chapter-1 introduction -...
TRANSCRIPT
8
CHAPTER-1
INTRODUCTION
Automobile industry is the key driver of any growing economy. It
plays a pivotal role in country's rapid economic and industrial
development. It caters to the requirement of equipment for basic
industries like steel, non-ferrous metals, refineries, petrochemicals,
shipping, textiles, plastics, glass, rubber, capital equipments, logistics,
paper, cement, etc. It facilitates the improvement in various infrastructure
facilities like power, rail and road transport. Due to its deep forward and
backward linkages with almost every segment of the economy, the
industry has a strong and positive multiplier effect and thus propels
progress of a nation.
In India, automotive is one of the largest industry showing
impressive growth over the years and has been significantly making
increasing contribution to overall industrial development of the country.
Presently, India is the world's largest manufacturer of tractors, second
largest manufacturer of two wheelers, and fifth largest manufacturer of
commercial vehicles. It is the fourth largest passenger car market in Asia
and the home to the largest motor cycle manufacturer. This sector has
shown great advances in terms of development, spread and absorption of
newer technologies and flexibility in the wake of changing global
scenario.
In the wave of economic liberalization in the country, the Indian
automobile industry is going through a technological change where each
firm is engaged in changing its processes and technologies to maintain the
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competitive advantage and provide customers with the optimized products
and services. Starting from the two wheelers, to the multi utility vehicles,
commercial vehicles and the luxury vehicles, the Indian automobile
industry has achieved splendid achievement in the recent years.
BRIEF HISTORY OF AUTOMOBILE SECTOR OF INDIA
History of automobiles in India could be traced back to the import
of first motor car into the country in 1898. Subsequently, completely-built
cars and commercial vehicles were being imported into the country by
British officials and other prominent Indians, either directly or through
dealers/agents. By the end of World War I, the number of such vehicles
imported per year was around 4,000. Envisaging a promising demand for
automobiles in India, General Motors and Ford established their assembly
plants in the country in late 1920s and early 1930s respectively. General
Motors began its operations in the Mumbai plant in 1928 by assembling
CKD kits of cars and trucks imported from abroad. This was followed by
the commencement of similar assembly operations by Ford in its Chennai
plant in 1930 and later also in Mumbai and Kolkata in 1931. The number
of automobiles imported/assembled in India grew significantly in the
1920s and crossed 30,000 units per year by 1930.
The beginning of automotive industry in India was marked in early
1940s with the establishment of automobile companies by two Indian
industrial houses – Hindustan Motors Ltd. (HML) founded by the Birlas
and Premier Automobiles Ltd. (PAL) by the Walchand Hirachand Group
in 1942 and 1944 respectively. Both the companies were established with
foreign technical collaboration and a programme for progressive
manufacture of complete vehicles. However, due to their slow progress
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initially, the production of automobiles by these companies started only
after independence of India.
Following the independence, in 1947, the Government of India and
the private sector of the country made efforts to create an automotive
component manufacturing industry in the country first. However, the
growth of automobile industry of India was relatively slow in the 1950s
and 1960s due to wave of nationalization and the License Raj which
hampered the Indian private sector in many other sectors too. After 1970,
the automotive industry started to grow, but the growth was mainly driven
by tractors, commercial vehicles and scooters. Cars were still a major
luxury for Indians.
Until 1982, only three manufacturers - M/s. Hindustan Motors, M/s.
Premier Automobiles and M/s. Standard Motors tenanted the motor car
sector. Owing to low volumes, it perpetuated obsolete technologies and
was out of sync with the world industry. In the 1980s, numbers of
Japanese manufacturers launched joint-ventures for building motorcycles
and light commercial-vehicles. At that time the Indian government chose
Suzuki for its joint-venture to manufacture small cars. It leads to the
establishment of Maruti Udyog. In 1982, Maruti Udyog Ltd. (MUL) came
up as a government initiative in collaboration with Suzuki of Japan to
establish volume production of contemporary models. After that numbers
of foreign firms initiated joint ventures with Indian companies to exploit
the vast automobile market of the country.
