Impact of Economic Reforms

on Tyre Industry

R~rrinted from Economic and Political Weekly. Vol XXXVI. No 12. March 24, 2001
Paginmion as in Original
 Impact of Economic Reforms
on Tyre Industry
This paper attempts to assess the impact of economic reforms on the automotive tyre
manufacturing industry. The analysis focuses on the dominant truck and bus tyre segment.
With the entry of MNCs in the post-reform period, the sector is on the verge of a major
shake-up, underlining the need for 'Iationalisation
radiCi l tyres with large-scale investment.
Ai imp<:lrtant feature of the devel-
opment strategy pursued in less
eveloped countries (LDCs) in the
post-colonial era has been the focus on
building up a highly protected indigenous
production base entailing horizontal exten-
sion to exports by exploiting the locally
avaiJableresources. The import substituting
and inward-oriented development strategy
coupled with high levels of protection
pursued in India since independence may
be viewed against this backdrop. This
development strategy was continued with
marginal changes till the late 1970s. The
economic reforms initiated in the latt>1970",
under the IMF-induced paCKage. gathered
momentum in the 1980s. culminating ill
the structural adjustment programme hav-
ing far-reaching implications on the
organisation of production and external
trade in 1991. The subsequent· policy
changes on external trade are mandatory
with the signing of the GATT treaty in
1994. Theoretically, the economic reforms
are justified on the' ground that a highly
protected, import substituting and inward-
oriented trade regime offered little incen-
tive to cost reducing measures as the rigid
regulatory framework ensured a sheltered
and profitable domestic market for the
Indian industry [Debroy 1992].
The consequences of economicreforms
varied across industries depending on the
factors such as the extent of protection, the
income and price elasticity of the product
concerned and the divergence in techno-
logical sophisticatioil between the domes-
tic and external markets. The automoti\'e
lyre manufacturing industry in India was
.one of the industrial sub-sectors which
enjoyed a high level of protection during
the pre-reforms period. Despite the insig-
nificant share of the industry in the total
value added (1.72 per cent in 1995-96) in
the Indian industrial sector. a study on this
of the product mix, favouring
sub-sector in the context of economic re-
forms assumes imparlance on account or
the following factors: (I) the industry from
its iniil:1!['hase of external depcndencc has
grow"': enough to fully meet the domestic
dem~~,d for tyres and has achieved export
c<1pabi!ities resulting in favourable trade
balance since the early 1970s and (2) the
expor! component of the dominant truck
and bus tyre segment has been more than
23 percel1l of production during the 1990s.1
The ch:illenges posed to the industry
since i 991 have to be viewed in the back-
drop of the theoretical perspective eluci-
dating domestic demand-driven export
growth embedded in the broad paradigm
of comparative cost advantage, Among the
different streams of thought within the
paradigm of comparative cost theory. this
line Oi- 2rgument 'lppears to have relevance
in the case ofIndian automotive tyre manu-
facwring industry as the large and captive
domestic market has been subsidising the
expons [Basevi 1970]. In this perspective,
the new entrants to the world market arc
perceived to be 'price takers' irrespective
of losses arising from higher average unit
cost of production in relation to export
price. However, the loss incurred in the
expon market are very often more than
compensated by the monopolistic market
structure in the domestic market [Bascvi
1970]. Theoretically, the two necessary
conditions underlined for the operational
level validity of the domesticdemand-dri ven
exports arguments are: monopolistic power
in the domestic market and protection from
external competition [Basevi 1970].
The objective of the study is to analyse
the impact of economic reforms on the
Indian automotivetyre manufacturing
industry, which has grown over ti me based
on the domestic market. 2 The analysis is
focused on the dominant truck and bus tyre
segment. The paper is organised in the
following manner. The economic ,111(1
political factors hehind Ihe hisloric;;!
development of the tyre lllilnuf;,cIUrin'.'
scctor, its ch3r::cteristic fcatures and pi'"
duction Slructure arc discussed lir'!. Th,'
next pan examines~e ITspllr.se of thJ tyre
manufacturing sector to the reform mea
sures. An analysis of the impaci of ih,'
policy measures on the degree of prOlcc
tion enjoyed by the t:Jre manufaclUrin~
sector in the domestic markt>1 is fol!o,yed
by the conclusion.
Evolution and Growth
of Industry
The evolution and growth of !nGian ,y i::
manufacturing industry from :1 state c:
absolute domination by foreign (01111"\-
nics to its present stage of indigenisilliol;
involved' different phases of struclur;,i
change broadly reflecting various pollc\
regimes in the economy (Table I). In the
first phase, about I o brand names repre-
senting major foreign companies such ,1S
Dunlop (UK), Firestone(US) and Goodyeal
(US) dominated the trade in tyres through
imports from their parent companies
[Gol 1988]. The political changes fa\,olll'
ing locally manufactured goods coupled
with the policy of protection of the colo-
nial interest for its native capital were
pivotal in persuading the UK-based Dunlop
to set up a tyre manufacturing unit in Indi::
in 1936. Other foreign companies which
followed suit by setting up local manuhc-
turingunits included. Firestone (1939) am!
India Tyre and Rubber Company (1939)
[Mani 1993]. Even though the contextu-
ally-specific factors emanating from the
political and economic milieu during the
initial phase were important,
the undercurrents in the supply and
demand sides had acted in conjunction
with one another in transforming the
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nascent industry into an important seg- . foreign Lyre companies 'attracted wide ,Indian, companies in'Jhe total installed
'. ment in the o;ganised ·sector. ·The major' criticlSrhculminating finally in an'enquiry capacity, the foreign"ct5mpanies Ilad ~n'
economic factors which.had lheen prima- by the Tariff Commission in .1955. An . controlling more thail 64 percent of the
• rily responsible for: the' c6mparativead~ . important recoJT!m¢ndation of the eam-. productioricapactty tiI11974(Miuli 1993J,
vantage in tyre manufacturing in the cotin- mIssion which had a strong bearing on the However, .the sigiliJicarice of the Polity
try was the adeqmite ava1lability of natural . structural changes af~erl960s Wlis the.. change wa-san-<>vertly,articulated-comrilit-
