Post on 11-Mar-2018
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Chapter - III
Review of two wheeler industry in India- Opportunities, Issues and
Challenges
The third chapter deals with Review of two wheeler industry in India-
Opportunities, Issues and Challenges, it highlights on Policy
Environment and Evolution of Indian Auto Industry, Policy Framework
Surrounding the Indian Auto Sector, Emission and Safety Standards,
Evolution of Two-wheeler Industry in India, Demand forecast for
motorcycles and scooters for 2015 - 16, Two wheeler companies and
their Brands, Year wise production of Two-Wheelers in India,
Domestic Sales of Two-Wheelers in India, Motorcycle Majors’ Market
Share (Domestic Sales, 2010-11) and Segmental Classification and
Characteristics.
Introduction
The automobile sector is a key player in the global and Indian economy.
The global motor vehicle industry (four-wheelers) contributes 5 per cent
directly to the total manufacturing employment, 12.9 per cent to the total
manufacturing production value and 8.3 per cent to the total industrial
investment. It also contributes US$560 billion to the public revenue of
different countries, in terms of taxes on fuel, circulation, sales and
registration. The annual turnover of the global auto industry is around
US$5.09 trillion, which is equivalent to the sixth largest economy in the
world (Organisation Internationale des Constructeurs d'Automobiles,
2006). In addition, the auto industry is linked with several other sectors
in the economy and hence its indirect contribution is much higher than
this. All over the world it has been treated as a leading economic sector
because of its extensive economic linkages. India’s manufacture of 7.9
million vehicles, including 1.3 million passenger cars, amounted to 2.4
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per cent and 7 per cent, respectively, of global production in number.
The auto-components manufacturing sector is another key player in the
Indian automotive industry. Exports from India in this sector rose from
US$1.0 billion in 2003-04 to US$1.8 billion in 2005-06, contributing 1
per cent to the world trade in auto components in current USD. In India,
the automobile industry provides direct employment to about 5 lakh
persons. It contributes 4.7 per cent to India’s GDP and 19 per cent to
India’s indirect tax revenue. Till early 1980s, there were very few
players in the Indian auto sector, which was suffering from low volumes
of production, obsolete and substandard technologies. With de-licensing
in the 1980s and opening up of this sector to FDI in 1993, the sector has
grown rapidly due to the entry of global players. A rapidly growing
middle class, rising per capita incomes and relatively easier availability
of finance have been driving the vehicle demand in India, which in turn,
has prompted the government to invest at unprecedented levels in roads
infrastructure, including projects such as Golden Quadrilateral and
North-East-South-West Corridor with feeder roads.2 The Reserve Bank
of India’s (RBI) Annual Policy Statement documents an annual growth
of 37.9 per cent in credit flow to vehicles industry in 2006.3 Given that
passenger car penetration rate is just about 8.5 vehicles per thousand,
which is among the lowest in the world, there is a huge potential
demand for automobiles in the country.
There are two distinct sets of players in the Indian auto industry:
Automobile component manufacturers and the vehicle manufacturers,
which are also referred to as Original Equipment Manufacturers
(OEMs). While the former set is engaged in manufacturing parts,
components, bodies and chassis involved in automobile manufacturing,
the latter is engaged in assembling of all these components into an
automobile. The Indian automotive component manufacturing sector
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consists of 500 firms in the organised sector and around 31,000
enterprises in the unorganised sector. In the domestic market, the firms
in this sector supply components to vehicle manufacturers, other
component suppliers, state transport undertakings, defence
establishments, railways and even replacement market. A variety of
components are exported to OEMs abroad and after-markets worldwide.
The automobile manufacturing sector, which involves assembling the
automobile components, comprises two-wheelers, three-wheelers, four-
wheelers, passenger cars, light commercial vehicles (LCVs), heavy
trucks and buses/coaches. In India, mopeds, scooters and motorcycles
constitute the two-wheeler industry, in the increasing order of market
share. In 2005-06, the Indian auto sector had produced over 7.6 million
two wheelers and 1.3 million passenger cars and utility vehicles. India is
a global major in the two-wheeler industry producing motorcycles,
scooters and mopeds principally of engine capacities below 200 cc. It is
the second largest producer of two-wheelers and 13th largest producer
of passenger cars in the world. Tata figures among the ten largest global
manufacturers of LCVs, heavy trucks, buses and coaches, while it is
among the top 25 in passenger car manufacturing. The two-wheeler
industry in India has grown at a compounded annual growth rate of
more than 10 per cent (in number) during the last five years and has also
witnessed a shift in the demand mix, with sales of motorcycles showing
an increasing trend. Indian twowheelers comply with some of the most
stringent emission and fuel efficiency standards worldwide. The
passenger car segment has been growing at a rapid pace -- from over
6,50,000 vehicles sold during 2001 to over a million vehicles sold
during 2004-05, showing an annual growth rate of 17.36 per cent.
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Global Comparisons
The Investment Information and Credit Rating Agency of India (ICRA,
2003) studies the competitiveness of the Indian auto industry, by global
comparisons of macro environment, policies and cost structure. This has
a detailed account on the evolution of the global auto industry. The
United States was the first major player from 1900 to 1960, after which
Japan took its place as the cost-efficient leader. Cost efficiency being the
only real means in as mature an industry as automobiles to retain or
improve market share, global auto manufacturers have been sourcing
from the developing countries. India and China have emerged as
favourite destinations for the first-tier OEMs since late 1980s. There are
only a few dominant Indian OEMs, while the number of OEMs is very
large in China (122 car manufacturers and 120 motorcycle
manufacturers). According to this study, the major advantage of the
Indian economy is educated and skilled workforce with knowledge of
English. Our disadvantages include poor infrastructure, complicated tax
structure, inflexible labour laws, inter-state policy differences and
inconsistencies. The drivers of Chinese economic growth are FDI,
labour productivity growth, which was 1.5 times higher than that in
India in the last decade, and domestic demand. Fiscal pressure is
mounting on the Chinese government, while India is in a better state.
Based on comparisons of cost composition to pinpoint the areas in
which the Indian auto industry is at a disadvantage, this study
recommends a VAT regime, speedy procedures, imports duty cuts on
raw materials, common testing and design facility, labour reforms,
upgradation of design and engineering capabilities and brand building.
ICRA (2004) analyses the implications of the India-ASEAN Free Trade
Agreements for the Indian automotive industry. ASEAN economies are
globally more integrated than India. The current size of Indian and
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ASEAN market for automobiles is more or less the same but the Indian
market has a larger growth potential than the ASEAN market due to the
low level of penetration. The labour cost is low in India but the stringent
labour regulations erode this advantage. The level of infrastructure is
better in India than Indonesia and the Philippines but worse than that in
other ASEAN countries. The financial and banking sector is better in
India than in the ASEAN countries. The study notes that there is a huge
excess capacity in ASEAN countries, in comparison with that in India,
which will help them to tackle the excess demand that may arise in
future. The study finds a 20-30 per cent cost disadvantage for Indian
companies on account of taxation and infrastructure and 5-20 per cent
labour cost advantage over comparable ASEAN-member-based
companies. Similar findings are noted in a study by the Automotive
Component Manufacturers Association of India (ACMA, 2004),
particularly in comparison with Thailand. ICRA (2004b) analyses the
impact of Preferential Trade Agreement (PTA) with MERCOSUR on
the automobile sector in India. This study finds a significant threat of
imports in sub-compact and compact cars and certain auto-components.
There is huge excess capacity and intense competition in MERCOSUR
countries, propelling them to look for export opportunities. This is true
especially of Brazil, which has a well developed auto-component sector
with huge economies of scale. Further, weak currency in all
MERCOSUR countries provides a natural tariff barrier. In addition,
MERCOSUR countries have an equitable arrangement within
themselves to have a balanced trade, with fair level of exports and
imports. The Indian auto industry could gain from this PTA with
MERCOSUR only if it is assured of the balanced trade, as MERCOSUR
countries practice among themselves.