Following economic liberalization in India in 1991, the Indian
automotive industry has demonstrated sustained growth as a result of
gradual weakening of the license raj, increased competitiveness and
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relaxed restrictions. Several Indian automobile manufacturers such as
Tata Motors, Maruti Suzuki and Mahindra and Mahindra, expanded their
domestic and international operations. India's robust economic growth led
to the further expansion of its domestic automobile market which has
attracted significant India-specific investment by multinational
automobile manufacturers.
The chronological progress of automobile industry of the country
may be depicted as under-
1840: Simpson & Co established in 1840. They were the first to build
a steam car and a steam bus, to attempt motorcar manufacture, to build
and operate petrol driven passenger service and to import American
Chassis in India.
1865: Crompton introduced public transport wagons strapped to and
pulled by imported steam road rollers called streamers.
1898: First car brought in India by a princely ruler in 1898.
1900-1920: Due to the World War I, a large number of military
vehicles came on the Indian roads.
1928: Assembly of CKD Trucks and Cars was started by the wholly
owned Indian subsidiary of American General Motors in Bombay.
1930: Ford Motors started its assembly units in Madras, Bombay and
Calcutta.
1942: Hindustan Motors Ltd incorporated and their first vehicle was
made in 1950.
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1944: Premier Automobiles Ltd incorporated and in 1947 their first
vehicle was produced.
1947: Government of Bombay accepted a scheme of Bajaj Auto to
replace the cycle rickshaw by the auto and assembly of auto rickshaw
was started in a couple of years under a license from Piaggio.
1948: at the time of independence of country, only seven firms namely
Hindustan Motors Limited, Automobile Products of India Limited,
Ashok Leyland Limited, Standard Motors Products of India Limited,
Premier Automobiles Limited, Mahindra & Mahindra and TELCO
were in the assembly and manufacturing lines of cars. M&M was
manufacturing jeeps.
1955: Automobile Products of India (API) and Enfield India
commenced the manufacturing of scooters, motorcycles, mopeds and
autos in the country.
1956: Bajaj Tempo Ltd entered the Indian market with a program of
manufacturing Commercial Vehicles. Government approved Bajaj
Auto Ltd's plans for domestic manufacture of Vespa scooters and
granted permission to produce 6000 units annually.
1959: Association of the Component Manufacturers came into
Existence.
1960: Association of Indian Automobile Manufacturers formally
established.
1960’s: Escorts and Ideal Jawa entered the field in of manufacturing
Motorcycles and closed their scooter division. During the first half of
the sixties three companies namely Pearl Scooters Ltd (1962), SZUL
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Gwalior (1964) and Mopeds India Ltd (1965) entered the arena.
Standard Motors Products of India Ltd. moved over to the manufacture
of Light Commercial Vehicles in 1965. Entire scooter market was
occupied by Bajaj Auto Ltd. and API.
1970’s: During this decade there was not much change in the four-
wheeler industry except the entry of Sipani Automobiles in the small
car market. In the Two Wheeler Industry there were many entries
during this decade. Scooter India established in 1972. In 1972 Kinetic
Engineering entered Unlike Motorcycle and Scooter segments the
Mopeds segment grew rapidly. In the late seventies there were many
entries in the Moped Industry. Only two firms namely, Majestic Auto
Ltd and Sundaram Clayton managed to survive after 1980.
1980's - The period of liberalized policy and intense competition
begins in the 80s. Important policy changes like relaxation in MRTP
and FERA, delicensing of some ancillary products, broad banding of
the products, modifications in licensing policy, concessions to private
sector (both Indian and Foreign) and foreign collaboration policy and
permission of foreign equity up to 40% etc. resulted in higher growth
and better performance of the industry than in the earlier decades.
In 1982 Maruti Udyog Ltd was started in collaboration with
Suzuki, a Japanese firm. Other three Car manufacturers namely,
Hindustan Motors Ltd., Premier Automobiles Ltd., Standard Motor
Production of India Ltd. also introduced new models in the market.