·rubber at a 10werpriCi i'iithe backdrqp of measures to peinli(new' entries into the ,ment.to reduce'the dolniiiation of foreign
tbelntematiqnal RubberRegulation:Agree/ . industry' tMani J 993]. 'Arriong tbe five companies and' to ~n{roJ ·ine·'coJIusive
merit 0934-44), whicn restricted the 'qu~,>, .companies·whidVhad '·established tyre, 'deals 'in,the i~diJStrY;~';'';''j1J ,,::,lJ.!Jj .. "~.., ,
tas earmarked for ~xP'Qrts,[Mohana~.um.ar manufacturing units subsequently, there:,_ . In effect, the. changes. in the' poi iCy
and .George .1999]-. .Another iJilpbi,tant: . wyr~ three Indian finns. with foreign tech~· on
entation duriJi.gthet.~irdph!l$ehtiddown
factoi'supplem~nting the comparati~e"ad': ~. .pical' ~iIaQ:ora.tion and' IWq ·:MNCs.~,Y~:.: the' hasis ~for the :entry'A(-:larg~ ;lndia~ .
. vantages oil th~'supply'side ,was the:locaY : ",In the' third phase, Jrii:lian.and' foreign "..ousiness houses fin she 'ileX:t~phiiseA'he
availabilitY-of chehpapd·abunoimt.labour. '.cotnplliues were' enticed by,ihe lucrative <period from 'f97~ :1991 (ph'ase'W) Was to
force, Onth~ demand side;ih6'importalit' profit margins in-the'ind~~r~;~prolect:ed")cbarac;teri~ed oy two'ifupohiint' changes in .
factors. catrily,tic·to.'tile' growtlf::of ·the f~-,:::Withhigh tarirt:9ni~po~ ~c!entry biI¢o/S:':' ,th¢;tyr~'manufaCtuiirii~toI\:The '[list \yaS
dl1stry-were: a sieadilygrowifig domestit ' through licensing: In'practlce, the'require;:' .' the;~gradualeitiricticinoT :MNCs except .;-
market during the seCond :wQrld ~ar;,ar;drilellts ofa large'capita( biise'iuldsophis~,:-Gbbdyeadroin .the lii'dGh:tyre'rrianufac~
the protection. offered':tothe_' industry .by·· ticated technology,eX9tbitant"advertise~':," turinf(s·cehe·inthe backQrop'QftheieCom~~ ..
'. imposing tariff (30 percent).:Qhthe illf,pi)(is,,' rrien't~cosf/in1pliclt 'and expliCit ci:5ilusive''.,;riiendatlonsofthe MonopoH€$:Restricttve -
of tyr~ coupiedwith:~h-eiri~hti v'espy:the;, Jlrice agreements::and' finaIiy-:the :~s~ah~ ,tradePra~tices·~funUssi.Orttr§ijrrpi96~t· - '.
colonial, gG~ernmeilt. pr€ferring:; 1oc('illi~ ,l1sned'strong'orandloy'aIty:in' tlie·rriafR-et· .atld regulafioifs'iQf?the:J·6f~i~ii;tx'(r{ange. ,
,mariufaet}1red;prod.uetS'.i.I\:6rd~r to ~e!;t ';actea in Colluslonwi~tfl(~ iin~6rirestric:-', ::~e~Wati?n Ac~
~~:{~~;3~Lrr.yfing t~is,. . '1
industrialrequiremenW'diJnng' theiiitef'-" tionsin offering a sheltered a,ilq'profitable' 'pliase~]arge ,I;>usine.ss.bOiise~'iil'Ifid!a;~viZ,'
wary~ahdlh~sejioil'd\~.9fl~rwMpen.6<l: ,,'dol1)estic m-ark:eClin~;insiII~~ed.';i('ft9m· . M;9dj~Groi.t'p. v'AQdr!~:\tbo~:e~~~Y71h~ "~,:.
[Mohanakmmrr.·and.Geotge 1999]: The .. e~ternal competi'tion.·}\n 'import;ll1t·fea':· 'oSjnghani~'GroOp'1J 'K lriduSfries:;1~77J:. . I
I
cost ebni~titivene'ss~~[-the"Indi~n"tYre -iure'·oflhis phase·;w~.'the-flcen;ing"~f, :·R'h-iin<J.q Singo [Ap6iI6<TYf(~f,i'9'7i);'FM~'~' ]
industry'~was:,evi,denr-,m ,its l!Pproasn, .. additi0.r:aIpn)duetion capacitY.to meet the ..' '~,<?~TYre~ .(.'~975),'S,q~hakra'·:r-yres.~TYS ., j
- declining furtherprotectiveihelisures of~. :gtowmg deinand,-forlYres.'An resulf,.the' "1983] 'and'fh«K!(]'-Tj@;:{I985}eqtered .'
fere'd b~ thli'government as ·th'ete:existed·',installed capacity of the indu'stry increased'. : .tlietyre martufacwririg:indListry-;A;s:a result;
"viitually nb tHreat'of imports: [0011947];,'. bfmore. tlian'l 07per{:enrdutln~ -the B.:" .', there had Qeen,a;'steaay~deCJ-ine1ii the fdUr
MoreOver;the govemnieIrtoflndi~ viewecL .' ye;rr'penod between} ~62.and-f914rMarii:·; ·tlrftrconcentration~f instiiUe'tldtp~city' iit'
the' rubber goods',indti~try-'as ;o.he-bf the :.' 1993J:'Nevertheless;·~:crucial &;nent 'iiitPe'indtistry:(rom :n:3'Op.ef-{j~'tifi-19:75to·'
basic:indiJstries\~liitJfrteedetl tQ-be'prpp::~. 'the'policy interv~htion"wa1" an 'impliclt; :.60~2; pti:eent 'in?1991"[Mam~f993;'and .
erly equipped ,to'iltfui'n'astrong-~rid $taoie::'discrimination" of foreign' companies by -. CMIE 19~6]. In spite or roe 1ie~iine:ln-the
~ base: Consequently ;the'tone:a}ltl ferior;o~ imposing;conditioilaAitiesOIithepropos;ils' . coricentration;'the ,industrYowas;:iepoi-ted
·the expIicit'go·v¢rriment,-interventioh'di.if'::·. forexpansion in tet'nisof gradualIndianis:': .'(cJ'have:!.ieen' indiilgihg.:inJ:Q'Uu~ive'imic:
ing the'~arlr 'ph~~~·~~olv.ed::a:tou,~d<t~e'.. ~iion'?fthe ownershiP:s~ctUre an~,e~P9!! ',:tic~s;J~adillg: ltffnq~ir.~tiy !~fB,~ireab
.quahtitativeiest[ictiorisonfniports'Of:tyre( <corrnnitmertts: In''spite~6Fthe sllbseque{1t,' "ofrnati~trial Ces.ts'aneWrige~ilj1wd'pHases
'. to' ·fQ~teriand' c6iJ.soii!:late·
i ih'e~ilew'lY'ac:' . steady'.increase- In... th'e'tel~.tive 'share ',6( .'IG6Fi988r-ThelfuPo~tfeiIlufe"k~0f{his,
· . quired'iil.digeilous'statUs:.ot,th'e~irliii.istty::' :.:::ii:J.>'.'''';- ",(;l.;')-il1--:,<,:,!""l...:,,·i;: ':;,,-).; :.f ·d<l";:':.i!.(··:)~;;';. }.?/ ~;;:\';h,::;~':t:,,?!i:fl;,'l!(1;;:0?
. -, ,.,' ,'c.I .,_, . ,'" '.",-i.,~,,' ,.;., .. Tabl~.1:,~~ol!,l~~~nary:~h;lsesofIy~,~~~ufac~rmg;Se~!C?r·v ,,::';r';",~
Infact,tyres.hadbeen~placedundet're-, ." ,.,'." , ._1-- .••. : > "".- ,::1·~_ ,1",1",1·,~_.· .. ,
.stri~ted;Hst.o{iriipQris;uRfil"1989~lJ1ilking··,~hases" Peliod:.~C,haracteristicS'i:;~:~~~d,;jt .:~(,t::'{~~~~:.:':Jd)~,R~ime :'i¥!~~!(t";F:"~,,::'
·. its irtlpOtt'~thet; Ui~Clijt.J[Mini<·1993]:::' ,. phasel ·'1~3$ 'NOdqm~sticproduCt)oldjoine"tic1~ii;~ri~~ ,,':,t-'-.'( Lil>l~i'alliripOrtS:iif~s:~l,i.:i:.,·.(..:,:
. :;Even though the shift from ttiioeinirtl~·· ,~,,; ': "-'. meUhrouQhimportsbyfOreign tY~:c9tnpanies",; ~, <:"" :'.'.;; :';i~;~,:,),':':\:"'F'.~?
· 'ported' t)ires: to:..dOmest!c::rrianufiicturin-g. ,}(. '-'. ::.,£..:" ..,."~ ,.: aRnd)l)1~~dtGarn009.00d ~(.muws,ere.~.~l()l?(Ul<)! .. :fc. ":L'YP--:;', ,?<.":,~:,"-)(,.~,,,,"'.
· , '. •... c' '. . ' ," •... •• lrestonean . ~~ A).., .. __,., ." " . . . '
.' . duri.hglheseCond,phase was'a progt~ssive-~ pni!se If',' ~936-60': DoMestic prOduCtiOnwasstartedby'erslWhiJe '.{~timpoSifion~lam:taridr,,~!;.;~::· ;~;"
trerid;,the 'domestic) tire ,irianufachirlng' .>~:;<,,:-' ."7" '-'!(acing ~e~,v.iz:DifnI6p:F1r~tone. ". :., "!-lJ9n-tariff~~rn.'oo~~.,?: .,:--
·sector'rernained:tot~IIY~l1nder'th
, . '.' . . ..~-doririiia-
. .' .'' ':P"'h"::C:
ase:-llf,j~1' '>10 -
·7·'4'···,·Good
n ,Ian
-yte~r~HI~~IJr~
d,
yre.comparnes. ~R·RFubpbJ!~~
'IIZ. M • remler,~· ..,"~X.;;.,'
..,. 'R'''~' ·-in;;:.~0"':.*r15¥i~~~9~i:
egu'<;1"",..,gnY"!J'1Cl,,.- " :.< .
.fionofthe erstWhilyforeigntyre~:'compa,"' <: . ':'·.,.co . ~'·;;ryres·andIncheckerilere(fth~ lyremanu;"'!}::"·:~-~xPansiOn.8r)di-epai(iil1iOn:~'f~'i;~· .
.••.nie.$ }.Intll1960. A high' d~greeof~rri~ket . '.':: -i-.,.,'-'~ ~.~>~.<factu6.ng seCtou~lith
forei9nJ~l)nolo.9f., ~~.;(, \;;,'Qf proIj~0ft0reigncO,~Pan~~~J~
" .' irati '. dlh . I"" r' ~'"-lI9Elnsll)g.ofaddltionl!!~UC;tiOn~C1!Y't,,,,.~,.Enfolcen:J!l[ltofEPCPOrt"r>e"·'-) "
:~~;::?-~
;..···:~~:',:~~;i
<' .. :•. ,-- ~,,:"