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ICRA (2005) studies the possible impact of FTA with South Africa on
the Indian automobile industry. The study finds that there are a few
policies in South Africa that indirectly subsidise the auto industry,
unlike India, in terms of financial grants. Hence it is suggested that India
could minimise losses only if it goes for inclusion of certain auto
components, which involve huge logistic costs of imports, creating a
natural protection (for example, stampings, glass, seats, plastics and
tyres) and those in which India enjoys economies of scale and is cost-
competitive (e.g. castings and forgings) in this FTA. If South Africa is
ready to discontinue the schemes such as Motor Industry Development
Programme (MIDP), India could include all automotive components in
this FTA. There should be a minimum local content of 60 per cent and
the agreement should not be trade balancing as India will not gain much
in that case.
Policy Environment and Evolution of Indian Auto Industry
In this section, studies on the policy environment pertaining to the
Indian auto industry and its evolution over the years have been
reviewed. Pingle (2000) reviews the policy framework of India’s
automobile industry and its impact on its growth. While the ties between
bureaucrats and the managers of state-owned enterprises played a
positive role especially since the late 1980s, ties between politicians and
industrialists and between politicians and labour leaders have impeded
the growth. The first phase of 1940s and 1950s was characterised by
socialist ideology and vested interests, resulting in protection to the
domestic auto industry and entry barriers for foreign firms. There was a
good relationship between politicians and industrialists in this phase, but
bureaucrats played little role. Development of ancillaries segment as
recommended by the L.K. Jha Committee report in 1960 was a major
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event that took place towards the end of this phase. During the second
phase of rules, regulations and politics, many political developments and
economic problems affected the auto industry, especially passenger cars
segment, in the 1960s and 1970s. Though politicians picked winners and
losers mainly by licensing production, this situation changed with oil
crises and other related political and macro-economic constraints.
The third phase starting in the early 1980s was characterised by
delicensing, liberalization and opening up of FDI in the auto sector.
These policies resulted in the establishment of new LCV manufacturers
(for example, Swaraj Mazda, DCM Toyota) and passenger car
manufacturers. All these developments led to structural changes in the
Indian auto industry. Pingle argues that state intervention and ownership
need not imply poor results and performance, as demonstrated by Maruti
Udyog Limited (MUL). Further, the noncontractual relations between
bureaucrats and MUL dictated most of the policies in the 1980s, which
were biased towards passenger cars and MUL in particular. However,
D’Costa (2002) argues that MUL’s success is not particularly
attributable to the support from bureaucrats. Rather, any firm that is as
good as MUL in terms of scale economies, first-comer advantage,
affordability, product novelty, consumer choice, financing schemes and
extensive servicing networks would have performed as well, even in the
absence of bureaucratic support. D’Costa has other criticisms about
Pingle (2000). The major shortcoming of Pingle’s study is that it ignores
the issues related to sectors pecific technologies and regional differences
across the country. Piplai (2001) examines the effects of liberalization
on the Indian vehicle industry, in terms of production, marketing,
export, technology tie-up, product up gradation and profitability. Till the
1940s, the Indian auto industry was non-existent, since automobile were
imported from General Motors and Ford. In early 1940s, Hindustan
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Motors and Premier Auto started, by importing know-how from General
Motors and Fiat respectively. Since the 1950s, a few other companies
entered the market for two-wheelers and commercial vehicles. However,
most of them either imported or indigenously produced auto-
components, till the mid-1950s, when India had launched import
substitution programme, thereby resulting in a distinctly separate auto-
component sector. Due to the high degree of regulation and protection in
the 1970s and 1980s, the reforms in the early 1990s had led to a boom in
the auto industry till 1996, but the response of the industry in terms of
massive expansion of capacities and entry of multinationals led to an
acute over-capacity. Intense competition had led to price wars and
aggressive cost-cutting measures including layoffs and large-scale
retrenchment. While Indian companies started focusing on the price-
sensitive commercially used vehicles, foreign companies continued
utilizing their expertise on technology-intensive vehicles for individual
and corporate uses. Thus, Piplai concludes that vehicle industry has not
gained much from the reforms, other than being thrusted upon a high
degree of unsustainable competition. In August 2006, a Draft of
Automotive Mission Plan Statement prepared in consultation with the
industry was released by the Ministry of Heavy Industries and Public
trasnsport.
Policy Framework Surrounding the Indian Auto Sector
This chapter explains the evolution of policy framework that surrounds
the Indian auto sector, over the years. Emission norms and standards and
inter-state differences in policies are also discussed under different
sections in this chapter.
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Evolution of the Policy Framework
The Indian auto policy has generally been in line with the prevailing
industrial policy framework. During the British regime, India had no
auto industry to begin with and all the automobiles were imported from
the global auto manufacturers such as General Motors and Ford Motors.
In the 1940s, Hindustan Motors and Premier Motors were established by
Indian entrepreneurs, by importing know-how from General Motors and
Fiat respectively. In the 1950s, a few other companies such as Mahindra
and Mahindra, Ashok Motors (with Technical Collaboration with
Leyland Motors) and Bajaj Auto entered the market for commercial
vehicles and two-wheelers. Most of them either imported auto-
components or produced them in-house, till mid-1950s, when India
launched import substitution programme. This development, followed
by the L.K. Jha Committee’s recommendations in 1960 to develop an
indigenous ancillaries sector, resulted in the evolution of a separate
auto-component sector. From being a highly protected segment pre-
1980s, the auto-component industry in India has emerged into a global
player, supplying not only to domestic firms but also to numerous
foreign Original Equipment Manufacturers (OEMs). Till 1991, the
Phased Manufacturing Programme (PMP), under which domestic OEMs
had to increase the proportion of domestic inputs over a specific time
period, had laid foundation for the Indian auto-component sector.
However, assured demand for their products had rendered many players
in this sector inefficient. This led to abolition of this programme under
the New Industrial Policy of 1991. Passenger car segment was restricted
to licensed production. Commercial vehicles and two-wheelers were
also restricted by licences, but the extent of restrictions was less and
hence there were quite a few new entrants in these segments in the
1980s, especially in the CV segment.
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The reforms of 1991, followed by the entry of global OEMs and Tier-1
suppliers in India, paved the way for expansion of range, technologies
and number of auto-component manufacturers. This led to a major
transition in the Indian auto industry, wherein the vehicle manufacturers
started outsourcing most of their components from the autocomponent
manufacturers. Ever since the delicensing of passenger car segment in
1993, the Indian auto industry has grown bigger, with new international
players entering the market. Since 2000, there have been many
significant policy developments such as removal of Quantitative
Restrictions (QRs) on auto imports and permission for 100 per cent FDI.
Financial liberalisation in the early 1990s enhanced credit availability to
consumers and this, in turn, led to a boost of auto loans in India, which
was a key driver of demand for automobiles. This facilitated the
transition of passenger cars from being regarded as luxury goods,
accessible only for the elites, to necessary goods, accessible to a wider
section of the society.
Since 2000, India has been observing a Safety Decade. Efforts have
been made for aligning Indian safety standards with global ones.
Roadmap has been prepared till 2007 for safety standards, while an
outline has been drawn till 2010. The National Road Safety Board is
under active consideration by the government, which will be responsible
for road-related measures, vehicle-related measures and research on
road safety. One of the major measures, which is likely to be
implemented in the near future, is the measurement of road-worthiness
of vehicles, based on which a regulatory body under the government
may be engaged in certifying, whether a motor vehicle is road-worthy or
not, in terms of emissions and safety. Auto policy, 2002, stresses on the
need to provide direction to the growth and development of the auto
industry in India. This policy document resulted in reduction of duties in
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the auto-component sector to a large extent and the automobile sector to
some extent and extension of R&D incentives to the auto sector. R&D
thrust by the government can be inferred from the recent measures such
as 150 per cent weighted deduction on R&D expenditure and increased
R&D budget allocation for this sector. In 2005-06, a few major policy
developments relevant for the auto sector took place in India.