In the Motorcycle segment firms had shifted their emphasis
from heavier models to lighter and fuel-efficient models. Indian
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market was flooded with new 100 cc models manufactured by
different firms with Japanese Technology.
In Moped segment there were 23 firms engaged in their
production but the virtual oligopoly of Kinetic Engineering Ltd., SCL
and Majestic Auto remained intact. This segment had less
collaboration.
1991 and onward: Beginning In 1991 new Industrial Policy was
announced. It was the death of the License Raj and the Automobile
Industry was allowed to expand. Various issues of critical importance
to the industry are being dealt with forcefully. The Indian Automobile
market in general and Passenger Cars in particular have witnessed
liberalization. The non-commercial segment of Indian automobile
market was flooded with different types of models having latest
technologies manufactured by different national and multinationals
automobile companies. To promote integrated, phased, enduring and
self-sustained growth of the Indian automotive industry a
comprehensive Auto Policy was declared by the Government of India
in 2002, which was later linked up with Automotive Mission Plan
2006-16.
At present, Indian consumers have a broad array of automobile
models for their selection at their disposal. The well-developed Indian
automobile industry produces nearly all kinds of vehicles, which may
broadly categorized with the help of following chart no.1.1-
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CHART NO.1.1
GENERAL CLASSIFICATION OF AUTOMOTIVE VEHICLES IN INDIA
At present 21 domestic automobile manufacturers and 18 foreign
automobile manufacturers are active in the automobile industry of the
country in the manufacturing of automotive vehicles of different
segments. The following chart no. 1.2A and 1.2B presents a preview of
domestic and foreign automobile companies respectively with the types of
vehicles manufactured by them-
Four Wheelers Three Wheelers Two Wheelers
Passenger Vehicles
Commercial Vehicles
Passenger Cars
Utility Vehicles
Light Commercial Vehicles
Medium Commercial Vehicles
Heavy Commercial Vehicles
Passenger Carriers
Good Carriers
Scooters
Motor Cycle
Mopeds
Electric Two Wheelers
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17
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Table no. 1.2A and 1.2B clarifies the facts that out of 21 domestic
automobile companies of country only 3 were established in the period of
liberalization i.e. 1991 and onward. On the contrary out of existing 18
foreign automobile companies 16 were entered in the automobile sector of
India on and after 1994. Most of the foreign automobile companies
showed their interest in the manufacturing of cars and utility vehicles due
to vast untapped potential in non-commercial vehicles segment of the
country.
Now it is clear that the entry of global automobile companies in
India has significantly changed after 1991 which switched the
automobile-manufacturing scenario in the country. The changes in design
and adaptation of international technologies have enabled the Indian
automotive industry to compete globally. The later half of 1990s and early
part of 21st century saw the Indian automobile industry making extensive
jump forward. Since then, Indian domestic automobile companies have
been emerging globally competitive and they have been making
significant strides outside the boundaries of the nation through mergers
and acquisitions.
This is the result of following positive efforts made by the
Government of India on the way of liberalized automobile sector of the
country-
Progressively liberalization of norms for foreign investment and
import of technology over the years for manufacturing of vehicles
including passenger cars in order to make automobile sector globally
competitive.
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Permission of FDI up to 100% under the automatic route in the
automobile industry.
To allow the import of technological upgradation, with royalty
payment under automatic route in this sector.
CLUSTERS OF INDIAN AUTOMOTIVE INDUSTRY
The Indian automotive industry has been noticed to have grown in
clusters, which are evident in and around Manesar in North, Pune in
West, Chennai in South, Jamshedpur-Kolkata in East and Indore in
Central India. Such a pattern of investments in automobile sector in the
country seems to be regionally balanced. Following Chart no.1.3 below
indicates the manufacturing plants of major automobile players across
different states and union territories in India-
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CHART NO.1.3
Source: www.siamindia.com
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CONCEPT OF FOREIGN CAPITAL
For economic and industrial development, capital is the most
important factor. Such capital may be from within the country or from
outside the country. When capital available within the country is not
sufficient, capital from abroad is made use of. For less developed
countries, capital has been provided by international organisations like
World Bank and International Monetary Fund (IMF) at government level.
