POLICY FORUM ANALYSIS

Increase in Indian Exports of

HS 873022 lead by MSIL

Subject: ECONOMIC ENVIRONMENT

Submitted by:

Group 3
Mahima Das - 86KB
Mayank - 87KB
Pritika Arora - 96KB
Raghav Jhawar - 98KB
Saloni Gupta - 102KB
Shantanu Ghosh - 105KB
Table of Contents

Introduction………………………………………………………………………………...3

Export Strategy and Distribution…………………………………………………………4

Drivers behind Maruti’s Comparative Advantage………………………………………5

Post-Covid (2020) Trends in Key Markets………………………………………………6

WTO-compatibility of Trade Policies in Identified Countries………………………….8

Protectionist Intent…………………………………………………………………………9

Expectations on Trade Prospects of Product…………………………………………...10

Conclusion……………………………………………………………………………….….12

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Introduction
By Mahima Das

India emerged as the largest manufacturer of Automobile products (HS-87) at that time. It is
noteworthy that Maruti is a leading exporter in the HS 870322 category (Vehicles and other
vehicles specially designed to transport people, including station cars and race cars, with a
combustible piston engine with a cylinder frequency> 1,000 cm³ but <= 1.500 cm³) from India (e.g.
Baleno, Dzire, Swift, Brezza). Some leading car manufacturers also enjoy strong export interests
in this segment. Consider the following.

Source - UN Comtrade

According to the latest SIAM figures, exports of passenger cars from India have increased by
46% in the first nine months of this financial year, with Maruti Suzuki India leading the market with
almost 1.68 lakh units delivered. In April-December 2021-22, passenger car exports increased by
45% and exports increased by 47%, compared to the same period last year. Maruti Suzuki India
was the first in the category, with Hyundai Motor India and Kia India ranked second and third
respectively.

Speaking of MSIL, for the 2020-21 financial year, the company shipped 96,139 vehicles, down
5.9% from FY 2019-2020. The COVID-19 epidemic has posed a serious threat to the company's
important export passenger vehicles, such as Africa, the Middle East, and Latin America.
During the first part of FY 2020-21, the focus was on assisting distributors in increasing retail
sales. Suzuki Motor Corporation (SMC) assisted distributors in implementing Suzuki hygiene
procedures and increased digital media attention with campaigns to promote the sale and
operation of CRM with the help of SMC.

These approaches have contributed to the development of trust, which has led to the rise of digital
questions and the development of marketing. When the work was closed due to the epidemic, the
Company used a digital training approach to teach distributors how to improve their sales and
service skills. The launch of the Jimny export in January 2021 created a positive trend for
consumers in many export markets.

In addition, for the first time since its inception, the Company has sold 2 million units in export
markets during FY 2020-21. After the promotion of closed spaces in other important Latin

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American markets, demand began to improve, with the change in demand at the entry level. The
recovery process, however, is hampered by a second wave of COVID-19 and ongoing currency
fluctuations. Despite the disruption caused by COVID-19, the Company has increased exports by
FY 2020-21 over FY 2019-20 in Africa. South Africa's largest export company. In FY 2020-21,
Company exports to South Africa increased by 8.9%, while the South African automotive industry
fell by 26.7 percent.

Export Strategy and Distribution

By Saloni Gupta

The company has been able to secure a significant market share in Chile, Indonesia, South Africa,
and Sri Lanka thanks to strong efforts. In these markets, models including Alto, Baleno, Dzire,
and Swift have become popular options.

Maruti Suzuki has been exporting cars for 34 years, long before India played a major role in the
global automotive industry. These international exposures have helped the Company to improve
its quality and meet international standards. MSIL currently exports 14 models of about 150
models to more than 100 countries. Due to international standards, locally built cars in India have
received a positive response because the company adheres to international quality, safety, design
and professional standards.

The organization is accustomed to growing customer needs in African and Latin American
countries going forward. Maruti Suzuki will attract customers to new sectors with a range of new
models, which will allow the company to reach the highest level of speed. The famous Suzuki off-
roader Jimny was produced and exported from India in January. this year. "Suzuki hopes to use
Maruti Suzuki in global production by making Jimny in India.