'.~~~:7v~,:fgn:~~e~i:\~S~~:f~~ht;6~""~;~' :~'~~:~~~;~~~:~\;ti6
,:~!;~p:;.-:~~:~~:~
·~~;\~;~~·:i .
resulted-r~-high"er-nrofits and repatriation .' f-~-IY.'i.J ..9?S-91 ..;~~!ry'()lla'W).!i9i~~I$SPOU~'~'~' ~:::i!.,f.J>I3i(~~~I~~uc~nl~:T\.· , :
· <" .' ~, .. ', ' .' .. ' ' .~. ~ '.: .',;',,., ':>c.','~-"SIr]QhaAla.;RanauqSIQ9hiU1dModljoJe¢(liCaV2.~.9!!~P~rt~.HJI.tY[es ..,--.-,,;;: ,·~·l
", ~f ,hlg~~.~~,m.vld~'.l~s' .c?~p~~d: ..to ~o,ther~.,':!>,:~'~3N:' I
~ ~,>':coll~bo~t!?il'~hMN.c,:?;;ii1trQauc!ion ~fP!fi~ :~Ii~0G[~!l'lanllan~~ ..--:;;·'~; .~.
,· ;~:-a~~@i~:~~~kh:':d~~~~~~?:;~~t;< :~;~;~~~,~;it~I~~~i~;=~~~~;3~f~~t~~~
'," : .",; .'. _' .', -. "':.' ,. ,. "..... ', .. Phasev· ".,Ext~malt~de,libera~!\C!9~Pt/1~
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1992. ...",~11?1'Q9~lye.
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.••"f •• ~tl:~':~.". !1'-'~~r,.,,~~~g!l!~~ri~~,4>''r~~l:.·, .~~,"'. ',.:.