The recent technological developments and spread of information
technology have opened up the economies the world over as never in the
past. This in turn has increased the multinational role and importance of
capital. It has been realized by many countries that inflow of capital from
abroad is vital not only in the early stages of economic development, but
also for the steady growth of a developing economy. Most of the countries
now have been making use of foreign capital and investment. Foreign
capital is useful for both developed and developing countries. Advanced
countries try actively to invest capital in developing countries.
In India, foreign capital has been given a significant role, although
it has been changing overtime. In the early phases of planning, foreign
capital has been used as a means to supplement domestic investments.
Laler on there were technological collaborations between foreign and
Indian entrepreneurs. But since July 1991, there has been a tremendous
change observed in government's policy about foreign investments.
The term 'foreign capital' is a comprehensive term and includes any
inflow of capital in home country from abroad. It may be in the form of
foreign aid or loans and grants from the host country or institutions at the
government level as well as foreign investment and commercial
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borrowings at the enterprise level or both. Foreign capital may flow in any
country with technological collaboration as well. The classification of
foreign capital may be studied with the help of following chart no. 1.4-
CHART NO.1.4
CLASSIFICATION OF FOREIGN CAPITAL
Foreign Direct Investment
Foreign Portfolio Investment
Foreign Aid Private Foreign Invest ment
Loans
Grants
Foreign Institutional Investors
Direct Investors
Wholly Owned Subsidiaries
Joint Ventures
Acquisitions
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CONCEPT OF FOREIGN DIRECT INVESTMENT
Foreign direct investment is also known as ‘Direct business
investment’. Benjamin L. Cohen1 quoted the definition of FDI as given
in IMF manual in the following words “Foreign direct investment is al1
investments involving long term relationship and reflecting a lasting
interest and control of a residual entity in one economy in an enterprise
resident in an economy other than that of the direct investor. Such
investment involves both initial transaction between the two entities and
all subsequent transactions between them and among foreign affiliates.”
Here foreign affiliate means a subsidiary company or an associate in
which investors owns a total of at least 10%, but not more than half of
shareholder’s voting power. From the above definition, the following
characteristics of FDI may be enumerated:
It is an investment made by a foreign company in a home country.
The foreign company may make an investment either by opening its
branch or by having a subsidiary or foreign controlled company in
home country.
Profit is the prime motive of such an investment. It may be in the form
of a royalty and dividend payments.
In FDI investor may obtain effective voice in the management through
other means such as subcontracting, management contracts, turnkey
arrangements, franchising, licensing, trademarks and patents and
product sharing.
1 Benjamin L. Cohen; Multinational Firms and Asian Exports; Yale University Press, New Haven; 1995; P.52
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On the winding up of the firm, the assets may be repatriated to the
country of origin.
FDI are governed by long term considerations because these
investments cannot be easily liquidated. In aiming at investment decision,
a foreign investor would have to be convinced that existing comparative
advantages are more than the comparative disadvantages in the
destination country. There are several factors that Influence FDI
decisions. They are-
o Long-term political stability
o Government policy of a country
o Industrial and economic prospects
o Rules about repatriation of profits and disinvestment
o Treatment by officials of government departments and
o Taxation laws etc.
ROLE OF FDI FOR THE DEVELOPMENT OF INDIA
The importance of FDI extends beyond the financial capital that
flows into a country. In addition, FDI inflows can be a tool for bringing
knowledge, managerial skills and capability, product design, quality
characteristics, brand names, channels for international marketing of
products and consequent integration into global production chains, which
are the foundation of a successful exports strategy. FDI could benefit both
the domestic industry as well as the consumer, by providing opportunities
for technological transfer and up gradation access to global managerial
skills and practices, optimal utilization of human capabilities and natural
25
resources, making industry internationally competitive, opening up export
markets, providing backward and forward linkages and access to
international quality goods and services and augmenting employment
opportunities. FDI flows are usually preferred over other forms of
external finance because they are non-debt creating, non-volatile and their
returns depend on the performance of the projects financed by the
investors. In a world of increased competition and rapid technological
change, their complimentary and catalytic role can be very valuable. For
all these reasons, FDI is regarded as an important vehicle for economic
development particularly for developing economies like India.
