422-1038-1-PB

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 3 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


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,


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.


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

http://en.wikipedia.org/wiki/India

http://en.wikipedia.org/wiki/Asia

http://en.wikipedia.org/wiki/Automobile

http://en.wikipedia.org/wiki/Japan

http://en.wikipedia.org/wiki/South_Korea

http://en.wikipedia.org/wiki/Thailand

http://en.wikipedia.org/wiki/Motorcycle

http://en.wikipedia.org/wiki/Automotive_industry


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


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


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


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


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.


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


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.


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


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


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.


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.


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.


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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