Implementation of VAT has taken place in a few states. Euro III
emission norms have been introduced in 11 metro cities and at the same
time, the Euro II norms have been implementation in rest of the cities.
These norms have been delayed for the diesel vehicles due to the
unavailability of fuel. Therefore, the government has decided to
implement these norms in phased manners in selected northern states.
Finance Bill 2006 reduced excise duty of motor vehicles to 12.5 per cent
against 15 per cent before and import duty of raw materials to 5-7.5 per
cent against 10 per cent before and has given a thrust to the development
of infrastructure, which is the key factor influencing auto industry, both
as a driver of demand and as a facilitator of enhancing competitiveness
in manufacturing of auto products.
The introduction of above mentioned norms, in addition to safety and
noise norms have led to the increase in the workload on the Automotive
Research Association of India (ARAI) testing facilities. Keeping this in
mind, the Government of India has made various efforts to improve the
testing facilities. These include the approval of two proposed additional
testing facilities, upgradation of the ARAI & Vehicles Research and
Development Establishment (VRDE), establishment of a world class test
track and building of a few additional centres under the NATRIP in and
around the major auto hubs in India. This is an industry-government
joint initiative, involving an investment of Rs. 1,718 crore. The
additional centres would be set up in Manesar, Pune, Ahmednagar,
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Chennai and Indore. Efforts have also been made to promote alternative
fuels. For this, the following three initiatives have been launched:
1. Agreement with the sugar industry on the off-take of ethanol has been
made.
2. An action plan has been prepared to grow and procure bio-diesel at
fixed price.
3. Hydrogen energy roadmap has been prepared by Ratan Tata.
According to this roadmap, 10 lakh hydrogen-fuelled vehicles will be
produced by 2010. The accession to the UNWP (United Nations
Working Party) 29 -1998 is another important decision taken by the
Indian Government in 2005-06. This agreement will prove a significant
step towards the global integration of the Indian auto industry. A great
deal of progress has been made on bilateral and regional trade
agreements. The bilateral agreement with Chile and Singapore and
regional agreements with SAFTA (South Asian Free Trade Agreement)
and MERCOSUR (Southern Common Market) have been concluded,
while the bilateral discussion with Thailand and regional discussions
with ASEAN and BIMSTEC (Bay of Bengal Initiative for Multi-
Sectoral Technical and Economic Cooperation) have reached the final
stage. In August 2006, a Draft of Automotive Mission Plan Statement
was released by the Ministry of Heavy Industries, in consultation with
industry. This was released as a report in December 2006. This
document draws an action plan to take the turnover of the automotive
industry in India to US$145 billion by 2016 with special emphasis on
small cars, MUVs, two-wheelers and auto-components. Measures
suggested include setting up of a National Auto Institute, upgrading
infrastructure, cutting the duties of raw materials and fiscal incentives
for R&D.
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In August 2006, the Working Group on Automotive Industry in the
Ministry of Heavy Industries has brought out a report for the Eleventh
Five Year Plan. This document stresses on the need of speeding up the
move towards VAT in the states and GST at the Centre. Labour
regulations, paperwork involved in government-related transactions,
internal trade barriers, infrastructure bottlenecks, raw materials, human
capital, increasing interest rates and threats due to FTAs are, as
mentioned in this document, barriers to competitiveness. This report
notes that the effective levy is lower for a Counter-Vailing Duty (CVD)
than excise duties locally, because of the fact that excise is made after
including the post-manufacturing expenses in the price, while imported
Completely Built Units (CBUs) have the advantage of being levied the
CVD before post manufacturing expenses. In addition, the document
recommends various other measures such as upgrading human
resources, mandatory inspection and control and retirement of
vehicles based on road-worthiness. import tariffs of commercial vehicles
to 10 per cent is expected to induce further competition in the Indian
commercial vehicles sector. Since CVs are required in the development
of infrastructure, duty reduction on CVs may give a boost to
infrastructure. Increase in total tax burden is certain to occur now,
because of the increase in educationcess from 2 per cent to 3 per cent of
total taxes. Extension of R&D incentives for five more years, reduction
of Central Sales Taxes (CST) and increased infrastructural expenditure
are positive features of the budget, for auto sector.
Emission and Safety Standards
In India, safety standards were introduced in the 1960s in auto-
components, while the Central Motor Vehicles Rules came into
existence in 1989. In 1991, the first state emission norms came into
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force for petrol vehicles and in 1992 for diesel vehicles. From April
1995, fitting of catalytic converters in new petrol-driven passenger cars
was mandated in the four metros and unleaded petrol was also
introduced. From April 2000, unleaded petrol is available in the entire
country. As for road safety, numerous awareness programmes are
arranged all over the country, since 2000-10 is a safety decade. In
developed countries, lead was phased out from petrol over a period of
more than 10 years, while in India this was achieved in just six years.
The time gap between the introduction of norms in Europe and India is
narrowing down gradually. Euro I was introduced in the EU in 1983,
while the same was introduced to India in 1996. Euro II was introduced
in the EU in 1996-97. Bharat Stage-II norms, which are the Indian
counterparts of Euro II, have been introduced for smaller passenger
vehicles (Gross Vehicle Weight < 3.5 tonnes) in 2000, and for heavier
vehicles (Gross Vehicle Weight > 3.5 tonnes) from 2001 in National
Capital Region of Delhi. For Mumbai, Chennai and Kolkata, these
standards were extended to different months in 2001. Later, these norms
were extended to the rest of the country in phases by 2005. However, for
some categories of vehicles such as two-wheelers and three-wheelers,
new generation norms are yet to be announced. Bharat Stage-III norms
have been implemented in many Indian states in phases. There are
numerous other policy initiatives from the government and industry to
encourage adoption of environment-friendly technologies, such as
hydrogen energy initiative by Tata and a few other government policies
enumerated in the previous subsection. However, there were some
contradictions and policy changes in North-Eastern states, in terms of
implementation of emission norms. The component-suppliers of an
MUV major based in Mumbai, covered in our field survey, had adapted
their technologies to suit Bharat-I norms, which were introduced in
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North-Eastern states in 1997. With the implementation of Bharat-II
norms in this region in 2005, they had adapted their technologies
accordingly. However, it was later found that fuel that is consistent with
Bharath-II norms was not available in sufficient quantity and hence
Bharat-I was implemented again, instead of Bharath-II. Consequently,
some of the suppliers had to close down their operations partly or fully.
Hence the emission norms-related policies should be designed in such a
way that the manufacturers get sufficient time to adapt their processes
and technologies. At the same time, both domestic and foreign firms at
all levels should be prepared for the latest international norms.
Inter-State Differences in Policies
A major weakness in Indian policy framework is inter-state differences
in policies, as our field survey respondents reported. This section
summarises the major industrial policy initiatives in the leading auto-
producing states. In addition to these policy differences, there are
individual memoranda of understanding between the companies and
state governments, resulting in further specialised incentives for the
companies.
Tax Policies
· Maharashtra is the only state that levies octroi taxes, among the major
autoproducing states in India. Thus, firms in this state find it expensive
to procure components from other states. However, in an attempt to
develop its backward districts, the Maharashtra Government is
providing few incentives to the industrial units that are set up in these
districts. These incentives include the exemption from the electricity
duty for 10 years, stamp duty and registration fees for 5 years. There is
octroi refund to the industries in these places. The Haryana Government
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provides exemption from sales tax and Local Area Development Tax
(LADT) for certain time period for the industries that are newly set up.·
Tamil Nadu offers exemption from the electricity tax for three years to
all the new projects with investment between Rs. 50 crore and Rs. 100
crore. · Uttarakhand provides many tax incentives, such as the
following:
o Exemption from central excise is given for 10 years of establishment.
o 100 per cent income tax exemption is given for the first five years of
establishment, followed by 30 per cent for the next five years.
o Exemption from entry tax on plant and machinery is granted.