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 phase of developrrient w.ere the' verti~al phase [GoI 1988; Mani 19~3]. These . organisationalstructure of the, industry,
integration of the. production process' by' specifi~ feat,ures of the)ndustrydUJ;ing the . there are substantial differences in the '
major Indian busine~s' houses 'and ,the~· 1980s,broadly ~onfi.rm to the theoretical objective ci~cumstances ~iising mainly
barriers to enter the domestic:production paradigm ,of domest.ic demarid-driven from the limitations of the. P9licies
sector until the i!lPus~ ,w'asqeli~ensed ill;: e~P.9I:tgrowth .. However, ,in phase V, th~ . patr<;mising Indian:' capital in the post.....
1989 [Mani 199Jlcoupled 'with a high 'iridvstryha's iric~ilsinglyb,een expO§edto . reform phase. An importantfeatureo(the
degree ofprotectiori in thedomes!ic market" external competition on-.accouinof dilutiqn, , entry of,MNCsjn the post-reform, -phase,
through qualitatiye import r~siricti~ns lln<!,'<inimpOr~barriets and liberalisation,of the ha~ been the dominan~ foreign equity
quantitative ad valorem tariff [Gol 1988];; .policy fra!1le~ork facilitating the entty,of ' participatjon ;is evid,ent from the cases of
Asa tesult-,.the production ~as been' t~~ MNCs.iiLth,e,dom~stic market. '"'.;,,,,:, So~th A,~iaTyres (9.9.60,per cent), and: .
getedmostlytot1ieqornesHcrrl¥ketwllicn;, '',The ,.emerging .trends during the priSk Bridgestone(76.10 per, cent). In lande·m.', '
in t~rn provided theodomeStic tyre inanu,~, . reforms,period (p1)ase V) underline the with thee!Oerging scenario, GO,odyear
facturing units ample avenues to a,ct.in: pqssipility of-a total reversal ,of the pbli- India~ has also increased its foreign equity.
collUSIon,to fix Up high prices: for, their 'cies favpunng India,ncapital'pursuedsinceparticipation from 5~.93 p~r cent in,19~8
prod,ucts[G~I 1988]; The"COlpmitt~esin~ independenctt.thetw?majorjx>licycom- ,to,,?4pe. cent in 1998 [Mani 1993 .and
stituted by the govemm~n~ to probe into 'ponents' ofthe reform package>iz, ,exter- ,personal, corresp~mgencewith" ATMA
the. aspects, of pricing "behaviol!t, of ,the nal trade Iiberalisat~Qnand the removal of, 'August ,6, 1999]. Compafed to phase IT in
ind!J,stryr~ported"that' the price's for tyre . barners on theentTyofforeign capital have 'whichforeigncomp<Jnies dominated the
products in,the domestic market were fixed bee'n complementary with sequential ef~ entire spectlUIJl?f the dorpestic market, the,
under tacit coIlusNe agreemef\tsand that fects on·the industry. Initially, the MNCs MNCs in phase V.havebeeIJ targeting the
the pric~ so fixed were.far'in e)(ce~ of }l¢optl':da weIJ:designeq str:ategy of 'test . emerging radialtyre segmeI)t of all the
cost of production' [G9I .1988]. Ii was oQ.,' marketing' to,esta,blish brand loyalty with: categories of tyres, Forinstimce, Bridg~-:
'servedfurth<,:r tha~th~re.ex~stednon-pric~ 'the ulterior motive of lau!.lchingmanufa<:.- stone, whi~h star:tedproduction in August
competition, by" means 'of, prgdud dif- tu,ril!gfacilities.in India, ,The progres~ve . 19Q8 has already attiltneq fourth place in,
ferentiation; a,c1assiCaJ example C?freducti.on'in import outy and the removal' ,thera,diaipassengen;:ariyresegmentwithin.
, Charnberlwni;m sIl!aIlgr~4P ~h;wiol!r:.of. of:nOJl~tilfiff Qar:riers re~ulting. from. the', a short span of,lesi t,han'a year. The pro-,
the'industry [GqI 1988).' Anot}1ernotable external trade libe~alisation supplemented· dl!ction target of passenger car tyres by the
facet of thecharige was.the technological ·by lower unit prices of imported tyres led, company for the y~ar 2000 is in excess of
sophistication' attilinedthroughR 'and D tg, an unprecedented increase' in import the total size of the ,domestic market by
by the In<;iiallcompanies in order to red!J~e; incll!di1)g,that of used. tyr~s., The thr~' 0.40 million tyr~s [KuruI' 1999]. The com-,
extel1}ald.epel)(I.e,nCYO:9l!'technology .,This;importal1t MNCs, which have, vigorously, petitivenes,s of the, MNCs, in quality and,
phase, ushered_'in, 'an era of,.exponential, explored -.the,domestic market potenti<ti:' price,ire based on a very large capital base-
growtIi in tyre .pr'oduction,?nd eXRorts are: Bridgestone(japan),,:Kumho (South and global marketing network cons4lnt1y
notably from the second half ofine 19&Os5 Kor<:aJ,and Michelin (Fran~e). In spite of aJ:limatedhy a ~ugl;:Rand D set up to,exce~
:ATMA 1998]~,': ' ~" .,' the opseryed similarities in 'test inarketing' in aborderless, world in,the ongoing pro-
The_obs~i'vedgroWth in prO<;Iuctionafld in tbeearly years ofth<;:post-refo[Jl)sphase,: Cess of market integration.7.However, the,
eXports of'tyres ';uring the p!1:a,<;e,IV with" the subsequent strategies for consolidation Indian tyre companies moulded in 'the
, the eIJtry of largeJpdian. busipes~ hous~s- of market power differed in the identi- national frame of e~onomic,decisio'ns:are
into the industry call forJjlrth'er ,ex~W~QU:o' ,Qcatiori and ~stablishment of manufactur- often bound~dby.theJr jnherent c~nst~ain~
tlon. Theof(:tic~l1y;:ihe' r:nairlobjective' , ingfaciliti,e~ T,he Goodyear India. which ofpeIatively ,higherin,ward market orien~,.
behind the expansijm Qf production. is to-' is a subsidiary of the US-based MNC has' tatiQnand weaker Rand D support, If the
mi~imis.~a\,erag~ !illl(~o?'t bf'pr64u@0~~~~J.\pilil~elJ \t~prod~ition cap.a~ity.bYe.?_tab: globalJrends in the tyre sector since 1960s
by e~oiting thee·scale economies. Al-, lisliing'another"manufacturing unit a't . are any guide, the possibilities of mergers
tho~ghthe.incre~eg producGonwas ~ainl[". Aurangabad in Maharashtra'in 1996. Th~ and acquisitions in India are more explicit
in response to the growth ofa protedeq n,ewly established llnit is reported to l?e than in the. past,.8 The vulnerability of
domestic market, exports of tyres with exchisive)y designed'far,the production' of ' Indian tyre companies to, the changing
discriminatory price policies hild been a.. )adiartyrtsforligh(commercial vehicles economic environmentis alreildy eviden~
prerequisite in::ord~rto minimise the long, ' (Ley)- and passenger cars, _Conversyly, ,'fforn the breakdo"Ynof production at leas~ .
'~run'average uni~,costpfproducti6n. This" Bridgestonewhich is the top>ranked tyre in the case, of t~o factoriesowI]ed by the
strategy .of th~).ndiiStp' In' phase IV had MNC in t-he'world, market started its Indian business houses.9
.effectively bee~'maintained by three fae- . production at Indore of'Madhya Pradesh
tors:(l)aliighlyprdte<;i~d6~mesticmarker . -Gl 1998 asajointventure with Associate
ensunng.a higher price to the ~uneof more' Ceme~t Company concentrating onlY on
than SIX ·timeS'"totnpared to the export radial passenger car tyres. The other two The .pace of growth of Indian tyre
price; (2) oligopolistic; structure and col~ MNCs, viz,' Michelin and Kumlio are manufacturing industry has been unpre-
'as reflected in a "in 'different stages of progress in their ,cedented since,1970s.The,number of tyre
lusive p'rice agreelTIeI1;lS
four·finn concentration ratio of more than attemp(Jo launch tyre manufacturing companies increased from six to 29 and
60 per cent shal:e:'in-t!Je· total installed facilities in India. ' , the installed capacity and actual production
