The Economic System of India

EXECUTIVE SUMMARY

1. The Indian Automotive Industry after de-licensing in July, 1991 has grown at a

spectacular rate of 17% on an average for last few years. The industry has now

attained a turnover of Rs. 1,65,000 crores (34 billion USD) and an investment of

Rs. 50,000 crores. Over of Rs. 35,000 crores of investment is in pipeline. The industry

is providing direct and indirect employment to 1.31 crore people. It is also making a

contribution of 17% to the kitty of indirect taxes. The export in automotive sector has

grown on an average CAGR of 30% per year for the last five years. The export

earnings from this sector are 4.08 billion USD out of which the share of auto

component sector 1.8 billion USD.

2. Even with this rapid growth, the Indian Automotive Industry’s contribution in

global terms is very low. This is evident from the fact that even though passenger and

commercial vehicles have crossed the production figure of 1.5 million in the year 2005-

06, yet India’s share is about 2.37 percent of world production as the total number of

passenger and commercial vehicles being manufactured in the world is 66.46 million

against the installed capacity of 85 million units. Similarly, export constitutes only

about 0.3% of global trade.

3. It is a well accepted fact that the automotive industry is a volume driven industry

and a certain critical mass is a pre-requisite for attracting the much needed investment

in Research and Development and New Product Design and Development. R&D

investment is needed for innovations which is the life-line for achieving and retaining

the competitiveness in the industry. This competitiveness in turn depends on the

capacity and the speed of the industry to innovate and upgrade. No nation on its own

can make its industries competitive but it is the companies which make the industry

competitive. The most important indices of competitiveness are the productivity both of

labour and capital.

4. The concept of attaining competitiveness on the basis