The path of economy growth and development certainly navigate
with the help of FDI. India is an over populated country, infrastructure
facility is not much developed here, therefore, supply term is became
week and inflation is occurred. FDI is an additional part of the Indian
economy without it the present status of economy never be maintained by
India. To compete in International level, to survive local business, to
upgrade old technology and primarily to increase the number of
employments FDI plays a vital role in Indian economy. But it is essential
that proper investment policies and population welfare outlook should be
preferred while calling FDI in India.
Nowadays FDI is encouraged in most of the commercial sectors of
India under the automatic route. There are more than 63 zones in India
where FDI is involved. Some sectors are prohibited from FDI because of
national security, sensitiveness and to protect interest of the country. At
the same time some sectors are reserved by Indian government for public
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sector. The following list depicts all these sectors in a self explanatory
manner-
Permitted sectors for FDI in India
Service Sector Construction Activities
Consultancy Services Automobile Industry
Trading Textiles Industry
Computer Software & Hardware Fermentation Industries
Telecommunication Leather and Leather Goods
Education Fertilizers Industry
Printing of Books Industrial and Agricultural Machinery
Coal Production Mining, Ceramics & Boilers
Non-conventional Energy Railway Related Components
Petroleum & Natural Gas Earth-moving Machinery
Metallurgical Industries Electrical and Electronics Equipments
Power Drugs & Pharmaceuticals
Real Estate Cement & Gypsum Product
Air Transport Hotel & Tourism
Sea Transport Hospital & Diagnostic Centers
Industrial Instruments Rubber Goods
Scientific Instruments Machine Tools
Photographic Raw Film & Paper Steam Generating Plants
Diamond and Gold Ornaments
Restricted sectors for FDI in India
Atomic energy Lottery business
Plantation or agricultural activities Nidhi company
Chit fund business Betting and gambling
Business in Transferable Development Rights
Mining of chrome, zinc, gold, diamonds, copper, iron, gypsum, manganese and sulfur
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Industries Reserved for Public Sector and do not receive FDI in India
Atomic energy and Minerals used in atomic energy
Railway transport,
Ammunition and defence equipment,
Mineral oils,
Arms and Ammunition
Now it is realized that as a developing country, India can get
following benefits with the optimized use of FDI in the country-
It is detected that FDI decreases the production cost of goods and
services. Elimination of transaction and transporting cost between
India and guest country is also possible under FDI.
The role of FDI in job creation and conservation is found more
favorable for the country. Good inflow of FDI creates new
employments in Indian industries and market sectors.
It is examined that, balance of payment status of India turns into
cheering position after liberalized economic environment. FDI
increases the industrial productivity of the country. With the step of
large output, India boosts export area and repairs the deficit between
import and export.
It is found that, FDI improves the GDP rate of India. It is a symptom
of healthy economy. Better GDP rate repairs living standard of peoples
in the country.
It is observed that, FDI enhance the competition at global level.
Increased FDI inflow developed the efficiency and sustains the growth
rate of India.
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It is viewed that FDI releases broad opportunities in the traffic of
goods and services in India.
It is found that, FDI helps for upgrading the existing old working
process with developed process in India. Developing countries can
implement advanced technology in industrial and IT sector by inviting
FDI.
It is observed that, now foreign firms are investing large amounts in
joint ventures of India. For occupying better position in the Indian
market they spent large amount on quality and distribution of product.
FDI increases the level of competition in the country. It will result
products and services with fine quality and economical prices can be
easily available at urban and rural area in India.
It is studied that FDI has also ensured a number of employment
opportunities by backing the creation of industrial units in various
corners of India. Equilibrium economical development of various
states of India can be possible through FDI.
