Despite rising fuel prices, the automobile industry in India has become a mayor driver of economic growth. The demand for cars and two-wheelers has gone up as the spate of new launches by the auto majors over the past few months has indicated that the fiscal stimulus seems to have worked wonders for the industry. But the roads in major cities are getting choke up.
The Indian automobile industry has come under global focus, ranking second only to China as the fastest growing market in the world. The spate of new launches by the auto majors and rising sales graphs over the past few months indicate that the fiscal stimulus seems to have worked wonders for this industry.
Demand started growing in September last year when sales by major manufacturers rose to record levels during the festival season. The pace continued to gain momentum, despite rising fuel prices, and the auto industry became a major driver of growth in India.
Automobile production seems to have done its bit to ensure that overall growth of the manufacturing sector was significantly higher in 2009. Latest data shows this industry grew 46 percent, giving an impetus to manufacturing, which shot up by 18.5 percent in December 2009.
This, in turn, led to industrial output rising by 16.8 percent during the month. Overall, India’s gross domestic product (GDP) growth is now expected to reach a higher-than-expected 7.5 percent during 2009-10, despite the downturn in agriculture.
One of the important aspects of growth in the auto sector is the resulting expansion in availability of jobs. Both two-wheeler and four-wheeler companies have over the years spawned a wide range of ancillary units to meet their component requirements.
The spurt in demand for automobiles has also stepped up demand for auto components and other related industries that provide employment in large numbers in both rural and urban areas. One can presume that revival of demand for two-wheelers and passenger cars has also ensured job growth.
At the global level, the resurgence in the automobile industry ensures India continues to retain its rising status as one of the world’s largest growing markets. Little wonder then that new models are being churned out even by foreign auto majors like General Motors that have filed for bankruptcy.
Even luxury market manufacturers like Mercedes and Porsche are scrambling for a share of the Indian pie by rapidly launching new models in this country. The latest launch by Ford of the Figo in the entry level segment follows a host of other new models being unveiled by other manufacturers, who are now trying to get a toehold in all categories of passenger cars. With production being ramped up by nearly all players, India is also emerging as an export hub for cars being supplied to the Asian region.
One must not forget two-wheelers that have a high demand in both rural and urban areas. Motorcycle sales shot up during 2009 by 19 percent and major players like Honda are making higher investments to expand existing units.
India is currently the second largest motorcycle market, behind China. The National Council of Applied Economic Research (NCAER) estimates that this segment will expand at double-digit levels for the next two years and pegs growth for motorcycles at a minimum of 14 percent in 2011-12. It also predicts that sales of motorcycles will continue to be far in excess of scooters and mopeds.
Despite this encouraging outlook, there is a major cloud hanging over this industry and that is the slow development of both urban and rural road networks. Even though Road Transport and Highways Minister Kamal Nath is upbeat about road construction’s progress, there is no doubt this infrastructure is lagging far behind the production of personal and commercial vehicles.
In fact, metropolitan centers like Delhi and Mumbai have virtually reached a stage of gridlock as the cars are rapidly multiplying and the road space for them is becoming smaller every day. Similarly, inter-state highways are much fewer than are required while rural roads are being developed even more slowly.
No doubt the government has recognized this lacuna and efforts are being made to speed up the pace of road infrastructure development. The launch of the Golden Quadrilateral project during the previous National Democratic Allaince (NDA) regime had also raised hopes that roads would become a priority. But actual implementation of the scheme has been much slower than planned.
The other major question that one must look at is whether the focus on passenger cars should not be replaced by an effort to improve the public transport system. One of the reasons why both Delhi and Mumbai are facing traffic congestions is the inability of public transport to meet the needs of commuters. The quality of buses needs to be upgraded significantly.
The contribution of the automobile industry to overall economic growth cannot be denied as it provides 4.2 percent of the GDP. But it serves as a reminder that the other priority sectors need to be given sufficient incentives to grow at the same pace. The fast-paced growth of the passenger car industry is certainly welcome, but it should really serve as a reminder that the country needs to provide equally efficient transport to the general public.