ECONOMIC GEOGRAPHY

TERM PAPER
ON

GLOBLIZATION AND ITS

IMPACT ON
AUTOMOBILE
INDUSTRY IN INDIA.
Name: Chandramani Choubey
Course: RD403
INTRODUCTION :

GLOBLIZATION : First of all let us define globalization which will help us in better
understanding of its impact on automobile industry in India .Globalization is a
process of interaction and integration among the people, companies, and
governments of different nations, a process driven by international trade and
investment and aided by information technology. This process has effects on the
environment, on culture, on political systems, on economic development and
prosperity, and on human physical well-being in societies around the world.

Anthony Giddens in consequences of modernity defined globalization as the

intensification of social relations throughout the world, linking distant localities in
such a way that local happenings are formed as a result of events that occur many
miles away and vice versa.

From understanding of world system theory of Immanuel Wallenstein to A.G

frank thesis on development of underdevelopment make us think about
understanding of globalization in different paradigm.

But more trending concept of globalization started developing by 1970s by

development of neoliberal theory which contested the very notion of state
autonomy and emphasized on individual liberty. According to David Harvey there
has everywhere been an emphatic turn towards neoliberalism in political-
economic practices and thinking since the 1970s.The neoliberal policies has
increased interaction and integration of people, companies, and governments
that facilitate international trade. Some authors argue that neoliberalism is the
main driver of globalization and that globalization itself can be seen as both the
effect of, and the move towards, global neoliberalism. Economic neoliberalism is
an economic theory and an ideological conviction that supports maximizing the
economic freedom for individuals and thus reducing the amount of state
intervention to the bare minimum. In this regards, it does advocate the
elimination of government-imposed restrictions on transnational movements of
goods, capital and people .Though these are some important aspects in
consideration of globalization but globalization is a much richer and multi-
dimensional process that extends beyond transnational economic transactions.

This openness to free trade on an international scale has given rise to free trade
agreements, such as the North American Free Trade Agreement (NAFTA), and
supra-national governing bodies, such as the World Trade Organization (WTO),
among others.

Globalization itself is a contentious issue among academia. Supports argued that

globalization has created avenues for less-developed countries with market
access and opportunity to grow their economies .Whereas those in against give
the notion that it has created easy entry for multinational companies across the
border which in turn makes profit with the help of local resources and at the
expense of local people that lead to world wide disparity.

Once former UN secretary general Kofi Annan has said that-“Arguing against
globalization is like arguing against the law of gravity.”

Objective and Research Question:

To analyze trends of change in production of automobile industry after

globalization.

Database: The database for this paper is IndiaStat.com

Methodology: The data has been analyzed via MS Excel to present the trends of
changes in automobile industry production.

About automobile industry and globalization:-

The automobile industry is greatly impacted by globalization, especially since

trade in manufactured goods has outpaced traditional sectors such as mining and
agriculture. Assembly line production system in automobile sector has
revolutionized trade of automobiles across the world. Globalization is largely
promoted by international agency like IMF and WORLD BANK. Customs unions of
nations and many trade regions such as the EU, SAARC, ASEAN, have resulted
from globalization. WTO initiated free trade agreement also formalized the notion
of globalization. NAFTA, ASEAN FTA, India and various other countries have also
signed free trade agreement .These treaties has facilitated more worldwide
integration of economies. This in turn made globalization as a driver in reshaping
the business and manufacturing landscape of automobiles.

Globalization has trounced trade protectionism and nationalization. Developing

countries like India are generally tends to promote its local auto manufacturing.
This can help in reduction of unemployment, resource generation at local level
and much automobile component availability. Regional bloc also plays an
important role a kind of mix between full-fledged free trade and nationalism and
protectionism at world level .ASEAN countries use strict tariff when it applied to
some commodities like mobile production and its related trade where local
production was the only way to go around. But when the ASEAN Industrial
Cooperation scheme and the Common Effective Preferential Tariff came into
effect tariff barriers have substantially reduced .This enabled a new approach that
made it possible to produce vehicles (and components) in one ASEAN nation to
serve the whole regional block, allowing better economies of scale and more
efficient production.

Globalization is a strong and undeniable economic force. It carries a number of

unintended consequences but also benefits. For one thing, it assures auto
companies that they can continue to build cars at a sustainable cost. And, in the
end, the consumer wins.

INDIAN AUTOMOBILE INDUSTRY: The automobile industry in India is now

working in terms of the dynamics of an open market. Many joint ventures have
been setup in India with foreign collaboration. The Indian car industry since
1980s has witnessed a major resurgence with the opening up of Indian shores to
foreign manufacturers and collaborators. In the early 1990s, the Indian economy
faced a very serious economic slump that this almost self-sufficient system had
endured for decades finally led to a massive balance-of-payment crisis. After the
International Monetary Fund bailed it out, the Indian government had to take a
course of expedient actions toward liberalization and deregulation under the
guidance of the International Monetary Fund and World Bank. This period
became the melting point for the industry in India when large number of foreign
players came into the country through collaborations and partnerships. The face
of the Indian automobile industry completely changed in the open economy era
post liberalization, which brought a remarkable change in the Indian automobile
industry.

