NTRODUCTION

The Indian automotive industry consists of five segments: commercial vehicles; multi-utility vehicles &
passenger cars; two-wheelers; three-wheelers; and tractors. With 5,822,963 units sold in the domestic
market and 453,591 units exported during the first nine months of FY2005 (9MFY2005), the industry
(excluding tractors) marked a growth of 17% over the corresponding previous. The two-wheeler sales
have witnessed a spectacular growth trend since the mid nineties.

Two-wheelers: Market Size & Growth

In terms of volume, 4,613,436 units of two-wheelers were sold in the country in 9MFY2005 with 256,765
units exported. The total two-wheeler sales of the Indian industry accounted for around 77.5% of the
total vehicles sold in the period mentioned.

Figure 1
Segmental Growth of the Indian Two Wheeler Industry (FY1995-
2004)

 
After facing its worst recession during the early 1990s, the industry bounced back with a 25% increase in
volume sales in FY1995. However, the momentum could not be sustained and sales growth dipped to
20% in FY1996 and further down to 12% in FY1997. The economic slowdown in FY1998 took a heavy toll
of two-wheeler sales, with the year-on-year sales (volume) growth rate declining to 3% that year.
However, sales picked up thereafter mainly on the strength of an increase in the disposable income of
middle-income salaried people (following the implementation of the Fifth Pay Commission's
recommendations), higher access to relatively inexpensive financing, and increasing availability of fuel
efficient two-wheeler models. Nevertheless, this phenomenon proved short-lived and the two-wheeler
sales declined marginally in FY2001. This was followed by a revival in sales growth for the industry in
FY2002. Although, the overall two-wheeler sales increased in FY2002, the scooter and moped segments
faced de-growth. FY2003 also witnessed a healthy growth in overall two-wheeler sales led by higher
growth in motorcycles even as the sales of scooters and mopeds continued to decline. Healthy growth in
two-wheeler sales during FY2004 was led by growth in motorcycles even as the scooters segment posted
healthy growth while the mopeds continued to decline. Figure 1 presents the variations across various
product sub-segments of the two-wheeler industry between FY1995 and FY2004.

Demand Drivers

The demand for two-wheelers has been influenced by a number of factors over the past five years. The
key demand drivers for the growth of the two-wheeler industry are as follows:

 ▪  Inadequate public transportation system, especially in the semi-urban and rural areas;
▪ Increased availability of cheap consumer financing in the past 3-4 years;
▪ Increasing availability of fuel-efficient and low-maintenance models;
▪ Increasing urbanisation, which creates a need for personal transportation;
▪ Changes in the demographic profile;
▪ Difference between two-wheeler and passenger car prices, which makes two-wheelers the entrylevel
vehicle;
▪ Steady increase in per capita income over the past five years; and
▪ Increasing number of models with different features to satisfy diverse consumer needs.
 
While the demand drivers listed here operate at the broad level, segmental demand is influenced by
segment-specific factors.

MARKET CHARACTERISTICS

Demand
Segmental Classification and Characteristics

The three main product segments in the two-wheeler category are scooters, motorcycles and mopeds.
However, in response to evolving demographics and various other factors, other subsegments emerged,
viz. scooterettes, gearless scooters, and 4-stroke scooters. While the first two emerged as a response to
demographic changes, the introduction of 4-stroke scooters has followed the imposition of stringent
pollution control norms in the early 2000. Besides, these prominent sub-segments, product groups within
these sub-segments have gained importance in the recent years. Examples include 125cc motorcycles,
100-125 cc gearless scooters, etc. The characteristics of each of the three broad segments are discussed
in Table 1.