Subsidies
· The Maharashtra Government provides capital subsidy to the SSIs.
· The Haryana Government gives financial assistance to the SMEs for
patent registration. It also provides capital subsidy to the export oriented
firms and interest-free loan to the Small Scale Industries (SSIs).
· The Tamil Nadu Government provides the following subsidies:
o Capital subsidy of Rs. 25 lakh to all the new projects with investment
between Rs. 50 crore and Rs. 100 crore. The amount of subsidy
increases with the volume of investment.
o Reimbursement of patent registration fee up to 50 per cent of expenses
or Rs. 1 lakh, whichever is lower, is done.
o Subsidy of 25 per cent or Rs. 25 lakh, whichever is lower, is given for
the setting up of Effluent Treatment Plants (ETPs).
· The Uttarakhand government provides the following subsidies:
o Capital subsidy of 15 per cent with a maximum of Rs. 30 lakh is
provided.
o 3 per cent interest incentives with a maximum of Rs. 2 lakh are given
for the SSIs.
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The Automotive industry in India is one of the largest in the world and
one of the fastest growing globally. India manufactures over 18 million
vehicles (including 2 wheeled and 4 wheeled) and exports more than 2.3
million every year. It is the world's second largest manufacturer of
motorcycles; there are eight key players in the Indian markets that
produced 13.8 million units in 2010-11. At present the dominant
products of the automobile industry are Two Wheelers with a market
share of over 75% and passenger cars with a market share of about 16%.
Commercial vehicles and three wheelers share about 9% of the market
between them. The industry has attained a turnover of more than USD
35 billion and provides direct and indirect employment to over 13
million people. The Indian two-wheeler industry has come a long way
since its humble beginning in 1948 when Bajaj Auto started importing
and selling Vespa Scooters in India. Since then, the customer
preferences have changed in favour of motorcycles and gearless scooters
that score higher on technology, fuel economy and aesthetic appeal, at
the expense of metal-bodied geared scooters and mopeds. These changes
in customer preferences have had an impact on the fortunes of the
players. The erstwhile leaders have either perished or have significantly
lost market share, whereas new leaders have emerged. With an
expanding market and entry of new players over the last few years, the
Indian two wheeler industry is now approaching a stage of maturity.
Previously, there were only a handful of two-wheeler models available
in the country. Currently, India is the second largest producer of two-
wheelers in the world. It stands next only to China and Japan in terms of
the number of two wheelers produced and the sales of two-wheelers
respectively. There are many two-wheeler manufacturers in India. The
major players in the 2-wheeler industry are Hero Honda, Bajaj Auto Ltd
(Bajaj Auto), TVS Motor Company Ltd (TVS) and Honda Motorcycle
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& Scooter India, Private Limited (HMSI) accounting for over 93% of
the sale in the domestic two wheeler market. It is noteworthy that
motorbikes segment’s share is just below 80% of the total 2W market in
India which is dominated by Hero Honda with a market share of 59%.
Scooter segment’s market share is about 18% which is led by Honda
Motorcycle & Scooter India, Private Limited (HMSI) with a market
share of 43%.Threefourth of the total exports in the two wheeler
automobile industry are made in the motorcycle segment. Exports are
made mainly to South East Asian and SAARC nations. The level of
technology change in the Motor vehicle Industry has been high but, the
rate of change in technology has been medium. Investment in the
technology by the producers has been high. However, further investment
in new technologies will help the players to be more competitive.
Currently, India’s increasing per capita disposable income which is
expected to rise by 106% by 2015 and growth in exports is playing a
major role in the rise and competitiveness of the industry. Consumers
are very important for the survival of the Motor Vehicle manufacturing
industry. In 2008-09, customer sentiment dropped, which burned on the
augmentation in demand of cars. The key to success in the industry is to
improve labour productivity, labour flexibility, and capital efficiency.
Having quality manpower, infrastructure improvements, and raw
material availability also play a major role. Access to latest and most
efficient technology and techniques will bring competitive advantage to
the major players. Utilising manufacturing plants to optimum level and
understanding implications from the government policies are the
essentials in the Automotive Industry of India.
This report on ‘Analysing the State Of Competition In Indian Two-
Wheeler Industry’ gives insight of the industry encompassing its
evolution in India, demand drivers, influence of supply side factors,
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commentary on industry players and competition and the trends in
domestic sales and exports. The report also shows the oligopolistic
nature of the Indian two wheeler industry and the propensity of the
major players to increase their share. In a rapidly growing two wheeler
industry, especially in developing economies like India, it is extremely
important to analyse the state of competition to check whether a few
firms may increase their dominance and also the implications of after
sale services provided by the two wheeler firms to consumers. An
important point also remains to look that why even after being the
world’s largest two wheeler industry, the Chinese two wheeler firms
haven’t been able to enter the Indian markets successfully? What
challenges a new entrant has to face in the industry?
EVOLUTION OF THE INDIAN TWO WHEELER INDUSTRY
BEFORE COMPETITION ACT, 2002
The two-wheeler industry (henceforth 2WI) consists of three segments
viz., scooters, motorcycles, and mopeds. The 2WI in India began
operations within the framework of the national industrial policy as
espoused by the Industrial Policy Resolution of 1956. This resolution
divided the entire industrial sector into three groups, of which one
contained industries whose development was the exclusive
responsibility of the State, another included those industries in which
both the State and the private sector could participate and the last set of
industries that could be developed exclusively under private initiative
within the guidelines and objectives laid out by the Five Year Plans
(CMIE, 1990). Private investment was channelized and regulated
through the extensive use of licensing giving the State comprehensive
control over the direction and pattern of investment. Entry of firms,
capacity expansion, choice of product and capacity mix and technology,
131
were all effectively controlled by the State in a bid to prevent the
concentration of economic power. However due to lapses in the system,
fresh policies were brought in at the end of the sixties. These consisted
of MRTP of 1969 and FERA of 1973, which were aimed at regulating
monopoly and foreign investment respectively. Firms that came under
the purview of these Acts were allowed to invest only in a select set of
industries. This net of controls on the economy in the seventies caused
several firms to a) operate below the minimum efficiency scale
(henceforth MES), b) under-utilize capacity and, c) use outdated
technology. While operation below MES resulted from the fact that
several incentives were given to smaller firms, the capacity under-
utilization was the result of i) the capacity mix being determined
independent of the market demand, ii) the policy of distributing imports
based on capacity, causing firms to expand beyond levels determined by
demand so as to be eligible for more imports. Use of outdated
technology resulted from the restrictions placed on import of technology
through the provisions of FERA. Recognition of the deleterious effects
of these policies led to the initiation of reforms in 1975 which took on a
more pronounced shape and acquired wider scope under the New
Economic Policy (NEP) in 1985. As part of these reforms, several
groups of industries were delicensed and ‘broadbanding’3 was permitted
in selected industries. Foreign investment was allowed in 3 Delicensed
industries meant that firms no longer required licenses from the State to
enter the industry or expand their plants. Broadbanding meant that a
firm could manufacture products related to the ones they were currently
making without the need for a separate license.
