. Deviation
Production in 000's 6 1030.10 2118.20 1464.6667 399.05635
Export Quantity in '000 no. 6 12.20 112.50 48.0500 36.18827
Export value in crores 6 222.90 3275.70 1102.5500 1132.57582
Import Quantity in '000 no. 4 .10 .20 .1500 .05774
Import value in crores 6 1.60 23.30 10.6000 10.33363
Sales values in crores 6 31100 77200 49408.33 16904.627
Valid N (listwise) 4
TABLE-5(B) Result(Curve Fit) for Production, Export quantity , Export Value and
Sales Value: Using Compound & Linear Model:
Year
PRODUCTI
ON
LINEAR
PRODUCTIO
N
COMPOUND
EXP_QT
Y
LINEAR
EXP_QTY
COMPOUN
D
EXP_VA
L
LINEAR
EXP_VAL
COMPOUN
D
2005 946.24 999.84 4.29 14.46 -157.06 249.29
2006 1153.61 1150.95 21.79 21.21 346.79 388.56
2007 1360.98 1324.89 39.30 31.10 850.63 605.63
2008 1568.35 1525.13 56.80 45.62 1354.47 943.97
2009 1775.72 1755.63 74.31 66.91 1858.31 1471.33
2010 1983.10 2020.96 91.81 98.13 2362.16 2293.30
2011 2190.47 2326.40 109.32 143.93 2866.00 3574.49
2012 2397.84 2677.99 126.83 211.10 3369.84 5571.41
Volume:01, Number:01, Nov-2011 Page 35 www.theinternationaljournal.org
2013 2605.21 3082.73 144.33 309.61 3873.69 8683.95
2014 2812.58 3548.63 161.84 454.10 4377.53 13535.35
2015 3019.95 4084.95 179.34 666.01 4881.37 21097.03
11 11 11 11 11 11 11
TABLE-5-(C):Result for Production, Export Quantity & Value using Linear &
compound Model:
Linear
Model
Compound
Model
L C L C
Production Export Quantity Export Value
R Square 0.945 0.978 0.819 0.829 0.693 0.793
F Value 68.92 178.73 18.10 19.44 9.02 15.35
P Value 0.001 0.000 0.013 0.012 0.040 0.017
A 738.86 868.56 -13.220 9.8590 -660.90 159.93
B 207.37 1.15 17.50 1.46 503.84 1.55
Linear Mode l= Y = a + b t = 738.86 + 207.37 t
Compound Model = Y = a + (b ) = 738.86 + (207.37 t)
Annual rise = 7 per cent increased and Growth rate has been 15 percent also increased. In
Export quantity also increased up to 46 percent this year, and value increased to 55 percent ,
Domestic sales value increased to 19 percent this year. In 2006, the industry produced 10.9
million vehicles, an increase of 16.22% over 2005. In 2005, production grew 14.5% over the
previous year. The production of the automotive industry is expected to achieve a growth
rate of Over 20 per cent in 2006-07 and about 15 percent in 2007-08.
TABLE-5-(D) Result for Import Quantity, Value and Sales Value:
Linear
Model
Compound
Model
L C L C
Import Quantity Import Value Sales Value
R Square 0.29 0.29 0.28 0.051 0.946 0.989
F Value 0.06 0.06 0.12 0.21 70.51 365.75
P Value 0.831 0.831 0.749 0.667 0.001 0.000**
A 0.13 0.12 7.34 3.22 18643.3 25332.9
B 0.005 1.04 0.93 1.17 8790.00 1.19
**Denotes 1% significant level.
TABLE-6- PASSENGER CAR AND MULTI UTILITY VEHICLES :
PRODUCTION, SALES AND EXPORTS- MARCH 2010 TO MARCH 2011
Year Production
(Nos)
Production
( %
change)
Sales
(Nos)
Sales %
(% chg)
Export
(Nos)
Export
( % chg)
Mar 2010 2,36,608 23.9 2,39,935 20.6 40,281 19.2
Apr 2010 2,27,602 40.1 2,20,074 33.0 37893 28.6
May 2010 2,16,483 30.5 2,23,687 30.9 33112 11.3
June2010 2,09,191 24.9 2,19,242 22.5 37432 -2.3
July 2010 2,45,153 31.4 2,36,792 30.5 34699 2.7
Aug 2010 2,46,000 31.7 2,42,506 25.3 38279 -7.4
Sep 2010 2,51,417 28.8 2,50,528 21.3 34896 -1.05
Volume:01, Number:01, Nov-2011 Page 36 www.theinternationaljournal.org
Oct 2010 2,59,228 31.6 2,71,804 31.6 39847 3.3
Nov 2010 2,33,233 10.3 2,33,969 13.0 31092 -22.8
Dec 2010 2,45,316 23.6 2,33,613 23.4 39928 -0.4
Jan 2011 2,60,363 18.3 2,66,936 18.0 32942 -14.7
Feb 2011 2,84,094 23.7 2,79,320 20.6 43799 19.4
Mar 2011 3,08,617 30.4 2,96,938 23.8 51097 26.9
Apr-Mar Apr-Mar Apr-Mar Apr-Mar Apr-Mar Apr-Mar
2010-10 2357411 28.2 2397478 27.0 446145 32.9
2010-11 2987296 26.7 2973900 24.0 453479 1.6
(Monthly figures may not add up to the cumulative total due to revisions.