Table 1
Two-Wheelers: Comparative Characteristics

  Scooter Motorcycle Moped

Price*(Rs. as in January 2005) > 22,000 > 30,000 > 12,000

Stroke 2-stroke, 4-stroke Mainly 4-stroke 2-stroke

Engine Capacity (cc) 90-150 100, 125, > 125 50, 60

Ignition Kick/Electronic Kick/Electronic Kick/Electronic

Engine Power (bhp) 6.5-9 7-8 and above 2-3

Weight (kg) 90-100 > 100 60-70

Fuel Efficiency (kms per litre) 50-75 50-80+ 70-80

Load Carrying High Highest Low

*Ex-showroom Mumbai
Compiled by INGRES
 
Segmental Market Share

The Indian two-wheeler industry has undergone a significant change over the past 10 years with the
preference changing from scooters and mopeds to motorcycles. The scooters segment was the largest till
FY1998, accounting for around 42% of the two-wheeler sales (motorcycles and mopeds accounted for
37% and 21 % of the market respectively, that year). However, the motorcycles segment that had
witnessed high growth (since FY1994) became larger than the scooter segment in terms of market share
for the first time in FY1999. Between FY1996 and 9MFY2005, the motorcycles segment more than
doubled its share of the two-wheeler industry to 79% even as the market shares of scooters and mopeds
stood lower at 16% and 5%, respectively.

Figure 2 
Trends in Segmental Share in Industry Sales (FY1996-9MFY2005)

 
While scooter sales declined sharply by 28% in FY2001, motorcycle sales reported a healthy growth of
20%, indicating a clear shift in consumer preference. This shift, which continues, has been prompted by
two major factors: change in the country's demographic profile, and technological advancements.

Over the past 10-15 years the demographic profile of the typical two-wheeler customer has changed. The
customer is likely to be salaried and in the first job. With a younger audience, the attributes that are
sought of a two-wheeler have also changed. Following the opening up of the economy and the increasing
exposure levels of this new target audience, power and styling are now as important as comfort and
utility.
The marketing pitch of scooters has typically emphasised reliability, price, comfort and utility across
various applications. Motorcycles, on the other hand, have been traditionally positioned as vehicles of
power and style, which are rugged and more durable. These features have now been complemented by
the availability of new designs and technological innovations. Moreover, higher mileage offered by the
executive and entry-level models has also attracted interest of two-wheeler customer. Given this market
positioning of scooters and motorcycles, it is not surprising that the new set of customers has preferred
motorcycles to scooters. With better ground clearance, larger wheels and better suspension offered by
motorcycles, they are well positioned to capture the rising demand in rural areas where these
characteristics matter most.

Scooters are perceived to be family vehicles, which offer more functional value such as broader seat,
bigger storage space and easier ride. However, with the second-hand car market developing, a
preference for used cars to new two-wheelers among vehicle buyers cannot be ruled out. Nevertheless,
the past few years have witnessed a shift in preference towards gearless scooters (that are popular
among women) within the scooters segment. Motorcycles, offer higher fuel efficiency, greater
acceleration and more environment-friendliness. Given the declining difference in prices of scooters and
motorcycles in the past few years, the preference has shifted towards motorcycles. Besides a change in
demographic profile, technology and reduction in the price difference between motorcycles and scooters,
another factor that has weighed in favour of motorcycles is the high re-sale value they offer. Thus, the
customer is willing to pay an up-front premium while purchasing a motorcycle in exchange for lower
maintenance and a relatively higher resale value.

Supply

Manufacturers

As the following graph indicates, the Indian two-wheeler industry is highly concentrated, with three
players-Hero Honda Motors Ltd (HHML), Bajaj Auto Ltd (Bajaj Auto) and TVS Motor Company Ltd (TVS) -
accounting for over 80% of the industry sales as in 9MFY2005. The other key players in the two-wheeler
industry are Kinetic Motor Company Ltd (KMCL), Kinetic Engineering Ltd (KEL), LML Ltd (LML), Yamaha
Motors India Ltd (Yamaha), Majestic Auto Ltd (Majestic Auto), Royal Enfield Ltd (REL) and Honda
Motorcycle & Scooter India (P) Ltd (HMSI).

Figure 3 
Shares of Two-Wheeler Manufacturers in Industry Sales (FY2000-9MFY2005)

 
Although the three players have dominated the market for a relative long period of time, their individual
market shares have undergone a major change. Bajaj Auto was the undisputed market leader till
FY2000, accounting for 32% of the two-wheeler industry volumes in the country that year. Bajaj Auto
dominance arose from its complete hold over the scooter market. However, as the demand started
shifting towards motorcycles, the company witnessed a gradual erosion of its market share. HHML, which
had concentrated on the motorcycle segment, was the main beneficiary, and almost doubled its market
share from 20% in FY2000 to 40% in 9MFY2005 to emerge as the market leader. TVS, on the other
hand, witnessed an overall decline in market share from 22% in FY2000 to 18% in 9MFY2005. The share
of TVS in industry sales fluctuated on a year on year basis till FY2003 as it changed its product mix but
has declined since then.