Select industries and norms under the MRTP Act were relaxed. These
reforms led to a rise in the trend rate of growth of real GDP from 3.7%
in the seventies to 5.4% in the eighties. However the major set of
132
reforms came in 1991 in response to a series of macroeconomic crises
that hit the Indian economy in 1990-91. Several industries were
deregulated, the Indian rupee was devalued and made convertible on the
current account and tariffs replaced quantitative restrictions in the area
of trade. The initiation of reforms led to a drop in the growth of real
GDP between 1990 –1992, but this averaged at about 5.5% per annum
after 1992. The decline in GDP in the years after reforms was the
outcome of devaluation and the contractionary fiscal and monetary
policies taken in 1991 to address the foreign exchange crisis. Thus the
Industrial Policy in India moved from a position of regulation and tight
control in the sixties and seventies, to a more liberalized one in the
eighties and nineties. The two-wheeler industry in India has to a great
extent been shaped by the evolution of the industrial policy of the
country. Regulatory policies like FERA and MRTP caused the growth
of some segments in the industry like motorcycles to stagnate. These
were later able to grow (both in terms of overall sales volumes and
number of players) once foreign investments were allowed in 1981. The
reforms in the eighties like ‘broadbanding’ caused the entry of several
new firms and products which caused the existing technologically
outdated products to lose sales volume and/or exit the market. Finally,
with liberalization in the nineties, the industry witnessed a proliferation
in brands. A description of the evolution of the two wheeler industry in
India before Competition Act, 2002 is usefully split up into four ten year
periods. This division traces significant changes in economic policy
making. The first time-period, 1960-1969, was one during which the
growth of the two-wheeler industry was fostered through means like
permitting foreign collaborations and phasing out of non-manufacturing
firms in the industry. The period 1970-1980 saw state controls, through
the use of the licensing system and certain regulatory acts over the
133
economy, at their peak. During 1981-1990 significant reforms were
initiated in the country. The final time-period covers the period 1991-
1999 during which the reform process was deepened. These reforms
encompassed several areas like finance, trade, tax, industrial policy etc.
We now discuss in somewhat greater detail the principal characteristics
of each sub period. The Indian economy was faced with several
problems at this time. Foreign exchange reserves were down to two
month’s imports, there was a large budget deficit, double digit inflation,
and with India’s credit rating downgraded, private foreign lending was
cut off. Also the Gulf war in 1990 brought about an increase in oil
prices, and India had to import oil for over US$ 2 billion (GATT
Secretariat, 1993).
The automobile industry being classified as one of importance under the
Industrial Policy Resolution of 1948 was therefore controlled and
regulated by the Government. In order to encourage manufacturing,
besides restricting import of complete vehicles, automobile assembler
firms were phased out by 1952 (Tariff Commission, 1968), and only
manufacturing firms allowed to continue. Production of automobiles
was licensed, which meant that a firm required a licensing approval in
order to open a plant. It also meant that a firm’s capacity of production
was determined by the Government. During this period, collaborations
with foreign firms were encouraged. This was a period during which the
overall growth rate of the two-wheeler industry was high (around 15%
per annum). Furthermore, the levels of restriction and control over the
industry were also high. The former was the result of the steep oil price
hikes in 1974 following which two-wheelers became popular modes of
personal transport because they offered higher fuel efficiency over
cars/jeeps. On the other hand, the introduction of regulatory policies
such as MRTP and FERA resulted in a controlled industry. The impact
134
of MRTP was limited as it affected only large firms like Bajaj Auto Ltd.
whose growth rates were curbed as they came under the purview of this
Act. However, FERA had a more far-reaching effect as it caused foreign
investment in India to be restricted. In the motorcycle segment FERA
caused technological stagnation, as a consequence of which neither new
products nor firms entered the market since this segment depended
almost entirely on foreign collaborations for technology. The scooter
and moped segments on the other hand were technologically more self-
sufficient and thus there were two new entrants in the scooter segment
and three in the moped segment. Between 1974-79, sales of two-
wheelers increased by 60%, while that of cars declined by 21% and
jeeps grew only by 11%. Indian motorcycles in the seventies had two
major drawbacks viz., low fuel-efficiency and high weight. Worldwide
however, there was a trend towards using high-strength, low-weight
materials for various components which resulted in vehicles that were
compact and had lower weight. Since fuel-consumption of a 2W
depended on its weight, lighter vehicles meant greater mileage. These
drawbacks were overcome in the eighties when foreign collaborations
were once again allowed.
The technological backwardness of the Indian two-wheeler industry
was one of the reasons for the initiation of reforms in 1981. Foreign
collaborations were allowed for all two wheelers up to an engine
capacity of 100 cc. This prompted a spate of new entries into the
industry the majority of which entered the motorcycle segment, bringing
with them new technology that resulted in more efficient production
processes and products. The variety in products available also improved
after ‘broadbanding’ was allowed in the industry in 1985. This gave
firms the flexibility to choose an optimal product and capacity mix
which could better incorporate market demand into their production
135
strategy and thereby improve their capacity utilization and efficiency.
These reforms had two major effects on the industry: First, licensed
capacities went up to 1.1 million units per annum overshooting the
0.675 million units per annum target set in the Sixth Plan. Second,
several existing but weaker players died out giving way to new entrants
and superior products.
The reforms that began in the late seventies underwent their most
significant change in 1991 through the liberalization of the economy.
The two-wheeler industry was completely deregulated. In the area of
trade, several reforms were introduced with the goal of making Indian
exports competitive. The two-wheeler industry in the nineties was
characterized by a) an increase in the number of brands available in the
market which caused firms to compete on the basis of product features
and b) increase in sales volumes in the motorcycle segment visà-vis the
scooter segment reversing the traditional trend. In the scooter segment,
models with features like self-starter facility, automatic transmission
system, gear-less riding etc. were introduced that were traditionally not
available in scooters. In the motorcycle segment, the new 100 cc models
compared well against the existing heavier models of 250 cc, 350 cc etc.
as these were lighter and more fuel-efficient. Joshi and Little (1996)
discuss the economic crisis of 1991 and the policy response of the
Indian government. The EXIM Scrip was introduced which granted
exporters entitlements worth 40% of their export earnings. Similarly
quantitative restrictions were replaced with import duties which were
around 85% of the two-wheeler industry (GATT Secretariat, 1993). 10
Industry sales figures show that scooter sales in 1990 formed 52% of the
total two-wheeler sales that year, while the corresponding figures for the
motorcycle and moped segments were 26% and 22%. By 1997, these
136
figures had changed to 43%, 36% and 21% respectively (ACMA,
various issues).
INDIAN TWO-WHEELER INDUSTRY: A PERSPECTIVE
Automobile is one of the largest industries in global market. Being the
leader in product and process technologies in the manufacturing sector,
it has been recognized as one of the drivers of economic growth. During
the last decade, well directed efforts have been made to provide a new
look to the automobile policy for realizing the sector's full potential for
the economy. Steps like abolition of licensing, removal of quantitative
restrictions and initiatives to bring the policy framework in consonance
with WTO requirements have set the industry in a progressive track.
Removal of the restrictive environment has helped restructuring, and
enabled industry to absorb new technologies, aligning itself with the
global development and also to realize its potential in the country. The
liberalization policies have led to continuous increase in competition,
which has ultimately resulted in modernization in line with the global
standards as well as in substantial cut in prices. Aggressive marketing by
the auto finance companies have also played a significant role in
boosting automobile demand, especially from the population in the
middle income group.
Evolution of Two-wheeler Industry in India
Two-wheeler segment is one of the most important components of the
automobile sector that has undergone significant changes due to shift in
policy environment. The two wheeler industry has been in existence in
the country since 1955. It consists of three segments viz. scooters,
motorcycles and mopeds. According to the figures published by SIAM,
the share of two-wheelers in automobile sector in terms of units sold
137
was about 80 per cent during 2003-04. This high figure itself is
suggestive of the importance of the sector. In the initial years, entry of
firms, capacity expansion, choice of products including capacity mix
and technology, all critical areas of functioning of an industry, were
effectively controlled by the State machinery. The lapses in the system
had invited fresh policy options that came into being in late sixties.
Amongst these policies, Monopolies and Restrictive Trade Practices
(MRTP) and Foreign Exchange Regulation Act (FERA) were aimed at
regulating monopoly and foreign investment respectively. This
controlling mechanism over the industry resulted in: (a) several firms
operating below minimum scale of efficiency; (b) under-utilization of
capacity; and (c) usage of outdated technology. Recognition of the
damaging effects of licensing and fettering policies led to initiation of
reforms, which ultimately took a more prominent shape with the
introduction of the New Economic Policy (NEP) in 1985.