MSIL has spent years re-inventing supply chain strategies and processes, as well as creating
jobs that will improve each time it reduces costs. MSIL has been innovating to achieve greater
efficiency, lower operating costs, and to improve customer service through the effective
management of supply chain and product planning to increase profitability and efficiency. MSIL
sees long-term performance as having a positive impact on the supply chain. Just-in-time (JIT) in
supply chain and logistics is a dynamic strategy, and the supply chain and asset management
are key elements of success. The company has 246 local suppliers and 20 global suppliers
working together seamlessly. The company receives the requested services yesterday through a
two-hour window the next day. MSIL relies heavily on inventory to keep supply costs as low as
possible, especially in terms of depreciation. MSIL is always looking for new ways to develop
things, including looking for new routes and trading options. With regard to asset management
and shipping, MSIL has provided managers of backup and replacement parts. MSIL can
download the production schedule and link to parts and suppliers through the MSIL transportation
service partner in nagare.

MSIL employs transport service providers (LSPs) as Category I providers, with a three-day
warehouse property and a two-day inventory. After receiving indents through the MSIL system,
the remaining parts are immediately sent to the sellers. 80+ MSIL car companies have a total of
9,000 trucks and trailers. Get out of the trucks transporting new cars from the factory to MSIL

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The technology gives MSIL-affiliated transport companies an improved transport visibility,
allowing them to streamline operations, increase efficiency and safety, lower prices, and meet
deadlines for delivery.

Drivers behind Maruti’s Comparative Advantage

By Saloni Gupta

The adoption of state-of-the-art technology and Japanese management systems transferred from
Suzuki Motor Corporation are two factors that contribute to Maruti’s comparative benefits.
Combined with the low cost of its vehicles, it provides better fuel-efficient vehicles, and creates
products with unique features. Lastly, the reputation of their product makes it easier to find parts
and other accessories at a lower cost than their competitors. All of these factors are associated
with increased household energy expenditure over the years and an increase in willingness to
purchase cars.

After the 1990s Government subsidies and tax benefits helped Maruti become an important
runner in domestic production which helped boost its exports in 2010. The important thing here is
that it can and has the potential to attract buyers from the two-wheeler category due to its
affordable financial resources and machine parts that are readily available in every region it
operates.

The automotive business is a very lucrative industry and has a huge barrier to entry. High capital
requirements may require large borrowings, resulting in high interest rates and principal
payments. MSIL is a 'Total Debt Company,' which means that a company's debt can be repaid at
any time with cash and cash equivalents, eliminating one of the most important costs, interest,
which is common in a business. This enabled the company to obtain a good cash flow, which was
then used to finance the growth at no additional cost. The increase helped the company to make
a good return on its investment. The Maruti Suzuki has a strong dealer network to support its two
production facilities, with a capacity of 14,50,000 vehicles per year. In fact, Maruti Suzuki was one
of the first companies in the country to realize the importance of after-sales care in highly involved
products, such as cars.

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Post-Covid (2020) Trends in Key Markets
By Raghav Jhawar

In terms of domestic sales, Indian car manufacturers are slowly improving. Between FY16 and
FY20, domestic automotive production increased by 2.36 percent annual growth rate (CAGR),
with 26.36 million vehicles manufactured by FY20.

However, due to last year's low base, COVID's low impact on major Indian export markets such
as Africa and Latin America, as well as better overseas exports with improved epidemic conditions
to other international markets, their exports increased sharply during April-June. 2021 quarter. In
total, exports of vehicles increased by 6.94 percent from FY16 to FY20, reaching 4.77 million
units. A strong product portfolio, with a series of new releases planned for the next few years:
Given its strengths in the Entry-Level field and good product health, MSIL could be a major
beneficiary of redundancy in the post-COVID era.

Maruti Suzuki reported in January 2022 to ship 205,450 vehicles from its Indian production
facilities by 2021, the largest ever. Maruti also used the occasion to reaffirm his commitment to
the Indian government project Make in India. Under a new plan to develop and export clean

technology vehicles, the Indian government has set aside $ 3 billion in compensation for five years
to 2026.

Maruti Reaches the highest growth rate of exports among the top 5 players in the domestic
industry. In the 2021 financial year, Maruti Suzuki Limited exported passenger cars to more than
90 countries, with South Africa being the largest market outside of India with over 23.8 thousand
vehicles. It was followed by Chile, Egypt, the Philippines, and Uruguay respectively.