Technology

Hitherto, technology transfer to the Indian two-wheeler industry took place mainly through: licensing and
technical collaboration (as in the case of Bajaj Auto and LML); and joint ventures (HHML).

A third form - that is, the 100% owned subsidiary route - found favour in the early 2000s. A case in point
is HMSI, a 100% subsidiary of Honda, Japan. Table 2 details the alliances of some major two-wheeler
manufacturers in India.
Besides the below mentioned technology alliances, Suzuki Motor Corporation has also followed the
strategy of joint ventures (SMC reportedly acquired equity stake in Integra Overseas Limited for
manufacturing and marketing Suzuki motorcycles in India).

Table 2
Technological tie-ups of Select Players

  Nature of Alliance Company Product

Bajaj Auto Technological tie-up Kawasaki Heavy Industries Ltd, Japan Motorcycles

Technological tie-up Tokya R&D Co Ltd, Japan Two-wheelers

Technological tie-up Kubota Corp, Japan Diesel Engines

HHML Joint Venture Honda Motor Co, Japan Motorcycles

KEL Technological tie-up Hyosung Motors & Machinery Inc Motorcycles

KEL Tie up for manufacturing Italjet, Italy Scooters

and distribution

LML Technological tie-up Daelim Motor Co Ltd Motorcycles

Hero Motors Technological tie-up Aprilia of Italy Scooters

Compiled by INGRES
 
With the two-wheeler market, especially the motorcycle market, becoming extremely competitive and the
life cycle of products getting shorter, the ability to offer new models to meet fast changing customer
preferences has become imperative. In this context, the ability to deliver newer products calls for sound
technological backing and this has become one of the critical differentiating factor among companies in
the domestic market. Thus, the players have increased their focus on research and development with
some having indigenously developed new models as well as improved technologies to cater to the
domestic market. Further, with exports being one of the thrust areas for some Indian two-wheeler
companies, the Indian original equipment manufacturers (OEMs) have realised the need to upgrade their
technical capabilities. These relate to three main areas: fuel economy, environmental compliance, and
performance. In India, because of the cost-sensitive nature of the market, fuel efficiency had been an
interest area for manufacturers.

It is not only that the OEMs are increasing their focus on in-house R&D, they also provide support to the
vendors to upgrade the technology and also assist them striking technological alliances.

TRENDS IN THE TWO-WHEELER INDUSTRY

Companies raising capacity to meet the growing demand

All the major two-wheeler manufacturers, viz. Bajaj Auto, HHML, TYS, HMSI and others, have increased
their manufacturing capacities in the recent past. The total capacity of these players stood at 7.8 million
units per annum (FY2003) as against total market sales of 3.8 million units in FY2002. Most of the
players have either expanded capacity, or converted their existing capacities for scooters and mopeds
into those for manufacturing motorcycles. The move has been prompted by the rapid growth reported by
the motorcycles segment since FY1995.

HHML increased the capacity of its plants from 1.8 million units in FY2003 to 2.25 million in FY2004 and
has been able to achieve 92% capacity utilisation. In light of the increase in demand for motorcycles, the
company plans to set up a new plant. Since its entry in the Indian market during FY2002, HMSI has
aggressively expanded its capacity.

Niche markets also witnessing intense competition

A significant trend witnessed over the past five years is the inclination of consumers towards products
with superior features and styling. Better awareness about international models has raised expectations
of consumers on some key attributes, especially quality, styling, and performance. High competitive
intensity has prompted players to launch vehicles with improved attributes at a price less than the
competitive models.