It is also watched that FDI has given an inducement to small and
domestic producers. They become efficient for competition in their
local and outside markets. It will result in enhancing the economy
growth.
Finally it may be said that FDI formulate large supply of products
and services by implementing advanced infrastructure and technology in
Indian industry which is a good sign for steady economic growth of
country. But it should always be remembered that foreign companies
always try to achieve quick and large refunds on their invested capital.
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They take interest only in profit oriented ventures and neglect domestic
and traditional business from investment. Hence, it is the responsibility of
Government of India that FDI investors should remember all business
ethics while investing in India. Restricted business should not be started
with FDI. Fraud, corruption, quality fault and incomplete legal formalities
should not take place in FDI. Consumer, Society and environmental
welfare should keep in the mind while inviting FDI.
INFLOW OF FDI IN INDIA
India is the fifth largest economy in the world and position third in
the Gross Domestic Product (GDP) in the Asia. India is considered second
largest country amongst all further developing countries. These are the
major grounds for FDI inflow from developed countries to India. The
inflow of foreign direct investment in India from 1991-92 to 2010-11 may
be studied with the help of following table no. 1.1-
Table 1.1
INFLOW OF FOREIGN DIRECT INVESTMENT IN INDIA FROM 1991-92 TO 2010-11
Year Inflow of FDI ( Rs. in Crore)
Fixed Base Indices
Chain Base Indices Trend Values
1991-92 589 100.00 100.00 -51019.70
1992-93 1713 290.83 290.83 -37402.28
1992-94 13026 2211.54 760.42 -23784.87
1994-95 16133 2739.05 123.85 -10167.45
1995-96 16364 2778.27 101.43 3449.96
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1996-97 21773 3696.60 133.05 17067.38
1997-98 20014 3397.96 91.92 30684.79
1998-99 10101 1714.94 50.47 44302.21
1999-00 22450 3811.54 222.26 57919.63
2000-01 31015 5265.70 138.15 71537.04
2001-02 38874 6600.00 125.34 85154.46
2002-03 29105 4941.43 74.87 98771.87
2003-04 72139 12247.71 247.86 112389.29
2004-05 69042 11721.90 95.71 126006.71
2005-06 94981 16125.81 137.57 139624.12
2006-07 135080 22933.79 142.22 153241.54
2007-08 249921 42431.41 185.02 166858.95
2008-09 110123 18696.60 44.06 180476.37
2009-10 332575 56464.35 302.00 194093.78
2010-11 281897 47860.27 84.76 207711.20
Source: Handbook of Statistics-2011; Published by Reserve Bank of India, New Delhi; 15 September, 2011; p. 258
From the analysis of table no. 1.1 it was revealed that the FDI
in India was Rs. 589 crore in 1991-92, which reached to Rs. 281897
crore in the year 2010-11 showing the continuous increase up to
1996-97 and fluctuating status in the years 1997-98 and onward.
On computing Fixed Base Index Numbers, taking 1991-92 as
base year, it was noted that the amount of FDI in India made an
extraordinary growth in the country i.e. 47760.27% during the study
period.
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The Chain Base Index Numbers showed the heavy fluctuation
in the annual flow of FDI in the country, it shows the fluctuating
nature of this source of capital.
On the other side it may be noticed that inflow of FDI in India is
not confined from the developed countries only. In fact India is getting
most of the part of its, FDI from Asian nations. The share of main foreign
direct investment contributors' countries in India in the year 2010-11 may
be studied with the help of following table no. 1.2-
Table 1.2
SHARE OF MAIN FOREIGN DIRECT INVESTMENT CONTRIBUTORS' COUNTRIES IN INDIA
IN THE YEAR 2010-11
Name of Investor Country FDI (Rs. in crore)
Percentage
Mauritius 121233 43.01
Singapore 24954 8.85
USA 21093 7.48
UK 20446 7.25
Netherlands 11598 4.11
Cyprus 9775 3.47
Japan 9747 3.46
Germany 7164 2.54
UAE 4054 1.44
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France 3911 1.39
Others 47922 17.00
Total FDI Inflows 281897 100.00
Source: Compiled from the various Bulletins and Reports published by Ministry of Commerce & Industry and Department of Industrial Policy and Promotion, Government of India, New Delhi.