In 1991, the Government of India embarked on an ambitious structural

adjustment programmed aimed at economic liberalization, based on the pillars of
De-licensing, Decontrol, Deregulation and Devaluation. The New Industrial Policy
was drafted to deregulate market entrance, production capacity and plant
location in a wide range of industries, and it was applied to the auto components
sector in 1991 and the automotive vehicles sector/passenger car industry in 1993.
No industrial license is required for setting up of any unit for manufacture of
automobiles except in some special cases. The norms for Foreign Investment and
import of technology have also been progressively liberalized over the years for
manufacture of vehicles including passenger cars in order to make this sector
globally competitive.

Liberalization of economic policies and the outward orientation introduced since

1991 brought about a dramatic change in this industry. These new measures
effectively dismantled the license raj, which had made it difficult for Indian firms
to import machinery and know-how, and had disallowed equity ownerships by
foreign firms These newly implemented liberalization measures allowed two local
firms that had been specialized in light commercial vehicles, namely Tata
Engineering and Bajaj Tempo, to enter the passenger car industry. Given the
merits of market potential, India witnessed a rushed entry of global car
manufacturers in the auto industry. With ten of the world’s leading automobile
companies having set up new production facilities around the country, India’s
passenger car industry has experienced in the past decade a substantial increase
in production, a wave of new models, and unprecedented marketing wars among
automobile companies. The world’s major carmakers in the first five years
following liberalization were Mercedes-Benz, Fiat, General Motors Opel, Ford,
Honda, Hyundai, and Toyota. In commercial vehicle industry, where local
manufacturers, such as Tata Engineering, Ashok Leyland and Bajaj Tempo, had
been dominant Volvo made its place. Today, multi-national companies are using
India as a manufacturing "base for exporting vehicles to other countries". The
growth rate of the Indian automobile industry is well over 25 per cent, which is
enormously larger than other developing countries like Korea and Brazil.

By the April of 1996, there were about eighteen automobile companies that had
either begun operations in India or were in the process of launching in the
country. As a result, while initially there were only about three vehicles to choose
from, consumers now have wide variety of options (Mukherjee and Sastry, 1996).
Further in 1997, some more reforms were made where new foreign entrants
required establishing actual production facilities, the minimum foreign equity was
raised to $50 million, and the minimum indigenization was to be 50 per cent in
the third year and 70 per cent in the fifth year.

While India has been able to attract a large amount of automotive capital in the
past decade, its market has not grown as fast as many expected. The country’s
small, stagnant market has forced auto companies to scramble for the right
models to meet Indian consumers’ needs and to look for exporting markets to
shore up efficiency in production. While the export of cars from India is still
minimal, that of auto components has increased dramatically since liberalization.

Thanks to numerous collaborations and joint ventures with global companies, the
Indian auto component industry has been greatly upgraded in both technology
and finance and gained competitiveness in global markets. Auto companies have
become highly creative in running the just-in-time system and overcoming the
country’s business-unfriendly transportation infrastructures. The buyer-supplier
relationships have been characterized by carmakers single sourcing and suppliers
multiple supplying, both reflecting India’s market conditions, government’s auto
policies and, in general, history of the auto industry.
GRAPHS : TYPEWISE PRODUCTION FROM 1970-2009 IN (THOUSANT)

1600

1400

1200 Cars
1000 Jeeps

800 Buses

600 Trucks
LCVs
400
Tractors
200

0
1970-71 1980-81 1990-91 2000-01 2008-09

Category-
wise Production of Automotive Industry in India
(2001-02 to 2015-16)

20000000
Total Passenger
15000000 Vehicles (PVs)
10000000 Total Commercial
Vehicles (CVs)
5000000
Total Three
0 Wheelers
Total Two
wheelers
 Category-wise
Sales of Motor Vehicles (Including Exports) in India
(2005-2006 to 2015-2016)
(In Number)

20000000
Total Commercial
15000000 Vehicles
Passenger Cars
10000000
Total Two-wheelers
5000000
Three-Wheelers
0
2005-06 2010-11 2015-16

250000
200000
150000 Hind-
100000 Maruti Udyog Ltd.
50000
Premier Auto-
0
Tata Motors Ltd.
1970-71
1975-76
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95

500000
450000 Hind- ustan Motors
400000 Ltd.
350000 Maruti Udyog Ltd.
300000
250000 Premier Auto-
200000 mobiles Ltd.
150000
Tata Motors Ltd.
100000
50000
Ford India Pvt. Ltd.
0
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05

Fiat India Auto-

mobiles Pvt. Ltd.
 1000000 Hind- ustan Motors
800000 Ltd.
600000
400000 Maruti Udyog Ltd.
200000
0 Premier Auto-
mobiles Ltd.
Tata Motors Ltd.

REVIEW

Rajnish Kumar Tiwari in his work Aiming Big with Small Cars has provided
information about innovation in automobile technology and also about frugal
innovations in context of Indian automobile industry which has competed at
world level. Though automobile industry but Indian automobile industry with the
help of large scale labour and high rate of innovation technology fared well.

Association of automobile industry has worked on Data in Automobile Industry

which has helped in better assessment of Indian automobile industry in context of
world economy.

World Development Report 2009, has helped in understanding of concentration

of automobile industry across the border. It has talked about the agglomeration
of automobile industry in this competitive environment.