In an effort to satisfy the distinct needs of consumers, producers are identifying emerging consumer
preferences and developing new models. For instance, in the motorcycles segment, motorcycles with
engine capacity over 150cc, is a segment that has witnessed significant new product launches and hence,
become more competitive. The indigenously launched Pulsar 150 had met with success on its launch and
thereafter, a host of models have been launched in this segment by various players. While Bajaj Auto
launched the Pulsars (150 and 180 cc) with digital twin spark technology (DTSi) that offers a powerful
engine and fuel efficiency of 125 cc models, model launches by other players include LML's
Graptor/Beamer, HMSI's Unicorn besides the HHML's CBZ (improved version launched in 2003-04) and
TVS' Fiero F2. Moreover, in the recent past, the motorcycle segment has witnessed launch of vehicles
with higher engine capacity (higher than 150cc) and power (higher than 15bhp). These include models
such as Bajaj Auto Eliminator and Royal Enfield's Thunderbird followed by HHML's Karisma. Besides
these, KEL has launched premium segment motorcycles GF 170 and GF Laser besides launching products
from the portfolio of its technology partner (Hyosung's Aquila and Comet 250). The products in this
segment cater for style conscious consumers. Quite a few players are developing models combining
features such as higher engine capacity" optimum mix of power and performance, and superior styling.
However, the extent of shift to these products would depend on the positioning of such products in terms
of price.

In the scooters segment, the market for plastic-bodied variomatic scooters continues to witness growth
in the scenario of overall decline in scooter volumes. Higher volumes and growth are especially true for
certain scooter models, such as Honda Activa, that brought in new technology (besides variomatic
transmission) to further differentiate themselves. Thus, the need to differentiate and create a niche has
led to companies strengthening their research and development (R&D) capabilities and reducing the
development time for new models.

Increasing focus on exports

For the first nine months of FY2005, two-wheeler exports increased by 37% over the corresponding
previous, led mainly by motorcycles even as exports of other two-wheelers were healthy. While
motorcycle exports increased by 40%, scooter and moped exports increased by 29% and 27%
respectively.

Motorcycle exports by Bajaj Auto, HHML and TVS have reported a tobust growth in FY2005 and are
expected to increase further in the medium term.

Table 3
Two-Wheeler Exports from India (in numbers)

  FY2000 FY2001 FY2002 FY2003 FY2004 CAGR  9MFY2005

(FY2000-04)

Scooters 20,188 25,625 28332 30116 53148 27.4 44832

Motorcycles 35,295 41,339 56,880 126122 187287 51.4 188807

Mopeds 27,754 44,174 18,971 23330 24234 -3.3 22739

Total 83,237 111,138 104183 179568 264669 33.5 256378

Source: SIAM
 
Although the Indian two-wheeler manufacturers have forayed on their own in their target export
markets, there have been instances of tie-ups with the technology partners. Bajaj Auto's tie-up with
Kawasaki to jointly market Bajaj products in Philippines is a case in point. Under the tie-up, M/s
Kawasaki Motors Philippines Corporation has been appointed as exclusive distributors to market select
Bajaj two-wheelers that include Byk, Caliber 115 and Wind 125. These vehicles are being sent to
Philippines in the completely built unit (CBU) form. Other strategy of expanding international presence
considered by few players is that of setting up assembly lines in select South East Asian countries either
on their own or in partnership with local players. Besides, plans of select overseas technology partners to
source from their Indian partners and plans of global majors to develop their Indian manufacturing unit
as a sourcing hub may also lead to increase in two-wheeler exports from India.

Companywise two-wheeler exports since FY2000 are presented in the following Table 4.

Table 4
Company-wise two-wheeler exports (FY2000-9MFY2005)

FY2000 FY2001 FY2002 FY2003 FY2004 CAGR  9MFY2005

  (FY2000-04)

Bajaj Auto 14924 16112 28527 53366 90210 56.8 87225

HHML 10061 10324 13023 21165 39254 40.5 43441

HMSI 0 0 1293 10916 31414 n.a 27734

TVS 7265 6621 7765 9636 28093 40.2 36666

Yamaha 15197 20446 20321 45546 32906 21.3 27539

Others 35790 57635 32752 39053 42792 4.6 33773

Total 83237 111138 103681 179682 264669 33.5 256378

Source: SIAM
 
Vehicle Emission Norms

Emission norms for all categories of petrol and diesel vehicles at the manufacturing stage were
introduced for the first time in India in 1990 and were made stricter in 1996. When the 1996 norms were
introduced, it resulted in certain models being withdrawn from the market. With Stage I India 2000
emission norms coming into place, the cost of developing suitable technology has remained high.

