Macroeconomics Assignment

Presented to

Dr. Pooja Mishra & Professor Jagdish Shittegar

By
Vishnu Sehrawat
21DM218

Company: Royal Enfield

Industry: Automobile

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 Acknowledgement

I would like to give many thanks to the people who helped me to complete this
project on the Demand and Supply. My sincere thanks, to Dr Jagdish Shettigar
and Dr Pooja Mishra for guiding me through the project without their valuable
support it would not be possible.

I also take this opportunity to give my gratitude, the faculty members of

BIMTECH, for their encouragement and motivation.

I would like to extend my special thanks to my friends who helped to

understand the project help me to collect data, gave me the confidence to
present it.

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Abstract
The purpose of this report is about the challenges faced by Royal Enfield in
Indian economic environment. We first review the challenges affect the
operations and its business. Secondly, we find Change in personal tax during
the last ten years and its impact on sales turnover of Royal Enfield. We also
discuss and analyse trend in repo rates since 2000 and its impact on
expenditure on account of interest payment.

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Introduction
In November 1891, Bob Walker Smith and Albert Eadie buy George Townsend & Co. of Hunt
End, Redditch." "Townsend's is a well-known needle" manufacturer with a nearly "50-year
history who has just begun creating bicycles," according to the company's website. The
team is given a contract to supply accurate components to the Royal Small Arms Factory in
Enfield, Middlesex, in 1893. They rename their firm Enfield Manufacturing Company Ltd.,
and name their first bicycle, the Enfield, after Bob Walker Smith, to honour this major
"order." The next year, their bicycles became known as Royal Enfield. Made Like A Gun is
registered as a trademark. Bob Walker Smith created the company's first motorised vehicle.
"It's called a quadricycle since it's made up of two sturdy bicycle frames and propelled by a
De Dion engine with 1 1/2 horsepower. The Enfield Cycle Co. Ltd. is chosen as the
company's trading name for the following 70 years." Royal Enfield makes its first step into
motorsport when one of their quadricycles competes in the inaugural 1000 Mile Trial.

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Indian Automotive Industry.
The “Indian automotive industry is the fifth-largest in the world.. The Indian automobile
sector is estimated to reach Rs. 16.16-18.18 billion in the next several years by 2026
including component manufacturers”. According to data given by the Department for
Promotion of Industry and Internal Trade, it attracted FDI of US$ 30.51 billion between April
2000 and 2021.

It is expected to reach US$ 300 billion by 2026.

Around 26.36 million vehicles were manufactured between 2016-2021. and the domestic
production of vehicles is increased at 2.36% CAGR in the same period. The domestic Indian
auto market" was dominated by two-wheelers and passenger automobiles. Small and mid-
sized automobiles account for the majority of passenger car sales.”. It accounts for 80.8%
and 12.96 % market share, respectively, accounting for a combined sale of over 20.1 million
vehicles.

In the current scenario where electric vehicles are the requirements for sustainability the
automotive sector of India has a huge opportunity by 2030. It is recognised the market size
for electric vehicle is US$ 206 billion

The EV market in India is predicted to develop at a CAGR of 36 percent through 2026,

according to a poll by the India Energy Storage Alliance. Moreover, throughout the same
time period, the EV battery market is predicted to develop at a CAGR of 30%.

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Challenges Faced by Automotive Industry.

 Excess Production and Related Costs

Overcapacity has emerged as one of the most critical concerns confronting the
automobile industry as a result of the increasingly competitive environment.
According to the OICA, 1,13,14,705 units, including automobiles and commercial
vehicles, were manufactured in India alone in 2018. China produced 2,78,09,196
units in the same year, whereas Japan” produced 97,28,528 units. These results
revealed that sales had been significantly lower than in previous years.

 Connected Technologies and Their Implications

Automobiles are becoming more data-driven, and digitalization is spreading across
the globe. The adoption of associated technology is one of the most important
difficulties that the automobile and motorcycle industries are now facing. As a result,
there will be a tremendous quantity of data to preserve, transfer, and analyse..
.