capacity and (3)' subsidislng about 77 per Though the apparent similarity between have increa'sed by 708 per cent and,630
cent of the difference between the cost of .the evolutionary phases (I and II) and the per cent, respectively, between the 1971
production and the,.exporlpriCeduring this phase V indicates a trend in reversal of tlie and 1998 [Mani 1993; ATMA 1998]. The
 total turnover or'the' 29'ri1ajo~ and m'lnor growthofproductioilOfdifferentcategories value terr\1s:from Rs 55.3.8 million' 'to
" tyre finns spread oVer 48 tyre manufac~ oftyres could either be domestic or external Rs 7,900 millionduri~g the period from
turin,gplants with a,ninstalled production demand driven arising from the reforms 1970-71 to 1996-97. Moreover"the trade
_ .capacity of37 million units per annum was package. The analysis of the rate of growth balance of tyre and allied produds has ,
Rs 95,006 million in 1998 [ATMA 1998]. in vehicle population during these two 'been positive throughout the'period under
In the totall)umber of.tyre~ manufaCtured, distinct phases·i~a,.crude method of exam~ reyiew. which amounted to Rs- 7,289,20
two- and three~wheeler tyres is the largest ining the sources·.of the demand fortyres millionin 1~97_ Thevalueoftyr~exports
segment (38 per cent) followed bytyres ct
[Burger al '1995]. Contrary to ,the ob-, grew at the trend rate o'f20)1 per .cent
for truck and bus (3L per cent) and pas- served trend in the rate of growth oLtyre per annum whi.le,the corresponding rate
senger car tyres (I 2 per cent). Another production, the trends in the vehicle produc- .for imports was 15.40 pei cent, during the
important .structural characteristic 'of the ,tion exhibited higher growth rates. period 1970-71 to 1.996-97. The net gain
Indian tyre manufacturing'industry' i$ its, However; the trend.in the passenger car, in tenns of foreign-exchange from external
high degr~ of proouctioncoilcentration segment was distinct in terms of a propor-. trade defined asvalue of exports' less value
[ATM~ 1998]. The ·'foilL:inajc)!-' tyre tionately higher growth rate 'in vehicle of imports and expressing.the same as the
manufaeturihg :6nns, viI; MRF,'CEAT,J K production dudng the post-reforms phase. ' , ratiogr exports has incre,t'sedfrom 0.78 in
i.ndustties and Apono: .together, control' The diff~ences.ln the rate of growth oC 1970~71 toO.92in 1996-97. Themajor cate-
68.36 per cent of the prOduction.fO The. productiQllortyres. camrot be exclusively .. gories oftyres exported fromIndia include
reported capacity utilisation. of thejndus-explai!ledbythecorresponding'changes.in, tyresfor "truck and bus; passenger car, '
try is 92 per cent during 1997·98 [ATMA the production of veJ:1icles,Nevertheless:· tractors two-and three-wh~elers 'in addi-
1998]. Unlike in theidv~nc-'fl 'countries, it is plausible to 'state th.atthe two.distinct t.ionto the off-the-roadyehicI<;s.The single
the predominance of tnick.anci bus tyres cases of th~ domirianttruck mid bus and' largest category of expoI1s, viz, luck al'f
in India.call be attributed to thedeinand the passenger car ~egments are dependent bus tyres, which aq;ounteclcfor 50 per cent
em,eigingfr6~goexJs·.ti'#fiS~sp'e£ial!; of on the ~-elativesljitreof dIfferent market ·of t!letotal.;value'9f exports J'roin'tyre
,the agricultural sector ana iiheavy depen~ segmentS ,as well, as the' impact of the products irrl97G-71hasirnpi-oVedits relative
, cI~nce on '.thep~blictra:f1spori system; reforms on-the tW9141tegoriesof vehicles share~to.~ 'thaI!·98 per,cent in 19%-97.
Therefore, jt is plausible to 'presume that .productioIl: ln the post-Fefonns phase, ,a The impact of economic liberalisat;l)n
the impact 9f externaltrade liberalisatiori higher rate .of growth,of production ',of on exports is.asSessed' bY.,:comparing the
, . is likely to b'e reiatively':more serious o~ vehides in truck and bus segment was'not growth rates in·thevalue ofexports during
- this segment of ,the industry: matched by'tYre production asihe com~ . the pre and post-reforms phase (Table 3).
Although the extent of radialis ation is bined share of replacement market (62 ..15 TheincreaserecordedinthevaJue~fexports
a
often considered °as yardstIck of techno-' per cent) and export m'lfket (21.70 per cent) both in·rupee,and dollar terms ,iil the pre-
logical advancemertt''intyre1l1aI!ufactur- was 83.85 :per cent ;whereasitwaS only reforms'periOd (·1987-88-to 19~1~92) was
irig, .in fndiathlprogress iricdidi~lisation 51.67 per cent il)the 9M.eof:pli$s,engerCar ,'markedly higher' th'lll.'that ~n,!he post-
in iliedominan't tnick.an,d bus ~eginent is segmem with a higher originalequipmentreforIDs phase. (1992-93 to ,1996~97) 'for
t negligible whereas.the tyre manufacturing market share of .47.97. per. cent [ATMA truck arid ,bus.and' all. categories, of tyres
in advanced.countries has either·been com-' f998].Moreov~r,inthepost-refom)sphase, ,(Table 3). As is evident, the growth in the
pletely i-adl~li~~di6d~heading towards vehicle pfoduction'in the passenger car seg- v,alue ' of' tyres' exported, fuom, India is
total radialis,atiori:Hciwe¥~r,ip.the passe.n- ment was trigger.ed by.a.large-scaleinnux dependent Qnthe'perforfn,ance of the truck
gercartyreseg~hi'ent; th~ exteni.offiidialis-' . of MNCs,to mimufacture passenger cars. ,c ailClbus·tyre-segment".-Another·important
ati6n is reported to be 45 per cent[ATMA :-;, ,", .n';..·., '. '," dimension ofllieobserv.ed trend in the rate
1998]. Taking cognisance .ohhe J:e1ative
techn,~loglcaJand striJctur"ar~coristriUntS.of,
Exp:ort ~ector >',' .'
::.Y: "~ " o{gro~~h.i~:~a)u~Pf.7~P~etshas been the
.: ;',,".', ;,,,i '\-. ,';. ":"""-. fluct~atlOns'lJlth<;UDltp~lce of truck and
tyremanufacriJringsector -ill,ihdia;~·the '" Despitetherelativelyjllsignificantsharebus.ty.resjl} dollar!tefJllS:d~ring the;post-
MNCs are 'increasingly 1arg~tii1g aL·the of automotive, tyreS and allied pro~uctsin Iibera(isation. phlJS~~Jn 1990-91;, the unit
growing marketpo'tential of the nidial tyre India's' external ..trljde (0.14 pef: Gent,' Yalueof a truckand,bus tyiewas US.$ 105
segment' during ,the· post-reforms' phase. 1996-97), the: tyre exporis, in<::rea~eq,in andj(has declined to' :os. $14 in .1994-95,
InoroertoexaIniri~ the resPonsiveness of ' '.". -, " .;" ' .. ~ ;,. .
" " . cTable2: 'Rate of Growth 'Iii Tyre'and Vehicle' Production 'by Categories'
thetyre m1Ulufactufip.g s~todO.the various ' . . ~.' ,
policy instrurilents of libern1isation on the Period , ':r~ckand BusTyre. .' _:r,act,!r,''~.; ,. ~ '; .:·",.-;,Jw()-Wheelers
prOductionof iiTIrortailt categbrles'or'tyies, . 1987-88fQ )991-92, '~ . , 13,013-<7,., 11).,._. _ 9,29(13.49)" 7~05(6.18)'"",: 4.00(3.22)
the~rnte'ofgrowth orprOductlon~of these .. ' '1992-93t01996-97 "'T :;;::8.01(11.!il7)' -, ~;79(7~18).- ,10.78(20.27) ,;<:," ,11.58(13.72)
categories of iyres for',the'<.J>re.ai1d;,poSF ,- NOte: Figuresintheparentheses,indicate ItJerate ofgrowthin;e~ti~ ;ehiClespr~liClibn:
,liberali,Satioii'quinqu~nijifll periOds were ~ Source: IndianRubberStatistics,(relevantissues);Rubb.erBoard:Govemment {li.!npia.::. - .
'estimated.(Table 2). It was founclcthat the~' . "' .:.:;;c,:, ',.,',.'. ::" ,,,
? rate of growth Dfprodu:dion 'of tyres in the~: ',:;:~~bl,e3:Rat~ of'G~?~iqn va\ur:·:?rE~.~rts~~)~~i~.~::,· "~;',,:!,.

