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Indian auto industry is coming of age
Articles- Feb 12,24
Indian auto industry has come a long way; from the “permit” raj era to becoming the world's third largest automobile market today. R Jayaraman examines the key drivers behind this success.
In the licence-permit raj, the only automobiles sold in India were the Premier Padmini/ Fiat and the Ambassador. These car makers enjoyed a prime market opportunity, but, due to the ethos of the times, chose to keep other players from entering the market, taking advantage of the licence-permit raj rules. It was a clear case of how a person acts based on his KRA’s. The direction of the incentives drives accepted behaviour. The long queues for booking not only these cars, but also two-wheelers, characterised much of the Indian automobile scenario in those tumultuous years.
Change did come, but slowly. A pathbreaking event was the setting up of the Maruti factory near Delhi. True to the ‘socialistic thinking’ of the times, the car was a mini (anything smaller than the Maruti would have been named a ‘micro-organism’ in the auto world). Low priced, but loaded with modern technologies, it was a harbinger of the times to come. Swiftly followed by many foreign brands – Hyundai, Nissan, Toyota, Honda, Volkswagen, BMW, Mercedes, GM, Ford – the passenger car market saw rapid growth, to the extent that, today, Indian consumers buy 4 million plus such products per year, in 2023. And India recently became the third largest automobile market in the world. What’s driving this success?
Several factors. Let’s examine one by one.
The 1991 events led to the rejection of the socialistic pattern of state, to be replaced by a more open, inviting and licence-free (almost) ‘raj’, where government controls (‘stranglehold’, some may say) were dismantled sequentially. Thereby letting in fresh investments, from India and abroad. FDI became a user-friendly term, and India has had over 500 billion such dollars invested since. Since automobile manufacturing is one of the leading industries with the highest employment potential, passenger car factories on international scale (no more of a factory to produce 1,000 or 2,000 cars, of the same model, for several years). The conundrum has always been: what came first – demand or supply? In the USA and Europe, it has been supply before demand.
In India both were stagnating for a long time, before 1991. The Indian telecom industry, which was the first one where the effects of the ‘removal of controls’ could be seen, set the tone. This happened about ten years after the critical 1991 event. Yet, it was a clear demonstration of what liberalisation could achieve. So, in the case of India, what was holding us back were government controls. Once removed, the engine of industrialisation began to chug. But it had to go through several cycles before reaching the present status, where India has reached the third position in the world in the auto industry, and the fifth position in GDP.
The next step was to bring in investments. After Maruti, Hyundai came in with big investments. After which, many foreign brands set up shop. This momentum inspired Indian auto companies to venture into the game with big money. Tata, Mahindra and Mahindra, Maruti, all invested huge amounts in passenger car manufacturing. Not to be outdone, the SME’s started to flourish by catering to this burgeoning demand. Promoters, with the help of banks, began to take investments seriously, and stepped in with money and technology. Some even ventured into R&D, but this remains a small part even today. However, there are many green shoots.
The Mahindra ’Rise’ movement really pushed the company to bring in exciting cars. Not to be outdone, Tatas, in the last two or three years have become the champions of new models. There has been a steady stream of new models coming out of the Tata stable. Not to mention the role played by the JLR. Kirloskars joined with Toyota. Today, new investments are readily available in the auto industry. In the two and three-wheeler segments, TVS, Bajaj, Munjal, Honda, and others have made India the world capital of such products, handling demands of over 25 million per year, as well as exports.
Technology was the third element, which was attended to by the Indian auto industry. Maruti joined with Suzuki Motor, Tata collaborated with many foreign brands, such as, Mercedes, JLR, Fiat, etc. M&M also did the same, starting with Jeep. The Toyota Kirloskar JV is a huge success story, the way the Innova brand has captured the attention of the consumers. Technology included work methods and processes, introduction of process-based production, lean manufacturing, JIT, value chain mapping and integration. For the Indian auto industry to thrive, it is essential for a large SME base, which will supply the innumerable components and CKU’s/ SKU’s needed. The technology for all these has been procured by the SME promoters, who have done a great job in mobilising resources under trying circumstances.
Indian car manufacturers have struggled with smaller scale of operations, but they have overcome this disadvantage by adopting modern practices like TQM, business excellence, strategic sourcing and 3PL/ 4PL logistics. The cost of Indian logistics has been brought down to about 8 to 9 % in 2021-22, as per the estimates from NCAER, which, earlier, had been variously reported to be between 8 to 14%. The use of GPS, IOT, robotics and new processes have transformed the Indian logistics space. This has helped the auto industry control its costs in the long run.
Logistics is so important that it should be treated as the next important element. Not just from the cost point, but more from the efficiency. Speedy, safe, on-time, undamaged and unpilfered transport of goods has been facilitated by the tireless effort of Mr Gadkari, the Union Transport Minister. Many new roads, widening of existing ones, building flyovers, long bridges have all helped to make the ‘leap’ into a modern era of industrialisation. The projects like the coastal road in Mumbai, the Mumbai – Trans- Harbour Link, new seaports and airports etc have changed the transport scenario for the better. More facilities to truck drivers are being provided, to improve the human aspects.
The next element is the introduction of ‘Industry 4.0’.
Although in its infancy, considerable headway has been made in understanding and installing Industry 4.0 work methods in auto manufacturing. Some of the applications are IIOT controlled manufacturing, big data analysis and usage of the analysis results in adjusting production and despatch scheduling, adjusting inventory holdings through continuous monitoring for replenishments, tracking trucks which carry products for end users and distributors using GPS, machines operated by computer programs which have been embellished with Machine Learning assisted algorithms, which enable continuous online, real-time improvements in machining and other manufacturing activities. While there is still a long way to go in this area, still, there are many examples of Industry 4.0 applications making the production of automobiles more efficient.
Last, but not the least, is engineering. The chicken and egg story of which came first – technology or engineering? Irrespective, these are intertwined twins. While engineering is the ‘mind’ of technology, technology is the application of engineering, just like engineering is the application of science. In this sequence, India is well ahead in the first two, btu not in technology development. For example, the Engineering Research Centre of Tata Motors in Pune is one of the finest engineering centres. It does pioneering work in developing engineering concepts and ideas for technology. Same is the case with TVS, M&M, who all have developed world class facilities where engineering research can be done. This huge development of ‘engineering expertise’ has enabled the Indian auto industry in developing new models, reduce cost, deploy lean manufacturing and TQM. While Tesla invented and manufactured the first EV cars, Indian engineers have provided the infrastructure needed for running and maintaining such cars on India roads. While GPS is available, Indian engineers have built a telecom network which provides the underlying connectivity to run the GPS.
So, it looks like the Indian auto industry has come a long way since Ambassador and Fiat. The data (refer Table 1) from the Society of Indian Automobile Manufacturers (SIAM) clearly shows the progress made.
About the author:
R Jayaraman is the Head, Capstone Projects, at Bhavan's S P Jain Institute of Management & Research (SPJIMR). He has worked in several capacities, including Tata Steel, for over 30 years. He has authored over 60 papers in academic and techno economic journals in India and abroad. Jayaraman is a qualified and trained Malcolm Baldrige and EFQM Business Model Lead Assessor.
Indian auto industry
R Jayaraman
S P Jain Institute of Management & Research
Premier Padmini
Fiat
Ambassador
passenger car
IIOT
Industry 4.0
Society of Indian Automobile Manufacturers
SIAM
Maruti Suzuki
Hyundai
Toyota Kirloskar
Bajaj Auto
Honda
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