It clears from the observation of table no. 1.2 that in the year 2010-
11only Mauritius contributed more than 43% FDI in India and Singapore
remained at second place having made an investment of 8.85% of total
FDI in the country. Japan, U.S.A., Netherlands, U.K., Germany,
Singapore and France were among the other leading sources of FDI
inflow in the nation.
The sectors attracted highest foreign direct investment in India
in the year 2010-11may be studied with the help of following table no.
1.3-
Table 1.3
SECTORS ATTRACTED HIGHEST FOREIGN DIRECT INVESTMENT IN INDIA
IN THE YEAR 2010-11
Name of Investor Country FDI (Rs. in crore) Percentage
Services Sector (Financial and Non Financial) 60017 21.30
Computer Software and Hardware
24370 8.66
33
Automobile 22520 7.99
Housing and Real Estate 22486 7.98
Telecommunication 21551 7.64
Construction Activities 18732 6.64
Power 10275 3.64
Metallurgical Industries 8456 3.00
Petroleum and Natural Gas 4637 1.64
Others 84414 29.94
Chemical (Excluding Fertilizers) 4439 1.57
Total FDI Inflows 281897 100.00
Source: Compiled from the various Bulletins and Reports published by Ministry of Commerce & Industry and Department of Industrial Policy and Promotion, Government of India, New Delhi.
It clears from the observation of table no. 1.3 that in the year 2010-
11, the sectors which attracted higher inflows were services,
telecommunication, automobile, construction activities and computer
software & hardware etc. India evolved as one of the most favoured
destination for investment in the service sector and computer software and
hardware arena due to low cost wages and wide demand-supply gap in
services. Gradually India has become important centre for back-office
processing, call centers, technical support, medical transcriptions,
knowledge process outsourcing, financial analysis and business
processing hub for financial services and insurance claims. In the same
way Automobile sector of the country is attracting FDI to a great extent
due to wide untapped market of the country.
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From the year 1991-92, the automobile sector of the country
is realizing a handsome part of total FDI inflow of the country. The inflow
of foreign direct investment in the automobile sector of India from 1991-
92 to 2010-11 may be studied with the help of following table no. 1.4-
Table 1.4
INFLOW OF FOREIGN DIRECT INVESTMENT IN AUTOMOBILE SECTOR OF INDIA
FROM 1991-92 TO 2010-11
Year Inflow of FDI (Rs. in crore)
Fixed Base Indices
Chain Base Indices
Trend Values
1991-92 29 100.00 100 -5502.80
1992-93 53 182.76 182.76 -4217.38
1993-94 161 555.17 303.77 -2931.97
1994-95 306 1055.17 190.06 -1646.56
1995-96 688 2372.41 224.84 -361.15
1996-97 1195 4120.69 173.69 924.27
1997-98 1669 5755.17 139.67 2209.68
1998-99 2203 7596.55 132.00 3495.09
1999-00 1726 5951.72 78.35 4780.51
2000-01 1556 5365.52 90.15 6065.92
2001-02 3068 10579.31 197.17 7351.33
2002-03 4873 16803.45 158.83 8636.74
2003-04 4061 14003.45 83.34 9922.16
2004-05 3310 11413.79 81.51 11207.57
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2005-06 4531 15624.14 136.89 12492.98
2006-07 6612 22800.00 145.93 13778.40
2007-08 17228 59406.90 260.56 15063.81
2008-09 26914 92806.90 156.22 16349.22
2009-10 31469 108513.79 116.92 17634.63
2010-11 22520 77655.17 71.56 18920.05
Source: Compiled from the various Bulletins and Reports published by Ministry of Commerce & Industry and Department of Industrial Policy and Promotion, Government of India, New Delhi.