The emission norms that are currently in force for two-wheelers and three-wheelers are more stringent
than the Euro II norms. The roadmap suggested for emission norms for two/three-wheelers by the
Expert Committee on Auto Fuel Policy is as follows:

For two-/three-wheelers the emission norms are recommended to be the same in the entire country:

For new vehicles:

Bharat Stage II norms throughout the country from April 1, 2005

Bharat Stage III norms to be applicable preferably from April 1, 2008 but not later than April 1, 2010.

For reducing pollution from in-use vehicles

 ▪  New pollution under control (PUC) checking system for all categories of vehicles to be put in place by April 1, 2005
 
▪ Inspection & maintenance (I&M) system for all categories of vehicles to be put place by April 1, 2010
 
▪ Performance checking system of catalytic converters and conversion kits installed in vehicles to be put in place by
April 1, 2007.
 
Table 5 presents the emission norms for two-wheelers that were in place in the past, the India 2000
emission norms, and the norms that have been implemented for April 2005 (Stage II) and proposed for
2008 (Stage III).

Table 5
Exhaust Emission Norms

Vehicle Pollutants Old Norms 1996 2000 2005* 2008/10**

Tow-wheelers CO 12-30 4.5 2.0 1.5 1

(gm/Km)
HC+Nox 8-12 3.6 2.0 1.5 1

Three-wheelers CO 12-30 6.8 4.0 2.25 1.25

(petrol)
HC+Nox 8-12 5.4 1.5 2 1.25

Three-wheelers CO       1 1.1
(Diesel)
HC+Nox       0.85 1

PM       0.10 0.05

CO: Carbon Monoxide; HC: Hydrocarbon; Nox: Nitrogen Oxide, PM: Particulate Matter,
* Maximum Sulphur parts per million (ppm) permissible of 150 and ** Maximum
Sulphur ppm permissible of 50 Compiled by INGRES
 
To be able to meet the exhaust norms, the Auto Fuel Policy has suggested following technologies:

Table 6
Technologies for meeting the emission norms for Spark Ignited Vehicles

  2/3 - wheelers  

Level of Emission Norms 2-Stroke Technology 4-Stroke Technology

Euro I/India 2000 Intake, exhaust, combustion 4-Stroke engine

optimisation Catalytic converter technology

Euro II/Bharat Stage II Secondary air injection Caatalytic Hot tube Secondary
Converter air injection

Euro III/Bharat Stage III Fuel injection Catalytic converter Fuel injection
Carburetor + catalytic converter

Euro IV/Bharat Stage IV To be developed Learn burn Fuel injection

+ catalytic converter

Source: National Auto Fuel Policy

 
The adoption of new technologies for compliance with stricter emission norms may affect the prices of
vehicles. Some two-wheeler manufacturers are testing electronic fuel injection systems for motorcycles.
To begin with, electronic systems are likely to be introduced in premium segment motorcycles.

Fiscal Policy

The Union Budget for 2001-02 had lowered the excise duty on two-wheelers (with engine capacity in
excess of 75 cc) from 24% to 16%. The manufacturers responded to this by passing on a relatively large
part of the excise cut to customers. The Union Budget thereafter have left the excise duty on two-
wheelers unchanged. But the Union Budget 2004-05 provides for a weighted deduction of 150% for
investments in R&D. This may facilitate increasing R&D allocations and allow for improvement in the
technical as well as product development skills of the Indian companies.

Indian Auto Policy 2002

The Government of India approved a comprehensive automotive policy in March 2002, the main
proposals of which are as under:

Foreign direct investment : Automatic approval is proposed to be granted to foreign equity investment
up to 100% for manufacture of automobiles and components.

Import tariff : Import tariffs are proposed to be fixed at a level such that they facilitate the
development of manufacturing capabilities as opposed to mere assembly.

Incentives for R&D : The weighted average tax deduction under the Income Tax Act, 1961 for
automotive companies is proposed to be increased from current level of 125% (The weighted average
deduction for R&D was increased to 150% in the Union Budget 2004-05). Further, the policy proposes to
include vehicle manufacturers for a rebate on the applicable excise duty for every 1% of the gross
turnover of the company expended during the year on R&D. 