post-teforn1~phase gie..w·significan~lyfor,,' PeriOd '. :'-'f :', , ,Truckand Bus '~1Q~'; , - All Categories'

passenger car grid two·wheel~fs l\ndtruck: .;.. . ·t :"',:' ,Rupees:;:" .:- :':J~$ , -: i. _'.I:lupees>",';: -,!,y.s'~:':
and bus while tractort~segment reCorded' .. 1987-88to 1991-92 ' 40,8i-, ~'L' , (,.25;85,-; .' :';:,,36.79 >~::.. ,.-:2.1779,
a slow~?wn when co~pared to the.pre- . 1992-93To1996:97': ,11,92 '."':'.:':;,5,26 .. :11.!3~.",,~.>_::?'ll,7'
reforms phase: I I The underlying factors' Source: Monthly'Staiistlcs of the Foreign" Trade 'of-India, 'releviintissues~DGCIand"S;''Ministri ·of
, behindtl1eobserved~trenCi irl'tne ;:ate
~; .~.,
of .
C6';;llnerte~ Gover~'men!oflndia,~'- - j '.r: . . 'i. d" ,
.:~.~..

Econoinic'and'Politic~1 WeekJy".' 'March 24, 2Q01

 the year in which the quantity ,of exports.. was the world trade in truck and bus' tyres ' Table'S: Domestlc'and Export Price of .'.
us percentage of production attained its peak as'the world·tradeisjlredominantly con- . :. :.:" Truck and Bus Tyres
(Table 4). The prop6riionOf'the number -, fined 'to radial lyres ,whereas more than 95 Year.:,'·, Domestic, ExpOrt... Exportprices;'
of thick and b~S tYres. exported ftom I!1dia: . per
cerit'ofthe exportS from India is Of th~ ", : ' .. ' ,PriCB_, ,Price' asPerCentQi
! ::::. ,,~,'<'~..
;~ "po,meslicPnce,
1,il; ... ..
, as a ratio of its production'h~ significantly - ~c6nvention~ ..cross~plytype" The regres-
grown froro7.64 per cent to 3~,87 percent', . sion 'result ,showed· ttlat increas¢ in, the, 1987'88.,~''",' na' " -1198.·"·,·,~ . na '
·19'8E\-89
"E-',,,. na.~>J~8~.,c· ,> 'na.
betweeinlie period.'19S-7~88:and 1994-95>v:ilue of export~:of truck and btistyres in' ,1'989·90" ;'. ~ mi; - '.:1638' na
and declinecffrdm' lQ95-~~~;A: .:" ',:« "-:- doIlat;terms was'on:account of the
increase 1(190.91":(';" -::na;'·~."1892..,· na'>'-'
It 'is important'to nQte ih:l:tthe~verage, . in'gr(x!liction 'oftyresaS well as decline,· 199,1-9a '. 0'-8580 = .. 'l -2168-·.':': ~. -25'.00,"
1992,g3. -" 8500.·' 2603 ::', 31,00 '
unit'vallie realised'dunng,tlle pre-~forfns in the unit prlce'ln dollar terms (Table 7) .. 1993-94, '8aSI), . 2617'~--, 30.00 '.
'(us. $'95.45) ph:is~ washi,gner'cotnpared" The observed phenom'enori'basicaIly re~ 1(194'95 .. 9900'-':, 2331::{: . . 23,00 .
to the post"refomls phase (US$ 90~77) and' sembles the experience of developing 1995-96 ,', 10050 ";,' 3302 ','c": 33,00 ~,"
1996~~J:" .. 9750'· 381,6,. 39.00 >

that the ulJit valu~realisation did~iinprove countries in the exports of primary com-. ..• "',' ~ .• - 1- ~.. • • __
~ .•••

