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back to index backASIAtalk November,  2005


India: So much potential, so many barriers to growth

Although often overshadowed by China's monolithic presence, India represents a viable alternative for those manufacturers looking to either complement existing Asia-Pacific operations or make a strategic, longer-term investment in an emerging domestic market.

Current AUTOFACTS light vehicle forecast analysis (05Q4) indicates that India will contribute 9.2% to global capacity growth (736K units) from 2004-2012. This growth ranks third behind only China and Iran and is greater than ASEAN, Japan and S. Korea combined.

India has become an increasingly attractive investment location following the liberalization and deregulation of the market in 1991. However, serious infrastructure deficiencies and a government mired in bureaucracy has so far constricted the full potential of the market.

See chart "Light Vehicle Capacity Investment (Units)", click here.

- A light vehicle market still in a relatively early stage of development and the purchasing power of an emerging middle class will combine to drive future demand for domestically-produced vehicles.

- The Indian market remains dominated by B/C segment compact cars, accounting for 65% of total assembly output in 2004.

- Increased investment and newly-formed strategic alliances (i.e. Tata/Fiat) will result in an increasingly competitive marketplace, especially for vehicles competing solely on price.

- Diverging strategies are beginning to emerge in this highly cost-sensitive market (currently 80% of vehicles sold have a transaction price of under Rs. 500,000 or US$11,120). Some OEMs will aim to attract those consumers on the cusp of a vehicle purchase, while others will aim to transition existing owners upmarket to higher-value vehicles.

- India's infrastructure is inadequate to sustain current economic growth. A national highway program to establish commercial routes through India's largest cities has been plagued by delays, while investment in power generation has failed to keep pace with demand (+70% per capita consumption since 1990).

- Thailand has benefited disproportionately from the Thai-India bi-lateral FTA, exposing India's cost disadvantages, as favourable labour costs are outweighed by excessive taxation and logistics costs in the auto supply sector.

- However, skill-intensive component production and back office” outsourcing are expected to continue growing due to India's highly educated workforce.

- India may still hold a comparative advantage to China if it can effectively harvest and retain its domestic talent base and capitalize on the opportunity to attract more foreign investment.

Source: PwC Automotive Institute - GAI


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