However, the major set of reforms was launched in the year 1991 in
response to the major macroeconomic crisis faced by the economy. The
industrial policies shifted from a regime of regulation and tight control
to a more liberalized and competitive era. Two major results of policy
changes during these years in two-wheeler industry were that the,
weaker players died out giving way to the new entrants and superior
products and a sizeable increase in number of brands entered the market
that compelled the firms to compete on the basis of product attributes.
Finally, the two-wheeler industry in the country has been able to witness
a proliferation of brands with introduction of new technology as well as
increase in number of players. However, with various policy measures
undertaken in order to increase the competition, though the degree of
concentration has been lessened over time, deregulation of the industry
has not really resulted in higher level of competition.
138
A Growth Perspective`s
The composition of the two-wheeler industry has witnessed sea changes
in the post-reform period. In 1991, the share of scooters was about 50
per cent of the total 2-wheeler demand in the Indian market. Motorcycle
and moped had been experiencing almost equal level of shares in the
total number of two-wheelers. In 2003-04, the share of motorcycles
increased to 78 per cent of the total two-wheelers while the shares of
scooters and mopeds declined to the level of 16 and 6 per cent
respectively. A clear picture of the motorcycle segment's gaining
importance during this period depicting total sales, share and annual
growth during the period 1993-94 through 2003-04.
Demand Drivers
The demand for two-wheelers has been influenced by a number of
factors over the past five years. The key demand drivers for the growth
of the two-wheeler industry are as follows:
1. Inadequate public transportation system, especially in the semi-urban
and rural areas;
2. Increased availability of cheap consumer financing in the past 3-4
years;
3. Increasing availability of fuel efficient and low-maintenance models;
4. Increasing urbanization, which creates a need for personal
transportation;
5. Changes in the demographic profile;
6. Difference between two-wheeler and passenger car prices, which
makes twowheelers the entry level vehicle;
7. Steady increase in per capita income over the past five years; and
8. Increasing number of models with different features to satisfy diverse
consumer needs.
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While the demand drivers listed here operate at the broad level,
segmental demand is influenced by segment-specific factors. National
Council of Applied Economic Research (NCAER) had forecast
twowheeler demand during the period 2002-03 through 2011-12. The
forecasts had been made using econometric technique along with inputs
obtained from a primary survey conducted at 14 prime cities in the
country. Estimations were based on Panel Regression, which takes into
account both time series and cross section variation in data. A panel data
of 16 major states over a period of 5 years ending 1999 was used for the
estimation of parameters. The models considered a large number of
macro-economic, demographic and socio-economic variables to arrive at
the best estimations for different two-wheeler segments. The projections
have been made at all India and regional levels. Different scenarios have
been presented based on different assumptions regarding the demand
drivers of the two-wheeler industry. The most likely scenario assumed
annual growth rate of Gross Domestic Product (GDP) to be 5.5 per cent
during 2002-03 and was anticipated to increase gradually to 6.5 per
cent during 2011-12. The all-India and region-wise projected growth
trends for the motorcycles and scooters are presented in Table 3.1. The
demand for mopeds is not presented in this analysis due to its already
shrinking status compared to' motorcycles and scooters.
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Table No:-3.1
Demand forecast for motorcycles and scooters for 2015 - 16
2 WHEELER
SEGMENT REGIONS
West
North-
Central
East &
North-East All India
Motorcycle 2835
(12.9)
4327
(16.8)
2624
(12.5)
883
(11.1)
10669
(14.0)
Scooter 203
(2.6)
219
(3.5)
602
(2.8)
99
(2.0)
1124
(2.08)
Note: Compound Annual Rate of Growth during 2002-03 and 2011-12
is presented in parenthesis
Source: Indian Automobile Industry: Optimism in the Air, Industry
Insight, NCAER
It is important to remember that the above-mentioned forecast presents a
long-term growth for a period of 10 years. The high growth rate in
motorcycle segment at present will stabilize after a certain point beyond
which a condition of equilibrium will set the growth path. Another
important thing to keep in mind while interpreting these growth rates is
that the forecast could consider the trend till 1999 and the model could
not capture the recent developments that have taken place in last few
years. However, this will not alter the regional distribution to a
significant extent. Table 3.1 suggests two important dimensions for the
two-wheeler industry. The region-wise numbers of motorcycle and
scooter suggest the future market for these segments. At the all India
level, the demand for motorcycles will be almost 10 times of that of the
scooters. The same in the western region will be almost 20 times. It is
also evident from the table that motorcycle will find its major market in
141
the western region of the country, which will account for more than 40
per cent of its total demand. The south and the northcentral region will
follow this. The demand for scooters will be the maximum in the
northern region, which will account for more than 50 per cent of the
demand for scooters in 2011-12.
The present economic situation of the country makes the scenario
brighter for short-term demand. Real GDP growth was at a high level of
7.4 per cent during the first quarter of 2004. Both industry and the
service sectors have shown high growth during this period at the rates of
8.0 and 9.5 per cent respectively. However, poor rainfall last year will
pull down the GDP growth to some extent. Taking into account all these
factors along with other leading indicators including government
spending, foreign investment, inflation and export growth, NCAER has
projected an average growth of GDP at 6.7 per cent during the tenth
fiveyear plan. Its mid-term forecast suggests an expected growth of 7.4
per cent in GDP during 2004-05 to 2008-09. Very recently, IMF has
portrayed a sustained global recovery in World Economic Outlook. A
significant shift has also been observed in Indian households from the
lower income group to the middle-income group in recent years. The
finance companies are also more aggressive in their marketing
compared to previous years. Combining all these factors, one may
visualize a higher growth rate in two-wheeler demand than presented in
Table 3.1, particularly for the motorcycle segment. There is a large
untapped market in semiurban and rural areas of the country. Any
strategic planning for the two-wheeler industry needs to identify these
markets with the help of available statistical techniques. Potential
markets can be identified as well as prioritized using these techniques
with the help of secondary data on socio-economic parameters. For the
two-wheeler industry, it is also important to identify the target groups
142
for various categories of motorcycles and scooters. With the formal
introduction of secondhand car market by the reputed car manufacturers
and easy loan availability for new as well as used cars, the two-wheeler
inustry needs to upgrade its market information system to capture the
new market and to maintain its already existing markets. Availability of
easy credit for twowheelers in rural and smaller urban areas also
requires more focused attention. It is also imperative to initiate measures
to make the presence of Indian two-wheeler industry felt in the global
market.
The motorized two-wheeler market has been expanding rapidly,
particularly in the urbanized areas of Asia. About 80 percent of the 300
million two-wheelers worldwide are in Asia, as are 90 percent of world
two-wheeler sales (PCFV 2010). Two-wheelers cater to the needs of low
and middle income users and help fill the gaps when public transport
systems are inefficient, not integrated, or non-existent (PCFV 2010).The
reality is that many Indian cities lack substantial and efficient public
transport systems. As incomes rise, users of public transport and people
limited by their lack of mobility are looking to private modes of
transportation to meet their mobility needs. While car ownership may be
on the rise, it is two-wheelers that are leading the process of mass
motorization as millions of people in India’s growing middle class are
able to afford an entry-level two-wheeler. A nation-wide study by the
Indian Ministry of Urban Development found that the share of
personalized modes has grown by leaps and bounds in the past couple of
decades, especially two-wheelers at 12 percent per annum, while the
share of public transport has generally dwindled (MoUD, Wilbur Smith
Associates 2008). As Figure 3.1 demonstrates, two-wheelers (shown in
green) play an important role in motorized transport in Indian cities of
all sizes, with the highest modal shares of about 30 percent in small to
143
mid-sized cities. However according to the World Health Organization
(WHO), two-wheeler users are more vulnerable to road accidents and
deaths, and have very high levels of air pollution exposure (PCFV
2010). On the other hand, they are also criticized for contributing to air
pollution, traffic congestion, unsafe driving conditions and accidents.
