Professional Documents
Culture Documents
GRACE BANDA
R2007D1107645
MBA 708 - MANAGERIAL ECONOMICS
CHARIS KYRIACOU
14th March 2021
TABLE OF CONTENTS
INTRODUCTION...............................................................................................................................3
DETERMINING FACTORS OF DEMAND FOR PASSENGER CARS IN INDIA.....................3
THE ROLE OF THE NON-URBAN INDIA IN THE AUTO MARKET DEMAND
FORMATION......................................................................................................................................5
RECOMMENDATION.......................................................................................................................5
THE LAW OF DEMAND, TECHNICALLY SPEAKING, CAN NOT WORK IN AN AUTO
MARKET (FOR OR AGAINST?)....................................................................................................5
VARIOUS DEMAND ASPECTS THAT ARE IMPORTANT WHEN PLANNING TO ENTER
THE INDIAN AUTO MARKET.......................................................................................................6
CONCLUSION....................................................................................................................................7
REFERENCES....................................................................................................................................8
INTRODUCTION
Following India’s increasing openness, income of the people, the introduction of new and
existing models, simple availability of finance and relatively low rate of interest, and price
discounts that are provided by manufacturers and dealers, the Indian automotive industry has
grown dramatically since 1991. Purchaser demand, the nature of the product, the number of
competing sellers, obstacles to new competition as well as economies of scale are the most
significant in the industry when determining demand. The main variables that determine
demand in the automotive industry are revenue and prices. While the market for automobile
is affected by a variety of factors, this report focuses on examining the role of non-urban
India in influencing demand of the auto-market in the country.
The following equation shows the relationship existing between demand and the five
determining factors.
M= Consumers income
For the Indian auto-market, there are a number of determinants of demand for the passenger
car. Income and cost of ownership are two key factors that have affected demand for
passenger vehicles over the last two years. Typically, these factors counteract and produce
relatively stable industry growth. Ownership costs have increased sharply since 2010
according to CRISIL (2013). In regards to income, the car market is already divided into
different segments which are the economy segment, the mid-segment and the premium
segment. These segments allow customers to purchase cars that fit their budget.
When planning to enter a new market, there are a number of factors that need to be
considered so that the entry is a success.
As a new entrant into the Indian auto market, one will have a relatively poor supplier base, a
market full of competition, and wide capacity gaps to deal with demand uncertainty, diverse
and evolving requirements of customers (Patra & Rao, 2019) . It is important to not conclude
that the market, which is highly price-sensitive, is likely to continue to increase the industries
growth rates due to lower taxes and duties and a gradual indigenisation. Do not regard India
as an important export manufacturing base. One should not say that the highly price-sensitive
market will likely further increase industry growth rates by lower taxes and lower duties and
progressive indigenization and rising middle-class income. In addition to the average
consumer, overall GDP growth, the arrival of ultra-fast cars and the increasing maturity of
Indian equipment manufacturers are factors behind this increase. The path towards mass
motorisation will, however, vary widely from that of developed countries; new technologies,
business models and government policies must be developed in the first instance, paving the
way for increased car penetration. Other challenges, such as, the current global economic
crisis and high commodity prices, might slow the country down in the short term.
CONCLUSION
This study looked into the demand trends in the Indian Auto-industry. The various factors
that affect demand include income level of consumers, price of commodity, etc. The results
show that income has a beneficial effect on demand for cars as people's incomes have
increased in recent days. The increase in income will increase demand for sales of
commercial and passenger vehicles. On the other hand, higher fuel prices have a negative
relation to car demand and result in lower car sales. Increase in income has a positive effect
on sales, while the fuel price reduces the demand for automobiles. However, as commodities
such as petroleum increase in price, they also have a negative relationship with the
automotive production as they cause fuel prices to rise, leading to automotive demand and
production to fall. In short, the Indian market demand for cars is changing with the change in
income. There is a positive relationship between earnings and car demand. Although there are
number of factors that can affect demand of automobiles but GDP is the most influential
factor among them. All of these factors may influence automotive production indirectly
because they are consumer dependent.
REFERENCES
Anderson, S. G. (2020, April 28). 5 determinants of demand with examples and formula. Retrieved
demand-with-examples-and-formula-3305706
Nawi, A., Baharom, A., Bashir Ahmad, S., Mahmood, W. M., Nair, G., & Nurathirah, A. (2013).
Determinants of Passenger Car Sales in Malaysia. World Applied Sciences Journal(23), 67-73.
Patra, T., & Rao, M. (2019). Impact of Macroeconomic Factors on Automobile Demand in India.
Toppr. (2021). Theory of Demand: Meaning and Determinants of Demand. Retrieved March 13,
demand/meaning-and-determinants-of-demand/