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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.

139  

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.

140  

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.

150  

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)

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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.

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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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