Sales includes exports.),
Source: Monthly Review of Indian Economy, CMIE May 2011
Correlations - Table 6(A) Correlations
Production Sales Exports
Production Pearson Correlation 1 .953(**) .714(**)
Sig. (2-tailed) . .000 .006
N 13 13 13
Sales Pearson Correlation .953(**) 1 .639(*)
Sig. (2-tailed) .000 . .019
N 13 13 13
Exports Pearson Correlation .714(**) .639(*) 1
Sig. (2-tailed) .006 .019 .
N 13 13 13
** Correlation is significant at the 0.01 level (2-tailed).
* Correlation is significant at the 0.05 level (2-tailed).
Number of Production increased gradually from March 2010 to March 2011, from 23.9
% to 30.4 % and decreased in the month of November from 31.6 % to 10.3 % due to fuel
hike and demand of materials.
Sales also increased when compared to July 2010 , from 20.6% to 30.5 % and over all
sales has been decreased from the year 2010 , 27 % to 24.0% in the year 2011.
Number of Export has been decreased form the month April 2010 to January 2011. Total
Export 32.9% on April 2010, slightly raised to 1.6% in the year March 2011.
Overall production, sales and export value has been decreased due to Policy implication
and fuel demand for the customers.
Exports: the cumulative annual growth rate of automotive exports during the period 2000-01
to 2005-06 was 32.92 per cent. Exports during 2006-2006 and 2007-2008 are
Expected to grow over 20 percent.
.
Imports: Europe is the biggest importer of cars from India, while African nations largely
account for the import of buses and trucks. China is most recently making inroads into this
market.
Volume:01, Number:01, Nov-2011 Page 37 www.theinternationaljournal.org
Sales: Passenger Vehicles: Growth in sales of passenger vehicles was 18.45% in 2006. This
was almost three times the growth witnessed in 2005. Sale of passenger cars expanded by
20.0%. Export of passenger vehicles increased by 12.9%
TABLE:7- IN DEPTH AUTOMOBILES-DIESEL VS PETROL
Number of vehicles sold in the year 2011.
DIESEL PETROL
COMPANY BRANDS SALES % BRANDS SALES %
M & M Xylo, Scorpio,
Verito
115353 97.47 Verito 3,000 2.53
Tata Motors Indica, Vista,
Manza, Indigo
180,000 78.26 Indica, Vista,
Manza, Indigo
50,000 21.74
Fiat Linea, Punto 6,500 61.90 Linea, Punto 4,000 38.10
Hyundai I20, Verna 50,000 45.45 I20, Verna 60,000 54.55
Suzuki Swift, Dzire 150,000 40.00 Swift, Dzire, SX4,
Ritz
225,000 60.00
Ford Figo, Fiesta 31,000 27.93 Figo, Fiesta 80,000 72.07
VW Polo, Vento
Jetta, Passat
10,000 20.00 Polo, Vento
Jetta, Passat
40,000 80.00
GM Beat, Cruze 10500 18.92 Beat 45,000 81.08
Italy’s largest car maker fiat may have had a disastrous 15 years in the Indian car market, but
it is more than making up for that with its dominance of car under the hood. Tata motors,
Maruti Suzuki and General Motors(GM) , now powers their 16 variants, selling about
290,000 cars per annum.
And it is the pivot on which India’s 2.2 million passenger vehicles market is fast turning
into one of the world’s largest diesel car hubs. It powered 50 percent of all diesel cars sold in
India in FY 2011. European companies such as Volkswagen (VW) , Mercedes Benz, BMW,
Renault, Peugeot and Opel have traditionally been the flag bearers on the diesel engine,
Japanese car makers Toyota, Honda, Suzuki, Nissan and Korean counterparts Hyundai have
invariably preferred making petrol cars.
American companies Ford ad GM make both smaller vehicles in petrol and largest ones in
diesel, but tended to lean towards petrol vehicles. Toyota is also ramping up production from
the current 200,000 units to 330,000 units by 2013. VW was able to sell 51,566 cars in 2011.
Compared with only 4,000 in 2010.
Volume:01, Number:01, Nov-2011 Page 38 www.theinternationaljournal.org
TABLE-8-TOTAL PASSENGER VEHICLES
Year Production Domestic
Sales
Exports
March 2010 2357411 1951333 446145
March 2011 2987296 2520421 453479
% Change 26.72 29.16 1.64
Source: Motor India May 2011 Statistics. Page-102.
Total Passenger Vehicles sales, production and exports has been increased in 2011 shows the
good revenue for automobile industries and shows improvement in FDI to India.
