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Monday, July 30, 2007

Inside India: Indians view their automotive future

By 2035, India could have the world’s third largest economy,1 and India's booming automotive industry will be a crucial driver of that economic growth. But the Indian automotive industry must overcome significant challenges to sustain its own growth, according to a joint study between IBM’s Institute for Business Value and the University of Michigan's Transportation Research Institute. The study authors interviewed industry executives and experts, academics, and government officials to understand how India views the actual future state of its automotive industry, focusing on three areas: India’s automotive market, India’s production capabilities, and challenges external to the automotive industry.India is expected by 2015 to be one of the top 10 countries in terms of vehicle sales. The number of four-wheelers sold in the 2006-2007 season was about 1.4 million. But industry executives interviewed for the study expect sales to double to 2.8 million by 2010 and triple to 4.2 million by 2015. The interviewed executives also expect an increase from 7 to 17 million two-wheelers from 2005 to 2015.1

A key element of future success is an even stronger partnership between industry and government. That’s because India faces hurdles in the areas of transportation infrastructure, product quality, skilled workers, and labor and tax regulations — significant issues that require both public sector and private sector collaboration.

"The Indian government will certainly play an integral role in shaping the automotive industry and its future. Their Automotive Mission Plan could be construed as a step in the right direction as it outlines development goals till 2016, including the role of the government in improving infrastructure, tax and labor law revisions," said Bruce M. Belzowski, assistant research scientist and associate director, University of Michigan Transportation Research Institute, Automotive Analysis Division. "Most of the interviewed industry experts are optimistic about government's support for the growth of the industry."

India’s automotive market: Is the small car India’s destiny?

  • Steady economic growth should lead to success in the domestic market, but India must overcome significant challenges to succeed in the global market
  • The small car and the low-cost “1 lakh car” (about US$2,500) announced by Tata Group are key growth strategies
  • Attracting untapped buyers in India is a matter of understanding them, including the role of “status” in Indian buying patterns
  • The impact of infrastructure on both domestic and export markets is significant
  • India’s financial system provides an important building block for a developing industry
  • Improving dealer performance may confer a competitive brand advantage in the future

India’s production capabilities

  • India needs to strengthen its own R&D capability
  • The supplier base needs to get stronger
  • Costs need to be contained
  • Labor skills, especially engineers and senior management, could be an unexpected constraint

Challenges impacting India's automotive industry

  • Most Indian automotive executives agree that infrastructure is the most urgent challenge to its industry for roads, ports, and power.
  • Combating air quality, oil dependency, and congestion issues should be a coordinated effort between government and industry.
  • The Indian government has a crucial role to play to build growth capabilities by streamlining national and state government regulations and interactions between the two.

Road to success

"IBM has taken the lead in identifying the challenges of India's automotive industry," said Sanjay Rishi, global automotive industry leader, IBM Global Business Services. "India's automotive market has come a long way in a short period, growing more than 15 percent compounded annually since 2001. Based on the study, we have developed the next steps for them to become successful industry players as well as a key market while maintaining double-digit growth in the future."

Some of the next steps for India are:

  • Unlocking India’s market potential and improve product quality, especially in the supplier base
  • Building the infrastructure (roads, ports) that will enable the Indian automobile industry to catch fire. Only the government is in a position to do so.
  • Focusing on education/training and R&D capability. Both industry and government need to support this effort.
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