The issue of whether two-wheelers should be considered a “boon” or
“bane” has been debated by practitioners, without being conclusive
either way, likely because the mode both, offers several benefits to
travelers, as well as creates several challenges. Thus, policy
recommendations for the sector in other cities have ranged from not
taking any action to banning two-wheelers altogether.
Figure No:-3.1
Motorized Mode Shares in Indian Cities, 2007
Source: Indian Automobile Industry: Optimism in the Air, Industry
Insight, NCAER
Transport systems and city character are interlinked. Also land use
characteristics of a city can determine the type of transport systems it
needs. Two wheelers have a special place on the Indian roads. They are
144
extremely popular and versatile not only as passenger carriers but also
as goods carriers. Indians prefer motorcycles because of their small
manageable size, low maintenance and pricing, and easy loan payments.
The Indian two wheeler industry has come a long way. It was started in
the year 1948, when bajaj auto started importing and selling Vespa
scooters in India.(Anujkumar Kanjoia,2011).Since then customer
preferences have changed. The younger generations of India are crazy
about two wheelers. Now, a bird’s view on Indian scenario on two
wheeler industry in metropolitan cities is given below:
METROS:
DELHI: Delhi is a metropolitan region in India. It is India’s second
most populous city. The people of Delhi are referred to as Delhi cities. It
is the largest commercial centre in Northern India. Delhi’s rapid rate of
economic development and population growth has resulted in an
increasing demand for transport system. Delhi’s vehicular population
has been increasing at a steady pace for almost a decade now. It appears
that about 70% of families in Delhi own a motorized vehicle. This is
because the buying capacity of Delhi cites is also increasing every year.
It was found that out of 787 new vehicles, 60% were two wheelers and
437 were cars. (Hindustan Times, 2013).Thus, a large number of people
have started buying vehicles, though the petrol prices have gone up in
the past few years.
MUMBAI: Mumbai, formally known as Bombay, is the capital city of
Maharashtra. It’s the most populous city in India. Its total metropolitan
area population is approximately 20.5 mllion. Mumbai is the
commercial and entertainment capital of India. In the last two years,
145
there is a phenomenal growth in the number of two wheelers in
Mumbai. More citizens prefer two wheelers because its less expensive
when comparing with autos. Two wheelers are economical and easier to
park.RTO statistics showed that there were 7.93 lakhs two wheelers in
Mumbai in 2006 – 07. It increased to 9.80 lakhs in the year 2010 – 11.
However in the present financial year, the two wheeler population has
crossed 12 lakhs.(Times of India,)
KOLKATA: It is the capital of the Indian state of West Bengal. It is the
principal commercial, cultural and educational centre of east India. As
of 2011 census, it is the third most populous metropolitan area in India.
Due to its diverse and abundant public transportation, privately owned
vehicles are not as common in Kolkata as in other major Indian cities.
There is a steady increase in the number of registered vehicles. The
2002 data showed an increase of 44% over a period of seven years. The
market share of the two wheeler industry including mopeds and
motorcycles is 6%.
CHENNAI: Chennai is a major commercial, cultural, economic and
educational center in South India. The city has 4.68 million residents,
making it as most populous city in India. In the current scenario, many
two wheeler companies coming up and competing with each other by
providing cult looks, advanced technology and great engineering
designs. It was stated that an average of 800 new two wheelers are
registered everyday in regional transport office across the city. From
April to September (2011) ,the vehicle population rose by 1.5 lakh of
which two wheelers account for 1.06 lakh. It can be said that people’s
need to save time, inadequate public transport system and easy loan
facilities are the reason for increase in the two wheeler population. Thus
146
the two wheeler manufacturers in India are, at present doing good
business, especially in the past few years. Significantly, two wheeler
models in India also get popular when they are in good price range and
have other attractive features.
Two wheeler companies and their Brands
Hero Honda Motors Ltd (HHML), Bajaj Auto Ltd (Bajaj Auto) and
TVS Motor Company Ltd (TVS) account for over 80 % of the industry
sales. The other key players in the two-wheeler industry are Kinetic
Motor Company Ltd (KMCL), Kinetic EngineeringLtd (KEL), LML
Ltd (LML), Yamaha Motors India Ltd (Yamaha), Majestic Auto Ltd
(Majestic Auto), Royal Enfield Ltd (REL), Suzuki Motor Corporation
and Honda Motorcycle & Scooter India (P) Ltd (HMSI). Honda Motors
Ltd (HHML) has brands such as Splendor, Super Splendor, Splendor
NXG, CBZ X-treme, Hunk, Glamour, CD Deluxe, Passion, Pleasure,
Passion plus, Splendor Plus etc. For Bajaj Auto Ltd (Bajaj Auto) the
motorcycles include branded models like Bajaj Platina, Bajaj Avenger
DTS-1, Bajaj Pulsar DTS-1, Bajaj CT 100, Bajaj Discover, Bajaj Pulsar
220 DTS-Fi while scooters such as Chetak, Kristal DTS-I are the
leading brands that make up the company's two wheeler market. A range
of mopeds, scooters and motorcycles from the motorcycle
manufacturer TVS Motor such as, Scooty, Scooty Pep Plus, TVS Victor
Edge, TVS Star, TVS Star City, TVS XL Super, TVS Apache RTR and
TVS Flame are some of the two wheelers that have made TVS one of
the leading names to reckon with on the Indian two wheeler scene.
Yamaha Motor India is the Indian subsidiary of the Japanese automobile
giant, Yamaha. The company has a limited presence on the Indian two-
wheeler scene with models like Gladiator, Yamaha G5, Crux and Alba.
However, its models are backed by the world-renowned Japanese
147
technology and are more fuel-efficient though more expensive as
compared to other Indian two wheelers. The brands of all of these
manufacturers are considered for the study.
Table No:-3.2
Year wise production of Two-Wheelers in India. S.No. Year Number of Vehicles
Scooters Motorcycle Moped
1 1999-
2000 1,259,408 1,794,093 724,510
2 2000-01 879,759 2,183,430 694,974
3 2001-02 937,506 2,906,323 427,498
4 2002-03 848,434 3,876,175 351,612
5 2003-04 935,279 4,355,168 332,294
6 2004-05 987,498 5,193,894 348,437
7 2005-06 1,020,013 6,201,214 2,379,574
8 2006-07 943,944 7,112,281 379,987
9 2007-08 1,074,933 6,503,532 430,827
10 2008-09 1,157,432 6,801,964 435,513
Source: Society of Indian Automobile Manufacturers
148
Figure No:-3.2
Year wise production of Two-Wheelers in India.
Motorcycles v/s Scooters
Experts feel that there is a large untapped market in the 100cc segment,
as 70 per cent of urban and 90 per cent of the rural population have not
even bought their first motorcycle. if 100cc-motorcycle segment is
divided into ten segments, starting from the entry of deluxe level, there
is potential in every segment. There is a large market for scooters as
well. Scooters now offer mileage that is not very different from
motorcycles. Motorcycles are not going to marginalize scooters. At
present, the top four two-wheeler makers—Hero Honda, Bajaj Auto,
TVS and HMSI— together account for around 93.5 per cent of the sales
in the domestic market. The other players are Suzuki Motorcycle, India
Yamaha Motor, LML, Mahindra Two Wheelers and Royal Enfield. The
statistical model developed that attempts to forecast the domestic two
149
wheeler sales on the basis of ownership cost and the target population
that can afford to own a two wheeler. The motorcycles have registered
the strong sales over the scooters and moped in India due to great
demand and successful operation of two wheelers on rural Indian roads.
The other qualitative factors like macro-economic outlook, consumer
confidence, willingness of vehicle financers to finance TWs, etc. have
also been quantitatively built in demand forecasting model.