Latin America, ASEAN, Africa, the Middle East, and neighboring regions are among the leading
PV markets for MSI, Baleno, Dzire, Swift, S-Presso, and Brezza is among its top five export
brands.

INSIGHTS FROM INDIAN AUTO EXPORTS IN KEY MARKETS:

Source - Maruti Suzuki Annual Report 2021

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Source - Trade Map Data

1. The percentage of Indian imports among cars purchased has risen sharply in many key
MSIL markets. Example: in 2019 (before Covid) Chile's imports of Indian cars made up
only 12.67% of their total purchases in that category. These increased to 21.72% during
the covid follow-up period.
2. Another interesting impression made from this data was the repeated increase of half of
these key markets in the sale of India's complete automotive goods. Example: India's
exports to Uruguay as a percentage of total car exports increased by more than 3X in the
post-covid situation.
3. Another interesting find has been the recent transformation of the important export
markets of Maruti Suzuki India Limited. In 2021, they removed Bolivia as an important
export market and added Egypt to its position due to the sudden increase in demand for
MSIL passenger cars among the Egyptian audience.
4. What is remarkable about the above-mentioned data is that despite witnessing in really
difficult times in the domestic market, largely due to shortages of electrical appliances and
chips, car manufacturers (such as MSIL and Hyundai) are focused on exporting and
providing needed services.

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WTO-compatibility of Trade Policies in Identified Countries
by Shantanu Ghosh

South Africa
The automobile industry is South Africa's largest and most important manufacturing sub-
sector, both in terms of GDP contribution and participation in goods exports. Steel, metal,
plastic, and leather items (backward connection), as well as financial services, motor
retail, and advertising, have strong ties. (reverse linkage)

Uruguay
Uruguay reported two subsidy programs for the automotive and textile industries to the
World Trade Organization (WTO) in 2013. According to information provided by the
government, these programs have not altered considerably since 2012. Uruguay
continues to exempt imports of inputs, parts, and components, among other things, to
encourage specific industries, such as the automobile industry, which has been reported
to the World Trade Organization. Uruguay is still implementing a subsidy package
targeted at modernizing the automobile industry and increasing exports. Businesses who
export finished or partially finished vehicles constructed in Uruguay, as well as auto parts
made in Uruguay, are eligible for the subsidy.

Egypt
The automobile industry is one of Egypt's most important industries, and it supports the
country in a variety of ways. There are now 83 automotive manufacturers in Egypt. All of
GM's, BMW's, Hyundai's, Toyota's, and Nissan's key product lines are manufactured in
Egypt's factories. There are approximately 15 vehicle assembly factories and 75 facilities
in the country, employing over 75,000 people. It has a 300,000-passenger car, light
commercial vehicle, lorry, and bus production capability per year.

Philippines
The Motor Vehicle Development Program is the vehicle through which the government
aids the automobile industry (MVDP). The purpose of the programme is to increase
domestic automobile production by imposing low tariffs on motor vehicle components
(between 0% and 1%), but high tariffs on finished automobiles and motorcycles (between
15 percent and 30 percent). The terms of the MVDP are currently being evaluated,
according to the authorities.

Chile
Several domestic and foreign Original Equipment Manufacturers (OEM) are proposing to
expand their production operations in Chile in response to increased demand for

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automobiles. Chile's government also sees the automobile industry as a vital revenue
producer and is pushing FDI into the sector.

ITC HS Policy
ITC-HS Description Unit Policy Restriction
Code Description
Motor cars and
other motor
vehicles
principally
designed for the
transport of
persons (other
than those of
heading 8702),
including station
wagons and
racing cars: Other
vehicles, with only
spark-ignition
Motor cars and other motor internal Export Permitted
u Free
vehicles principally designed for combustion Freely
the transport of persons (other reciprocating
than those of heading 8702), piston engine: Of
including station wagons and a cylinder
racing cars: Other vehicles, with capacity
only spark-ignition internal exceeding 1,000
87032210 cc but not
combustion reciprocating piston
engine: Of a cylinder capacity exceeding 1,500
exceeding 1,000 cc but not cc: Vehicles
exceeding 1,500 cc: Vehicles principally
principally designed for the designed for the
transport of more than seven transport of more
persons, including the driver than seven
persons, including
the driver

Vintage motor
cars, parts and
components
Exports permitted
thereof u Restricted
under licence.
manufactured
prior to
01.01.1950

Protectionist Intent
By Pritika Arora

In the recent past, there has been no case in the WTO Dispute Settlement Forum involving the
automobile sector against India (India as a respondent). However, there were two cases of this
over 20 years ago.

