Will India be the next China?

The automotive market in India has boomed in recent years in line with the accelerated income growth that the nation has experienced over the last decade. May Arthapan, Director, Asia Pacific Forecasting for J. D. Power, compared and contrasted India with other Asian markets at the company’s Global Automotive Outlook Spring Conference in London.

Following economic liberalisation in 1991, the Indian automotive industry has demonstrated sustained growth as a result of increased competitiveness and relaxed restrictions. Last year, the Indian passenger car and light commercial vehicle market grew by 31% making India the world’s sixth-largest market. Arthapan forecasts a further 17% growth this year. Will India take off like Japan in the 1960s, Korea in the 1980s and China in the 2000s she asked? The answer is, probably not to the same extent.

India has three major deficit areas; infrastructure, budget and trade. The infrastructure deficit has been caused by a slow rate of industrialisation and undersized manufacturing industries. Out of a total of 139 nations, India ranks 90^th for the quality of its roads, 83^rd for its port infrastructure and 110^th for electricity supply. Government spending plans from 2012 – 2016 total $1 trillion, a doubling of the amount spent in the last four years. New projects, however, are expected to be burdened with bureaucratic delays and corruptions.

India’s budget deficit leaves the government with less room to manoeuvre. The country has been operating on budget deficits since economic liberalisation began in 1991 and National Debt last year reached 80% of GDP. This is a concern because it makes it more difficult to borrow money and raises the cost of borrowing. In addition, India’s balance of trade is much worse than those of Japan, China and South Korea.

It is informative to compare market attractiveness between India and China. In India, 70% of the car market is in the A and B segments compared with only 30% in China. Profitability is lower and India has much smaller-scale production. Arthapan forecasts that the 3.2 million vehicles produced in India last year will grow to 6.9 million in 2015. China built 16.8 million units in 2010 and she predicts a rise to 27.9 million in 2015.

Market competition in India is more entrenched than in China. Between them, Maruti-Suzuki, Tata and Mahindra control 70% of the market. Arthapan forecasts that Indian light vehicle production will increase steadily over the next five years to just under seven million units in 2015. Domestic sales will drive the output and two-thirds of the growth will come from the A and B segments. Those OEMs with a strong presence in these segments will be the big winners.

Arthapong believes that the impact of the Japan earthquake on Japan’s vehicle production will be severe in the short-term but that the 10% output loss will start to be made up in the second half of the year. She has revised her Asia Pacific production forecasts downwards from 6.5% growth to 4% to reflect the impact of the disaster.

*Asean car-producing countries are Indonesia, Malaysia, Philippines, Thailand and Vietnam.

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