only !Vhen'the qU'antity of truck anclbus modi ties over time~ The insignificant co- Note: The comparison is,based on the unit PriCe of
tyres' exp'ortect declined frt>m,1995~96.· efficient of the dumrilyvariable indicated '.: lrtJckang bus,tyres exported fromIndiaand
':, ..the price 9f 10.00-20.00~16PR of MRFSL
Within the domestic'markel, ptice differ~ '-that the non.:prlce factors and the ch~ges . ,,' ~ ,. tyre reported inthe Delhimarketinlhe month
entiills are' significant across :the same. in policy regimes had not made ariynotable , of June of each year: ..... .-
category of tyres' with' different technical' impact on the expo~ of truck and bus tyres Sources;·l Wheels oUnctiaJ ..:: .;
2. Monthly Statistics of the Foreign Trade.
specifications. In the absence'of informa- frotrf India, which is 'in conformity with
of India. relevant'issues:' bGCI andS.
tion onspecificatioriwis~ unit .valueof an earlier study [Mehta 1997]. ,~'Mlllistry'oi Commerce.' Government
truck and bus tyres exp()rted,acomparisOli "",' , '. ,:- ,., .' '. of hidia,·:J"<" -. ' " >.'
of the ratio bet<¥een domestic and export ". Import S~cioi'.
prices is ·rathe~ difficult Neyertheless, .
a comparison'J'>f'lhe. uniVpn~~in' the The trend irjiniportsof various catego- Year,·".·.·Quan\ity' be, <:,Value ~.
domestic aildexport ~aikets revealed that 'ries~ of tyres to Iridi.has' to be viewed in 1990-9f"'····: 0,68 '.'.' . 0,69
the value'realisation per tire'in the export. tfie backdrop of the c'hailges brought in' 1991-92.· . ,':' 0,38;;,.,;.,:;.•:, ", i, 0.39'
market varied berween:23· to ·39 'per cent . India's external trade regime from the late - 1992.93: ... ' ' 0.34..1,;,:',.'. ,'0,35
. 1993·94 0.27" , '0,26
of the domestic price in the post-reforms 19805. Theinajorchange in Policy pertain- 1994-95: ,-, .' 0,33- ,,', :"0,35" "
phase (Table 5). Alongside;the number of . ing to the' impOrt oftyres has been introdu- 1995-96 . 0,36'/;·; 0.33
destinations to which the tJres have been ced with the i:mnOljncemerit by the govern- 199,6·97 O,27,.,~,. ',.0,26
exported extended from '44 in 1990-91 to ment in June 1989, ~a'lIowing imports of Note: The formulaused forestimation-ofthe Index
120 destinations in' 199~95' and ,the~ex- . tyres under. open general, licence (OGL). is~,,{ I{xil 1Xil.2 where xi,;,Export(qu;wtily •
. " " anq value) ortrllck: an'd bus tyres to USA;
tEmal markethaS started narrowing down However, large-scale imports of t)'f?--Swere Xi:';Total quantity and value' of export' of
again to 95 destiilati'oris from' 1995-96, discouraged as there wCJ:ewell defined non- truck and bustyres irb'm'lncli,\'(fofdetails;
The geographical diverSIfication of 'inar~ tariff barners'on the'impo'rts [Mani 1993]. ..... see Kelkar;'!.) 1989),.. '." ;'.
kets can also be captured\lsing the sum- The main QbjectiVe Q(the policy was to >;Table7; Regiessioh Results
mar/meas!lre, .viz. concentrationldi vdrsi- restrict the reponed :::olIusive practices . In XI=a +,.13
In PI'+ ;{In'P~l + 0 Dl + ut
fication ..indices (TabIeo)' • The'colJcentra:< am.oilg the dome. stic ,ty''re companies rathel" Independent Variables, .
'Coefficieili' t·stat
tiari indices of quantity and value of exports than initiating a policy forliberalising the
have shown a oeclinefr6mO.68 ·to~O,27 imports'of tyres. However, the subsequent Dummy,;, . c. -D,?85, 712~3·
-
' ',' -- .';.'. . UnitpriceinUS$ .,.-1.779 :·-1.932"
an d06.. ,9 to 0.26, respectively;'mdlcating policy ch~nge~ o.nthe importoftyres were' Productionoftyres' . '," 4:376' 5.908""
tile widenihg~of the exporLmarket in· the characterised by progressive reduction in Consta.nt:' . ''''i'', '-:11,234 .... -2,045 .
pOst -reforms phase.:AnoQier, characteris.l a
linportd'uties arid gradual dilution of the PeriOd(1981·82to 1996-97),,', fl20,86 OW1.54
~~ature of eXp<:lrtmarkets is the market- noh-tariff barriers (Table 8).'The changes, where: Xl-valueof expoMof truck and bus lyres
based price distrimination;iIn1996~97, a in import duty 'consisted of a reduction in ',; in US $' i";' --
unitof truck and bus- tyre exported-to basic customs'tariff from lOOper cent to PI - unitprice oftru<;kand bus tyres in USS
US" ,etc'he·
. d' U $' . '0 f Pd 1-; productior of truck and bus lyrE!$
S 85. (against ,an .'average 4 per cent and a shit in countervailinou '
0 I':'"dummy vaii.a,ble ...
" .
unit. value' realisation. of .US '$,.107.53) duty froin sPecific rates to ad·valorem rate 13.x./i-,coefficiEmtsofrespectivevariables,
whereas thesameexp~rted to Egy-Pt fetched . ;: . . . .-. . .. ' "-: ~.;~:,; ~.~:.,,~ .~,
uS $ 1 16, the highest price in thilt year. ,Table 4: Unit Price of Truck and B.uSTyres E~j:l~rtec!
'In order· to' identify' the factors: whieh Year . NumberofTyres. Tyres ExportE!das, UnilPrice '.... . UnitValue
have int1~enceq the\~xpOrfd_~hianaJ6fthe . .,.. . __'Exported .Per Cent of Production in US$. :',:,' .. Index'
truck and bus:tyres;"thY"changes,iri'the 1987-88' ~ '3b5961 7.64 92.~9':" 1'00" .
101
value of exports of truck and;bus tyres in ;~~~:~~ ;~~~ 1~:~~ ~~:~~ . 107
USdolJarw~sregressedp~cl.langesinunit 1990-9t 84913{) 16.46 105.43,' 114
valu'e and,production in -addition to a 1991·92. . 77680t 14.44·' ..' 87.96: 95
dummy variable to capture the impact of 1992-93 1514304 24.99 89.88', .. ,: 97.
non-price factors indudii}i,~the policy; ~~~~: ~;~6;~~ ~;::~
" ..,~~:~: 90
80
,107
changes in external trade during the post- 1995-96' 1806897 23.29 98.77-
reforms period. TJ1e variable· w.hich was 1996·97 17224:25 21.49 107,5~.. 116

purposively not incorporated in the model ------'-------------------,.---------

same as Table 3.'
Source:

Econ01:nic and PoJitisal Week~y:.: March 24, 2001 -"