From the analysis of table no. 1.4 it was revealed that the
inflow of FDI in automobile sector of India was Rs. 29 crore in
1991-92, which reached to Rs. 22520 crore showing a fluctuating
status during the study period.
On computing Fixed Base Index Numbers, taking 1991-92 as
base year, it was noted that the amount of inflow of FDI in
automobile sector of India reached to Rs. 22520 crore in the year
2010-11showing an amazing growth i.e. 77555.17% during the
study period.
The Chain Base Index Numbers showed the heavy fluctuation
in the annual flow of FDI in the automobile sector of country.
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IMPORTANCE OF THE STUDY
FDI is the process whereby residents of one country acquire
ownership of assets for the purpose of controlling the production,
distribution and other activities of a firm in another 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 like India report FDI inflows in accordance with the IMF
definition, which include reinvested earnings and other direct capital
flows, besides equity capital.
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. 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.
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On the other side, India has become the center of attraction for
global automobile vehicles 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 the
automobile sector of India by introducing Auto Policy-2002. Various
international manufacturers are envisaging India as the hub for small car
production and other automobile vehicles.
Keeping in view the above facts, the researcher has decided to
conduct an analytical study on the FDI in automobile sector of the
country and for this purpose she has selected the topic entitled ,
Impact of Foreign Direct Investment on the Growth of Automobile
Industry in India since 1991.
It is believed that results of this study would attract the
attention of Government, automobile manufacturers, investors of
automobile sector and they all would be encouraged to make
positive decisions for the growth of automobile industry of the
country through sustainable foreign direct investment in this sector.
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OBJECTIVES OF THE STUDY
The main objectives of the present research study are as
under:
To study the concept of Foreign Direct Investment.
To study the history of automobile sector of India.
To analyse the trend of FDI inflow in the country as well as in
automobile sector of India.
To analyse the composition of FDI inflow in automobile sector of
India.
To evaluate the impact of FDI Inflow on Automobile Sector.
To study the influence of government policies on the development of
automobile industry of the country.
To study the factors affecting the inflow of FDI in the automobile
industry of India.
To draw logical conclusions and to propose constructive
suggestions in the light of the conclusions draw from the present
research study
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LIMITATIONS OF THE STUDY
There are a number of limitations regarding the present research
study. These limitations can be studied under the following heads:
LIMITATIONS REGARDING DATA COLLECTIONData collection is the most difficult task to achieve as the data
given in various records and documents published by various agencies
vary from each other to a great extent. Here, researcher made a decision to
use the data and information available only at government documents
published by RBI; Ministry of Commerce & Industry,
Government of India, New Delhi; Department of Industria l
Policy and Promotion, New Delhi; SIAM, New Delhi and the
sources of similar nature. The researcher visited the offices
and libraries of concerned departments time and again and
convinced the officials to provide the required data and
information which are necessary to complete the research
work.
LIMITATIONS REGARDING THE AVAILABILITY OF LITERATURE
For the purpose of this research study the researcher faced a great
difficulty in searching the matter related to her study. In fact the matter
directly related with the FDI inflow in the automobile sector of country
was very scarce and scattered. Due to this problem the research had to
make a thorough search in newspapers, journals, text books etc. and had
to collect the matter related to this research study. Also the Internet web
sites could prove helpful to some extent in providing some theoretical
literature related to the present research study.
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LIMITATIONS REGARDNG SHORTAGE OF TIME
Time is the biggest restraint in a research study. There is a
prescribed time limit with in which a researcher has to complete her
research study. This is the reason that the researcher could cover mainly
the aspects, which are given in the synopsis only.
LIMITATIONS REGARDING FINANCE
Being an individual, the researcher has the limited resources of
finance with her. Therefore, she ever found herself in financial crises and
could complete her survey work and purchased the required literature
facing the finance paucity with her.
Thus, the present study was conducted under certain limitations
regarding the data collection, personal interview, scarceness of literature,
time limitation, limited resources of finance with the researcher etc. But
here it is worth mentioning that the quality of the work was maintained up
to the satisfactory level and no compromise was made due to the above-
mentioned limitations.