“DS146: India — Measures Affecting the Automotive Sector and DS175: India — Measures
Affecting Trade and Investment in the Motor Vehicle Sector”

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The European Commission (EC) requested talks with India on many laws affecting India's
automotive sector on October 6, 1998, and DS146 was born. Under these laws, whole automobile
imports, as well as specified parts and components, were subject to a system of non-automatic
import clearances. The European Commission objected to the fact that in India, import permits
could only be awarded to local joint venture manufacturers who had signed an MoU with the
Indian government, promising to meet certain local content and export balance rules, among other
things. It claimed that such rules and policies breached Articles III and XI of the GATT 1994, as
well as Article 2 of the TRIMs Agreement.

It also mentioned that India had violated its obligations by requiring automakers to balance any
imports of certain kits and components with exports of equivalent value ("trade balancing"
condition); and India had acted inconsistently with its obligations (“under Article XI of the GATT
1994”) by imposing obligation on auto manufacturers to balance any imports of certain kits and
components with exports of equivalent value.

According to the US, the measures in question compelled automakers to meet predetermined
levels of local content, achieve foreign currency neutralization by balancing the value of specific
imports with the value of car and component exports over a set period of time, and limit imports
to a dollar amount based on previous year's exports. The United States, like the European
Commission, claimed that this was in violation of WTO rules and the TRIMs Agreement.
Considering the allegations, a panel was appointed to investigate the matter, and its findings was
distributed to WTO members on December 21, 2001.

The Panel concluded that India had breached its obligations ("under Article III:4 of the GATT
1994") by compelling automakers to use a certain percentage of locally made parts and
components in the construction of cars and vehicles (the "indigenization" requirement).

The Panel concluded that India had breached its obligations ("under Article III:4 of the GATT
1994") by compelling automakers to use a certain percentage of locally made parts and
components in the construction of cars and vehicles (the "indigenization" requirement).
Since then, no other case has been filed against India in the automobile sector that relates to
protectionism. The Panel found that India had violated its duties ("under Article III:4 of the GATT
1994") by requiring automakers to employ a particular percentage of locally manufactured parts
and components in the manufacture of cars and vehicles (the "indigenization" requirement).

Expectations on Trade Prospects of Product

By Mayank

CONSTRUCTION OF AUTOMOBILE INDUSTRY AND HOME MARKET PART

In 2011-12, the total number of Automobile in Domestic market was estimated at 58,583 Million
US $. The growth rate of home sales for 2011-12 was 12.24 percent with an average of

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17,376,624 vehicles. In March 2012 alone, domestic sales grew by 10.11 percent compared to
March 2011.
The Indian Automotive Industry has four market segments namely, two wheels, three wheels,
commercial vehicles and passenger cars. The two-wheeler market is full of motorcycles (80%),
Scooters (14%), Mopeds (6%). At this stage Hero-MotoCorp has 35% market share and Bajaj
has 32%. The passenger car market is full of cars (78%), MUV / SUV (22%). The main players
are: Maruti (46%), Tata-15% Hyundai (14%). The three-wheeled market is dominated by
Passenger Carriers with shares (64%), Carrier (36%)

PRESENTATION OF DELIVERY, SHARING AND LOCATIONS

In 2011-12, the total amount of Automobile Export was estimated at 7.06 Billion US $ (ACMA). In
the two-wheeler category, Bajaj Auto owns (59%) and TVS owns (17%). In three weeks Bajaj
leads the market with 97%. In the commercial vehicle category, Tata has (67%) and Ashok
Leyland (12%). In passenger cars, Maruti (66%) and Hyundai (24%). The best export destinations
in terms of export value are USA, Italy, Sri Lanka, South Africa, United Kingdom, United Arab
Emirates, Algeria, Bangladesh, Egypt, and Germany.