After a strong recovery industry posted in FY06-07, which was
continued even in FY 07-08 and FY08-09. It can be foreseen the high
growth levels witnessed currently would stabilize in next 2-3 year
period. Nevertheless the industry would register a healthy growth during
FY10-FY15 period. According to this report, rural India would drive the
growth, whereas the opportunity in urban India, especially bigger cities,
would become limited in days to come.
In FY10, almost all the manufacturers reported healthy rise in their top-
line, driven by growth in both volumes and realization. Operating
margins also observed improvement owing to drop in raw material
prices. However, the industry would face challenge of rising input cost
and rising competition levels which would strain margins considerably
in short to medium term period.
The domestic two-wheeler industry has been able to recover strongly
from the economic crises of FY08. Rising income levels, ease in
liquidity scenario and return of consumer confidence owing to revival in
employment rates were the key drivers for this growth. The authors
foresee the short to medium term outlook of the industry will remain
healthy, majorly driven by rising demand from rural areas and smaller
towns.
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Table No:-3.3
Domestic Sales of Two-Wheelers in India
S.
No.
Name of company
‘ Number of Vehicles
April- Dec.-
2009 April-Dec.2010
1 Hero Honda 3,440,287 3,844,614
2 Bajaj Auto 1,235,548 1,797,378
3 TVS Motor Company 999,255 1,321,204
4 Honda 830,039 1,163,194
5 Mahindra Two-Wheelers 37,977 122,868
6 Yamaha 170,712 206,404
7 Suzuki 124,190 196,928
8 Royal Enfield 38,612 38,458
Total 6,779,102 8,691,048
Source: Society of Indian Automobile Manufacturers (2011-12)
151
Figure No:-3.3
Domestic Sales of Two-Wheelers in India
The sales of two wheelers have registered increase in sales in April to
December 2010 than the same period of the previous year. Which
depicts the growth in sales day by day?
Table No:-3.4
Motorcycle Major Market Share (Domestic Sales, 2010-11)
S.
No. Name of company
Market share
1 Hero Honda (Hero Motocorp) 44.69
2 Bajaj Auto 20.50
3 TVS Motor Company 15.10
4 Honda Motorcycle and Scooter India 13.20
5 Suzuki Motorcycle India 2.39
6 Mahindra Tow-Wheelers 1.40
7 India Yamaha Motor 2.35
8 Royal Enfield 0.46
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Source: Society of Indian Automobile Manufacturers
Figure No:-3.4
Motorcycle Majors’ Market Share (Domestic Sales, 2010-11)
Hero Honda has been the largest two wheeler company in the country.
The company crossed the 15 million unit milestone over a 25 year span.
The second, third and fourth placed two wheeler companies are Bajaj
Auto, TVS and HMSI respectively and put together as the world's
technology leaders in the automotive sector and led to the development
of world class, value - for- money motorcycles and scooters for the
Indian market.
153
Table No:-3.5
Year wise Domestic Sales of Two-Wheelers
S. No. Year No. of Vehicles Sold
1 2004-05 6,209,765
2 2005-06 7,052,391
3 2006-07 7,872,334
4 2007-08 7,249,278
5 2008-09 7,437,619
6 2009-10 9,370,951
7 2010-11 11,790,305
Source: Society of Indian Automobile Manufacturers (2011-12)
Figure No:-3.5
Year wise Domestic Sales of Two-Wheelers
The two wheeler industry has registered a continuous increase in its
production and sales volume which shows a strong demand of two
154
wheelers in the country. The Different government schemes for
developing the rural roads have also prepared a strong base for better
use of the two wheelers in rural areas.
Indian two-wheeler industry
After facing its worst recession during the early 1990s, the industry
bounced back ith a 25 % increase in volume sales in FY1995. However,
the momentum could not be sustained and sales growth dipped to 20 %
in FY1996 and further down to 12 % in FY1997. The economic
slowdown in FY1998 took a heavy toll of two-wheeler sales, with the
year-on-year sales (volume) growth rate declining to 3 % that year.
However, sales picked up thereafter mainly on the strength of an
increase in the disposable income of middle-income salaried people
(following the implementation of the Fifth Pay Commission's
recommendations), higher access to relatively inexpensive financing,
and increasing availability of fuel efficient two-wheeler models.
Nevertheless, this phenomenon proved short-lived and the twowheeler
sales declined marginally in FY2001. This was followed by a revival in
sales growth for the industry in FY2002. Although, the overall two-
wheeler sales increased in FY2002, the scooter and moped segments
faced de-growth. FY2003 also witnessed a healthy growth in overall
twowheeler sales led by higher growth in motorcycles even as the sales
of scooters and mopeds continued to decline. Healthy growth in two-
wheeler sales during FY2004 was led by growth in motorcycles even as
the scooters segment posted healthy growth while the mopeds continued
to decline.
155
Segmental Classification and Characteristics
The three main product segments in the two-wheeler category are
scooters, motorcycles and mopeds. However, in response to evolving
demographics and various other factors, other sub segments emerged,
viz. scooterettes, gearless scooters,and 4-stroke scooters. While the first
two emerged as a response to demographic changes, the introduction of
4-stroke scooters has followed the imposition of stringent pollution
control norms in the early 2000. Besides, these prominent subsegments,
product groups within these subsegments have gained importance in the
recent years. Examples include 125cc motorcycles, 100-125 cc gearless
scooters, etc.
Segmental Market Share
The Indian two-wheeler industry has undergone a significant change
over the past 10 years with the preference changing from scooters and
moped to motorcycles. The scooters segment was the largest till
FY1998, accounting for around 42 % of the twowheeler sales
(motorcycles and mopeds accounted for 37 % and 21 % of the market
respectively, that year). However, the motorcycles segment that had
witnessed high growth (since FY1994) became larger than the scooter
segment in terms of market share for the first time in FY1999. Between
FY1996 and MFY2005, the motorcycles segment more than doubled its
share of the two-wheeler industry to 79 % even as the market shares of
scooters and mopeds stood lower at 16 % and 5 %, respectively.
Concluding Remark:-
The industry has recorded phenomenon growth during the current last
two financial years. A market trend is growing at a faster rate in favor of
rural area than urban areas. According to survey the two wheeler market
156
will further grow in years to come. The demand of two wheeler in rural
areas is expected to enhance further. The opportunities can be grabbed
through more and quality infrastructure in the form of good roads and
the use of latest technology can provide an edge over competitors across
the country. Finally the Indian two-wheeler industry has shown a strong
volume growth over the last two-years, having grown by 25% in 2009-
10 and 27% in 2010-11 to reach 13.3 million units. This strong double-
digit growth has been driven by multiple factors including pent-up
demand of the 2007-08 and 2008-09 period when the industry volumes
were essentially flat, besides various underlying factors including
India’s rising per capita GDP, increased purchasing power, increasing
rural demand, growing urbanization, swelling replacement demand,
increasing proportion of cash sales and the less measurable metric of
improved consumer sentiment. India is a vast country with ever
growing and never ending population comprising of 72% residing in
rural areas. Totally depending upon agricultural income and agricultural
related activities for their livelihood and many of them are illiterate and
people below poverty line. Though the lifestyle of rural masses have
undergone a sea of changes with the increased infrastructure facilities,
application of modern techniques in cultivation and better access to
urban areas. However in recent times the situation has changed
drastically with Multi National Companies competing keenly for a share
in rural market. Covering the purchasing of two wheelers most of the
rural consumers who are owners have listed quality of the product as the
prime factor while considering the various brands of two wheelers,
features of the product, advice of friends and relatives and brand
image/company reputation follow quality factor regarding the two
wheelers. It is evident from the study that even rural consumers have
expressed their deep desire to own quality products. This indicates that
157
customers are quality conscious and are interested in making purchase
that give them better satisfaction in the end.
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