Environmental aspects : Adequate fiscal incentives are proposed to promote the use of low-emission
auto fuel technology (in line with the Auto Fuel Policy). The auto policy states the Government's intent to
align domestic policy with the international practice of imposing higher road tax on old vehicles so as to
discourage their use.
 
indian Two-Wheeler Industry: A Perspective
Automobile is one of the largest industries in global market. Being the leader in product and process
technologies in the manufacturing sector, it has been recognised as one of the drivers of economic
growth. During the last decade, well¬-directed efforts have been made to provide a new look to the
automobile policy for realising the sector's full potential for the economy. Steps like abolition of licensing,
removal of quantitative restrictions and initiatives to bring the policy framework in consonance with WTO
requirements have set the industry in a progressive track. Removal of the restrictive environment has
helped restructuring, and enabled industry to absorb new technologies, aligning itself with the global
development and also to realise its potential in the country. The liberalisation policies have led to
continuous increase in competition which has ultimately resulted in modernisation in line with the global
standards as well as in substantial cut in prices. Aggressive marketing by the auto finance companies
have also played a significant role in boosting automobile demand, especially from the population in the
middle income group.

Evolution of Two-wheeler Industry in India

Two-wheeler segment is one of the most important components of the automobile sector that has
undergone significant changes due to shift in policy environment. The two-wheeler industry has been in
existence in the country since 1955. It consists of three segments viz. scooters, motorcycles and
mopeds. According to the figures published by SIAM, the share of two-wheelers in automobile sector in
terms of units sold was about 80 per cent during 2003-¬04. This high figure itself is suggestive of the
importance of the sector. In the initial years, entry of firms, capacity expansion, choice of products
including capacity mix and technology, all critical areas of functioning of an industry, were effectively
controlled by the State machinery. The lapses in the system had invited fresh policy options that came
into being in late sixties. Amongst these policies, Monopolies and Restrictive Trade Practices (MRTP) and
Foreign Exchange Regulation Act (FERA) were aimed at regulating monopoly and foreign investment
respectively. This controlling mechanism over the industry resulted in: (a) several firms operating below
minimum scale of efficiency; (b) under-utilisation of capacity; and (c) usage of outdated technology.
Recognition of the damaging effects of licensing and fettering policies led to initiation of reforms, which
ultimately took a more prominent shape with the introduction of the New Economic Policy (NEP) in 1985.

However, the major set of reforms was launched in the year 1991 in response to the major
macroeconomic crisis faced by the economy. The industrial policies shifted from a regime of regulation
and tight control to a more liberalised and competitive era. Two major results of policy changes during
these years in two-wheeler industry were that the, weaker players died out giving way to the new
entrants and superior products and a sizeable increase in number of brands entered the market that
compelled the firms to compete on the basis of product attributes. Finally, the two-¬wheeler industry in
the country has been able to witness a proliferation of brands with introduction of new technology as well
as increase in number of players. However, with various policy measures undertaken in order to increase
the competition, though the degree of concentration has been lessened over time, deregulation of the
industry has not really resulted in higher level of competition.

A Growth Perspective
The composition of the two-wheeler industry has witnessed sea changes in the post-reform period. In
1991, the share of scooters was about 50 per cent of the total 2-wheeler demand in the Indian market.
Motorcycle and moped had been experiencing almost equal level of shares in the total number of two-
wheelers. In 2003-04, the share of motorcycles increased to 78 per cent of the total two-wheelers while
the shares of scooters and mopeds declined to the level of 16 and 6 per cent respectively. A clear picture
of the motorcycle segment's gaining importance during this period is exhibited by the Figures 1, 2 and 3
depicting total sales, share and annual growth during the period 1993-94 through 2003-04.