Future plans: The Government has prepared a ten-year Automotive Mission Plan (AMP) to
draw a future plan of action and remove obstacles in the way of competition, such as that
required infrastructure be put in place well in time to alleviate its constraining impact on the
growth. The plan envisages a tax holiday for the industry on investments exceeding
$225,000, 100% tax deductions of export profits, and deductions of 50% on foreign-exchange
earnings. It also calls for a one-stop clearance for foreign-direct-investment proposals in the
sector and deductions of 30% of net income for 10 years for new industrial undertakings. To
bring down the cost of power and fuel, which accounts for 6% of the manufacturing costs in
the auto sector, captive power generation would be encouraged to enable industries to access
reliable, quality and cost-effective power. (Business Line, Friday, March 08, 2010)
Conclusion:
The present study concludes that FDI inflows have shown significant growth in the post
liberalization period. The compound annual growth rate of Actual FDI inflows during this
period comes out to be as high as 29.56 percent. The analysis of structure of FDI in India
reveals that after liberalization there definitely has been a shift in favor of service sector and
a steep fall in the share of manufacturing sector. However, this trend matches the trend of
change in the structure of FDI inflows to the developing countries and even the world.
FDI inflows: Foreign Direct Inflows (FDI) is, however expected to continue to grow at a
healthy pace. This is because the India economy is likely to grow at a faster pace than most
international economies. Domestic lending rates have risen considerably over the past 3 to 5
months. FDI in portfolio investments dipped from an estimated $12.3 billion in the
December 2010. A heartening feature of the changing automobile scene in India over the
past five years is the newfound success and confidence of domestic manufacturers. They are
no longer afraid of competition from the international auto majors.
To conclude, the automobile sales are expected to experience a boom in the coming years and
we might get to see a couple more automotive giants invading the Indian territories and
locking horns with the Indian titans.
The two factors that are having their impact felt in this segment are the growing buying
power of the middle class and the low-interest EMI schemes. With the changing times, more
technologically advanced and fuel efficient vehicles would crowd the city streets and rule the
roost everywhere.
What does the rise of diesel car mean for the petrol car manufacturers? The Japanese and the
Koreans have reason to worry because they have already made investments on petrol engines
in India. It is all about the running cost of diesel cars that has people interested in buying
them. Because Renault is also bring in a diesel batch back and sedan, with the same DCI
engine that goes into the Nissan Micra.
Volume:01, Number:01, Nov-2011 Page 39 www.theinternationaljournal.org
Both Honda and Toyota petrol players whom have lost their market share. Diesel cars have
an overwhelming 75.2: 25 majority among all vehicles that are sold with both petrol and
diesel variants. To get better Grades, plans to export 250,000 vehicles manufactured in its
India plant by 2011. Similar plans are for General Motors.
The FDI inflows in August 2009 were USD 3.26 billion. Contrary to smart recovery in the
domestic economy and a rebound in exports, overseas investment show a slackening trend in
the current fiscal year. For the April-August period of 2010-11, FDI inflows declined by 35
per cent to USD 8.92 billion compared to USD 13.8 Billion in the same period last year.
Global economic recovery is one of the reasons
For declining FDI in India. "The main reason for the decline in FDI is slump in the major
western economies like the US and Europe. This is not a good news for Indian economy.
This reflects that global economic recovery is still fragile and some impact of that would be
reflected in FDI. (DK Joshi, Crisil Chief economist).
Passenger Car:
Currently there are diesel cars with a price tag of Rs. 4 lakh and more. Th Nano, expected at
sub-Rs. 3 lakh could just shape up the market. Korean have reasons to worry because they
have already made investments on petrol engines in India. Demand for diesel vehicles has
increased so much that it has more than made up for the fall in demand for petrol vehicles.
Nearly 3,000 VW Polo petrol variants remain in the stockyard unsold. Ramping of
production of its diesel cars is not difficult for VW as all engines are imported from
Germany. In September 2011 petrol rates and interests rates are high for loans, buyers are
likely to go for diesel cars for their running cost.
FDI Policy Implications:
The structure of India's auto industry is unique when compared to other developed
economies. Besides a strong four-wheeler market, India also has sizeable two-wheeler, three-
wheeler and commercial truck markets. The country rolled out a total of 8.5 million vehicles
in 2004, of which 1.2 million were passenger cars and multi-utility vehicles. By 2010, India
will be a two million passenger-car market and will become a three million market by 2015,
according to Roland Berger Strategy Consultants. If only India had previously developed an
adequate road infrastructure, these volumes could have already been reached. Purchasing
power for such volumes exists today, but road development is moving at a far slower pace.
Although the foundation for a strong passenger-car industry was laid in the early 1990s, real
momentum has been building only since 2000, when the government significantly changed
its policies, taking steps to make manufacturing more internationally competitive by creating
export promotion zones and expanding infrastructure. India also freed industry from
excessive regulations five years ago.
Its stance toward foreign direct investment also became less restrictive. In China a joint
venture is required for domestic production. India's auto FDI policy, on the other hand,
allows global DEMs to have 100% ownership, which has created a healthy industry from the
start. The Indian market therefore is full of real players and not "aspirers."
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***