 Retention of Workforce
One of the most serious difficulties confronting the automobile sector is attracting
talent. The need for sophisticated technology has risen in tandem with shifting
customer interest in digitalization and a more customised, connected automobile”
driving experience. As a result, competent people who can grasp, invent, install, and
maintain" these technologies are in more demand.According to a research by EY and
Ficci-Nasscom titled "Future of Jobs in India.

Solution Possibility
Because of the global character of the Bike and automotive industry, it is extremely
vulnerable to external political, economic, environmental, commercial, and other
challenges. Tariffs, trade agreements, and political strategies can all have an impact
on the cost of uploading and exporting components and autos. The majority of the
automotive transportation chain may be affected by the use of natural catastrophes.
Changes in client demands, such as moving to electric-powered autos and improving
petroleum economy, are influencing purchasing behaviour. The plan for this work is
to do research on the vehicle market to see how client demand is changing.
Incorporate such impacts into your normal method and see how they affect your
supply chain. To become aware of potential threats to the automotive supply chain,
a rigorous risk evaluation and prioritising procedure must be implemented.

Macroeconomic Factor Affecting Indian Automotive Market

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 Taxation
Less “taxes in the automobile industry, combined with lower gasoline prices, may
encourage buyers to consider purchasing larger personal vehicles”. Automobile
companies will increase their manufacture and supply to fulfil demand. However, in
the event of high fuel taxes, the majority of customers will opt for public delivery
rather than personal delivery. Furthermore, full-size cities' emission charges
encourage most customers to use public transit to avoid paying taxes..

 Supply and Demand

In the automobile sector, “supply and demand have a significant role”. They have a
direct proportionality and are necessary for the expansion of the financial system. As
customers demand more powerful motors, the cost of motors rises, and the cost of
materials rises. It will not directly stimulate manufacturing competition, resulting in
lower pricing. As a result, automakers will give incentives and discounts to customers
in order to increase sales and profit margins.

 Regulation by the government

Vehicle businesses, regardless of their form, work within the legal guidelines set
forth by governments and within the guidelines set forth by the countries in which
they operate. Policies in this business have an immediate impact on the whole
performance, functions, appearance, and design of a certain automotive. Some
government rules may result in an increase in the production of a specific
automobile. It will result in an increase in income, as well as the growth and
expansion of that one-of-a-kind brand. Similarly, government rules may impose
restrictions on how automobiles are advertised and sold. In most cases,
governments adopt these regulations in order to protect consumers and the
environment. Failure to follow the authorities' regulations and standards may result
in penalties or substantial fines for the automakers. Fines or penalties are
disadvantages in the automobile business.

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 Changes in Repo rate and its impact on interest spending

Interest paid in the previous years:

March March March March March March March March March March
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
1562 2,986 2,115 4,146 5,145 5,131 3,111 3,778 4,197 3,738

Repo rates in the past years:

As mentioned earlier, repo rate is the rate at which the central bank lends to the commercial banks
repo rates have been between 4-6% in the past few years and we can see the trends as the repo
rates have decreased Hindalco has taken more debt because of the low interest rates. And as the
repo rates have risen the company has started paying off its debts so that it does not have to bear
huge interest payments.

Interest Payments are the interest paid on the debts taken it is an expense and thus causes profits to
decrease which in turn decreases the company’s capacity to grow and being in the metal industry
the company is always in a need of expansion and betterment of equipment or technology.

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Changes in repo rates are done by the RBI as per the condition in the economy and according to that
make an Expansionary or contractionary plan. In an expansionary plan the repo rate is set at a low

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percentage so that it becomes easy for commercial banks to take loan from the RBI and hence
provide lower interest rates to the potential loan takers.

List of References

 https://www.royalenfield.com/in/en/financepage-india
 https://www.moneycontrol.com/news/tags/royal-enfield.html
 https://www.tecnovaglobal.com/blog/major-challenges-being-faced-by-the-indian-
automotive-industry/
 https://www.ibef.org/industry/automobiles-presentation
 https://www.youtube.com/watch?v=gi_BpdcH5Po

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