National Council of Applied Economic Research (NCAER) had forecast two-wheeler demand during the
period 2002¬-03 through 2011-12. The forecasts had been made using econometric technique along with
inputs obtained from a primary survey conducted at 14 prime cities in the country. Estimations were
based on Panel Regression, which takes into account both time series and cross section variation in data.
A panel data of 16 major states over a period of 5 years ending 1999 was used for the estimation of
parameters. The models considered a large number of macro-economic, demographic and socio-
economic variables to arrive at the best estimations for different two-wheeler segments. The projections
 have been made at all India and regional levels. Different scenarios have been presented based on
different assumptions regarding the demand drivers of the two-wheeler industry. The most likely scenario
assumed annual growth rate of Gross Domestic Product (GDP) to be 5.5 per cent during 2002¬-03 and
was anticipated to increase gradually to 6.5 per cent during 2011¬-12. The all-India and region-wise
projected growth trends for the motorcycles and scooters are presented in Table 1. The demand for
mopeds is not presented in this analysis due to its already shrinking status compared to' motorcycles and
scooters.

It is important to remember that the above-mentioned forecast presents a long-term growth for a period
of 10 years. The high growth rate in motorcycle segment at present will stabilise after a certain point
beyond which a condition of equilibrium will set the growth path. Another important thing to keep in mind
while interpreting these growth rates is that the forecast could consider the trend till 1999 and the model
could not capture the recent developments that have taken place in last few years. However, this will not
alter the regional distribution to a significant extent.

Table 1 suggests two important dimensions for the two-¬wheeler industry. The region-wise numbers of
motorcycle and scooter suggest the future market for these segments. At the all India level, the demand
for motorcycles will be almost 10 times of that of the scooters. The same in the western region will be
almost 20 times. It is also evident from the table that motorcycle will find its major market in the
western region of the country, which will account for more than 40 per cent of its total demand. The
south and the north-central region will follow this. The demand for scooters will be the maximum in the
northern region, which will account for more than 50 per cent of the demand for scooters in 2011-12.

Table 1: Demand Forecast for Motorcycles and Scooters for 2011-12

2-Wheeler Segment Regions

South West North-Central East & North-East All India

2835 4327 2624 883 10669

Motorcycle
(12.9) (16.8) (12.5) (11.1) (14.0)

203 219 602 99 1124

Scooter
(2.6) (3.5) (2.8) (2.0) (2.08)
Note: Compound Annual Rate of Growth during 2002-03 and 2011-12 is presented in parenthesis
Source:  Indian Automobile Industry: Optimism in the Air, Industry Insight, NCAER

The present economic situation of the country makes the scenario brighter for short-term demand. Real
GDP growth was at a high level of 7.4 per cent during the first quarter of 2004. Both industry and the
service sectors have shown high growth during this period at the rates of 8.0 and 9.5 per cent
respectively. However, poor rainfall last year will pull down the GDP growth to some extent. Taking into
account all these factors along with other leading indicators including government spending, foreign
investment, inflation and export growth, NCAER has projected an average growth of GDP at 6.7 per cent
during the tenth five-year plan. Its mid-term forecast suggests an expected growth of 7.4 per cent in
GDP during 2004-05 to 2008-09. Very recently, IMF has portrayed a sustained global recovery in World
Economic Outlook. A significant shift has also been observed in Indian households from the lower income
group to the middle income group in recent years. The finance companies are also more aggressive in
their marketing compared to previous years. Combining all these factors, one may visualise a
higher growth rate in two-wheeler demand than presented in Table 1, particularly for the
motorcycle segment.

There is a large untapped market in semi-urban and rural areas of the country. Any strategic planning for
the two¬-wheeler industry needs to identify these markets with the help of available statistical
techniques. Potential markets can be identified as well as prioritised using these techniques with the help
of secondary data on socio-economic parameters. For the two-wheeler industry, it is also important to
identify the target groups for various categories of motorcycles and scooters. With the formal
introduction of secondhand car market by the reputed car manufacturers and easy loan availability for
new as well as used cars, the two-wheeler industry needs to upgrade its market information system to
capture the new market and to maintain its already existing markets. Availability of easy credit for two-
wheelers in rural and smaller urban areas also requires more focussed attention. It is also imperative to
initiate measures to make the presence of Indian two-wheeler industry felt in the global market.
Adequate incentives for promoting exports and setting up of institutional mechanism such as Automobile
Export Promotion Council would be of great help for further surge in demand for the Indian two-wheeler
industry.