Semiconductor
India's semiconductor industry offers areas that can grow significantly as industries that acquire
semiconductors as inputs themselves prove a great need. Last-generation industries such as
mobile devices, telecommunications, information technology, office switches (IT & OA), industrial
equipment, automotive and a few other industries have applications to make computers in one
way or another and as a result have a growing demand for semiconductors. Now that the concept
of Internet of Things (IoT) is growing rapidly, the next generation of connected devices will
increase the need for a smart computer, thus creating a sustainable demand for semiconductors.

Market size
According to a study by the Associated Chambers of Commerce of India (ASSOCHAM) and EY,
the Indian electronics and hardware industry is expected to reach US $ 112-130 billion by 2018
as manufacturers of electrical and hardware products seek to expand their production base in
India. to provide for domestic and international markets in the Middle East, Africa, and the SAARC
countries. According to a NOVONOUS report, the semiconductor industry is projected to grow
from $ 10.02 billion in 2013 to $ 52.58 billion by 2020 with a CAGR of 26.72 percent.

Investment
Mr. Ravi Shankar Prasad, Minister of Information Technology, has announced that Foreign Direct
Investment (FDI) in electricity generation has reached a maximum of Rs 123,000 crore (Rs 18.34
billion) in 2016 from Rs 11,000 crore (US $ 1.64 billion) in 2014, because of the government's
reforms and its Make in India program.
The Government of India has approved 100% Foreign Direct Investment (FDI) under the
automated route in the field of Electronics Systems Design & Manufacturing. According to
information released by the Department of Industrial Policy and Development (DIPP), the
electricity sector has attracted foreign direct investment (FDI) worth $ 1.70 billion between April
2000 and December 2016.

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Conclusion on India’s / Maruti’s Export Potential.
By Mayank

Maruti Suzuki has been exporting automobiles for 34 years, long before India emerged as a key
player in the global auto industry. This early global exposure aided the company in improving its
quality and setting global standards. Because of these concerted efforts, the company has been
able to gain significant market share in Chile, Indonesia, South Africa, and Sri Lanka. This was
found despite the fact that for the year 2021, these countries' percentage of global automotive
imports declined by more than 20%. Vehicles constructed at the business's facilities in India have
gotten a lot of excellent comments as a result of the company adhering to global quality, safety,
design, and technical requirements. Furthermore, its vehicles, such as the Maruti 800, Alto, and
others, are low-cost and offer good fuel economy. Because of its well-known name, it's easier to
find components and other accessories at a lesser price than competitors. Maruti Suzuki has a
robust dealer network to support its two manufacturing plants, which can produce 14,50,000
automobiles each year.

The Indian automobile industry is not protected in any way. India has addressed a few practices
that were previously deemed to be protectionist by WTO members roughly 20 years ago. India
abides by the TRIMs agreement and is hence not a protectionist country. India's auto export
potential in the selected countries appear to be quite promising. No restrictions on Indian exports
in these nations, combined with advantageous policies, give Indian auto exporters a strong
presence.

India's automotive sector is predicted to reach $300 billion in the next five years, with vehicle
exports expanding five-fold between 2021 and 2026. At the start of the pandemic, the trade
prospects for this product from India were impacted, and these issues escalated into a crippling
semiconductor chip shortage that hampered the performance of most industry players. However,
when it comes to exports, market leader MSIL led the way, with record numbers. With a flurry of
new models in the works, Maruti Suzuki will be able to attract clients from new sectors, allowing
the firm to achieve larger milestones at a much faster rate.

References
https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds146_e.htm
https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds54_e.htm
https://ustr.gov/archive/Document_Library/Press_Releases/2001/December/US_Wins_WTO_C
ase_on_Indian_Auto_Restrictions.html
https://economictimes.indiatimes.com/industry/auto/auto-news/passenger-vehicle-exports-from-
india-rise-46-pc-in-april-dec-maruti-suzuki-leads-segment/articleshow/88928884.cms
https://www.indiantradeportal.in/
https://www.trademap.org/
https://www.marutisuzuki.com/corporate/investors/company-reports
www.macmap.org
https://ibef.org/
https://www.livemint.com/

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