Experts pegging India to be better than west and china in auto production

India recently barged in to the top-10 list, very recently, of auto manufacturing countries in the globe. With these latest developments India is better poised to consolidate its position as economies like Europe, East Asia and North America are struggling to grow.

On the other horizon the recovery from the economic downturn of 2008-09 has been slow in Japan and much of Western Europe. World’s second largest economy, China has stopped the incentives availed to auto buyers, as part of the stimulus package, and is currently actively discouraging the sales of cars in order to come to terms with the chaos on the roads.

But experts are of the view that there is a great potential for growth driven by the ever growing economy and an aspiring and young population, regardless of the fact that when compared to other markets India is considered to be small.

At the initiation of the first decade of the 21st century, India accounted for only 1.4 percent of global automobile production, which by now has risen up to a healthy 5 per cent, according to SIAM (Society of Indian Automobile Manufacturers). India was 15th on the list of the largest automobile manufacturing nation in the year 2000, but now has climbed up the ladder and now ranks at number 7.

A forecast of an approximate nine million has been done for the Indian vehicle production in passenger cars by the year 2020, while that of the 2-wheelers at the same time will be an astonishing 30 million units, observed by secretary for department for heavy industries, B.S Meena.

The production of 2-wheelers and passenger cars in the year 2010 was 12.7 million and 1.95million respectively. This was according to the report by Ernst and Young, a consultancy firm.

Meena further added that if the Indian car industry can reach these numbers, India will be ranked among the top-5 vehicle producing nation across the globe by the year 2020, propelled with the consumption domestically, which has been growing manifold to Rs 5.6 Lakh crores. According to her this is indeed realistic as previously the consultancy firm has projected India becoming the 7th largest automobile-manufacturing country by the year 2016. By the look of the situation India has already reached that milestone a well ahead by six years ahead of projection.

The domestic Indian auto sector grew at the rate of 32.69 percent in the year 2010, which is marginally ahead of China’s 32.44 per cent, according to the automobile lobbying group SIAM.  The latest data from the China Association of Automobile Manufacturers reveals that china produced 18,264,700 vehicles in the last year as against India’s 17,076,659. The reported data excludes the 2 wheeler production.

If we compare in the Macros, Indian auto market still remains comparatively small with regards to countries like china. India’s vehicle penetration is amongst the lowest across the world, with 14 automobiles per 1,000 people. But India is touted as the second quickest growing economy across the globe, only second to china which is definitely a important that has led to this surge in the auto sector.

But all is not gloomy; India is home to the world’s largest young population, with half the population below the age of 25 years. Effectively, India has 20% of the world’s population below the age of 25. If you convert this percentage into numbers it translates to 610 million are potential car buyers, and this figure dwarfs the entire population of the United States of America, and also is nearly two-third of the global vehicles, which is estimated at 965 trucks and cars. This was observed by Mr. Carlos Gomes, in his global auto report, senior economist of Scotia capital, in his recent report.

In the meantime China is busy discouraging its auto market in order to come to terms with its growing traffic problems. The government already has scrapped all the incentives to the buyers, major cities like Shanghai and Beijing have even imposed restriction so as to desist people from buying cars.

Capital of China Beijing with a population of 5.1 million cars has put a ceiling for new car sales at 2, 40,000 units for this year. Of the 2,00,000 people who have applied for the car purchase license in this month alone, only 20,000 will be granted licenses through a monthly lottery scheme.

The industrial hub of Shanghai has also followed suit. Increasing the maintenance cost cars or imposing restriction has become a tool to discourage buyers of new cars, Gomes observed in his report. He was of the view that such policies would drastically affect the cheaper local brands.

Gomes further forecasted that growth of car sale in China is expected to subside to about 15% for the year 2011, caused by the scrapping of incentives by government and the reduction of the issuance of license plate by the capital city, Beijing, in its quest to tackle the congestion on the roads.

Roland Berger, a consultancy firm anticipated a 15% rise for the automobile market of China for the year 2011, while experts at the Deutsche bank put it at 11%. China automotive review, a publication expects growth to become zero, while HIS global insight is of the view that China’s trucks for Heavy duty sales will be in the reds for the year 2011.

First world countries in western Europe witnessed just a marginal rise in 2010, whereas the united states growth was registered at 11.3%, reported Internationale des Constructeurs d’automobiles, a Paris based organization.

Across all the segment Indian market is estimated to grow at 16-18 % in the year 2011, Reported SIAM. Coming few years were projected to be crucial for the Indian automobile sector as it graduates in becoming one the prominent production and automotive design centers internationally and Indian suppliers and original equipment manufacturers establish themselves as major players to reckon with. This will solicit transformation in business practices by organizations along with investments in capacity building, so as to successfully oversee local and global operations and to create value for their shareholders, remarked Rakesh Batre, automotive practice at E&Y

Chairman of Indian auto major Maruti Suzuki India limited, Mr. Bhargava has voiced a word of caution regarding the poor development in infrastructure which is staring in the face of the industry and threatening to peg back the expectation in growth. He further said that people with higher disposable income will continue to aspire for their own means of transport but the government need to show some resolve and political will to improve suburban and urban infrastructures by implementing development program.

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