 ., ,

between tlie period 1990-91 to 1997-98. cient (EPC) arettie two falJliliar Jlleasures 1996-97 warrant further explanation of the ' ,
• Tnthe posFreform phase, it was visualised used to assess the degree of protection potentia{ implications. The analysis indi-
~. that the devaluation of domestic currency extended to dome,stic industry from exter- cate that there are well defined limitations
_ would logically follow an upward shift in' 'nal competition.13 The 'nominal rate of in sustaining the domestic;:demand-dri,ven
the export demand curve for tyre prod~tts protection for the truck and bus tyre has" export growth to reap the advantages of
followed by a faU in imports. Conversely; declil)ed from 239 per cent in 1985 to J 78 ,scale,.economies. The tyre production
if imports rose faster, It could be fatal- to ' per cent in 1995-96. Nevertheless,NPC sector in India,is on the Verge of a major
thedomestic.industry as imports would haslimifutionscomparedtoEPCinexplain-. shake-up withtheentey ofMNCs in the
carVeout an increased share of the doines- ing the differences in input prices between p()st-reforms phasbwith itscoilcomitant
tic market: The .tren<;lin the value compo- dOlJlesticand wotld markets which in turn cOnsequenCeson the structure of produc- ,
sitionof.tyreirilportScomparedtoitsbxports influence lhefinal output prices. Due to. tionunderliningtheneedforrationalisation
is rather erratic. The ,major' categories of .paucity of comparabl« data, the ,estimate· of the product-mix favouring radial tyres
tyres Imported'in valut: terms are off-'the~ , of EPc 'is ,confined to 10.00-20.16 ply" with large;sca]einves~ment.HoWever,the
road vehicles', passenger car and truck and rating tyre anQ isrelated to, the terminal extent to, which. Indian. companies are
gus. The 'Other~' categOcY'inciude tyres year of the,stiIdy, viz, 199b-97. The EPe-caPable
0' of withstanding the:ons1aught.of
for aircran,' motorc.Ycles, tractors and an for J996;97 _Indieated', that .~he.,r~te of ' ~C~ is open t9 question dep~nding on
unspecified group. The most discernIble proteetionenjoyed by.:theind~stry;has/" a cOIrtp1ex.cSet 'of eccmomic:and pplitical
trend obs,erved during't~e'last three y'ears declined from 178 per cent in J 985 to 74' factors in the,near futUre. Nevertheless,in
of the pe'riod under reyi'ew. has. beef! a' 'per cent in 1996-97.' The' erosion in, the the emerging globalised production sce- ,
tendency,to fncreaseand stabilise the ,'effeC6.veriteofprotection basically under- nano, the possibilities of imbibing the
, -relative shar~s of~hrey major categories 'lines a growi£!gteTI(iencyofc<?rl'.~ergence global structure of:tyre irtdustrycharacter-
, of tyres with ~'commensurate deCline in 'of the raw material prices in the domestic ised by' increased concentration of pro-
the share of ',O:the(s~,This t~end is further ,and world markets. The convergence-'h'as ' , ductiqn'loom largdn)he'iildlan context.
corroborated by ,the quinquennial 'growth been ~ng place on input as well as fiflal 'In foreign-trade, the reduCtib~in qiIaritic
'rates in- value'and"quantity" of·th~major output prices. In the input I11arket,the priCes :tative tar)ffs and dilution of qualitative
categories of tyres'pupoited during the ,of majodnputs in the domestic market hasbamecs along with the:devahiatibn of rupee
'post-refoi:nis phase.cTab1e-9). The most now become pr tending to be equal to the .-envis,agedan incre,!se"in export'earnings
/ striking featurepbserved in the trends in ' ' world market price in the context of the vis~a-.visimports. Despite' the boom in
_. imports is'a'notably higher increaSe in the irowingprocess of market integtation. The exPorts in th« initial phase; the exports of '
quantity and Valuetifunpo'rts of truck and ,decline in the leveLof protection en]oyeP trUck and b~styres as a percentage of its
,J I;>ustyres.It assumes:significaiice: in t1}e' ,'by the tyre products' in India ~d" thb ,produ~tion h~sdeclined from its peak level
Indian conrex( ~s'the tr:uck arid·bus' tyre consequent convergence of thedoine~tic of 33.87 per cent II} 1994-95 to 2 i.40 per
segment is the. largest in terms of its Tela-, mark'etfortyres with tl1ewod,(market m~y ',~n( 'irlI996;97"iTidicatlng the inherent
tiv~ ~har!(s,in J9.nn!lg~;v~ue"an~ ex~orts, be ,view,ed against this backdrop. " ltrriitatiops q(the.export -oriented growth
The larg,e-scale:importsof truck andbus strategy of the product. In sharp contrast
,tyreS to ~ndi'! have,l1ith,ertObeeq,dlsc6ur-' . Conclusion to the envisaged trend, the truck and bus
aged by poor road conditions and endemic tjre -impdrts have. registered substantial
overloadirig :t!:i;'\Vhith tyres ,have peen .,': The -emerging trends in ':produdion, iiic~e.i.l} both qu~ntity an~:value terms.
desigtlec(and rti~hufa¢tu~¢dby'the domes- exports and imports of major categoriesrn:this -c6ntext, it)s:pertinem tQ.e'xainine
, tic tyre compllDies.:The two factorsy,,\)icn ~f..ryres...in the. pqst~[efo'r~s: pha!!~tilt, the capacity' of Indian tyre .cqmpanies to
: could have facilitated' steady increasb'iii' ,.. .: r' C', •• ;'
'. •• '.. ,:~ , -:.:;: -,:1:_;,:' '. -".'",' . '
,irnpo!ts~bhriick apd ,bus tyres in the post: ",:Table 8:lml?Ort DutY on'Tyres; ,~','
reforms'phase',wer:dl) reductiou'in'timff ,year,." ',,; , '-Truck'and Bus· .'~,Pass\1ngerCar ',' '.
~~tii<;tions ~,rifriiports and diiutiOilofhon~, ..' ~,Basic(perCe!1t) Col!ntervailing (Rs) , ,Basic(PerCent) , Countervailing (Rs)
, tariff barr:iers; J2) a significantly 'lower' , f990-9f - ,'00 850-:2500" ' : ' , do 200-250
. importprices121liid th-e 'm~~keting.strategy . "1~1-92_
'~~.MNCs ~~:~sira~li:hbr¥?,~o.yal~: ,l1ow~ r'~::,',~, ":",:~~,
l00~-" . .:".:"~~850·2500·
',69Oc2625 ~,
,... --~ ~100 .-
" : 65:-':
'''. 200-250'

;.;.~;~~~

l;::' ,,~,:'1''':15',~,,,;
'<

::d~::=~:u;~~:~:~f:,d~~
,
~j,E" ,Ell
,of.i'gr"o.w.ing'p.,'""r_,e,s,e.,·,n,
ce,.o.,(MN.'.C.
s,with,new, "1996-997.9987: . ,.~ 51!' ,"
~O '.. • '.' .30per-cent'. , '- ,.- '
40" ,30:per~nt
genera.uon.sar,sprefemng radl~~yres'and _' __ "_'_' - ' _
" the. prey~H:n~e of" a.,relatively ,higher' Notes. ,In llddiiionto (hebasicarJd:'countervailing. dutlell;4b:i>erceritof th~ valueofbor~erprice W<jS
·'ril.diillised,passengercarseg' merit in,th,e " ',chafge~~sauxilia!Ydut)itllli993-9.4.'::-.'~,__ ",; ,j:" ,.C." " ,

, Source:Personalcoi:Tespondemce withATMASeptel1lber'9. 1999.", ,

'domestic'markeC':"):--c' .,'''-. :~~"" ,.' "':' -, /:",,::, '.";" ",':'<: ",,:' '-: ',' ,--, ''. '. - ",- '-',~ <, , • ,

An'i~port~i aspe~t deserving attention "~"', -~( , ~':~'!TabIEdl:Compound'Rateof GroWthTIi"!~po,,!edTY~~,>"~ ,"--;,-

_,co~~exf:i5.f"a
ift',tb.~ _ rr6gr~sive'reduction ,J'eriod ',_0, -: .•. ,;,. ; ';,:~QuantitylValue. AirCraft<r~.and:aus PassengerCar, OfHhe:road
, i~ i!TII>0rtdli~y,a!,lddilution of'!10~:tariff ' __'9a7-8~199'i'9~:""Q' r','-19:i>4' <': ,-;-'56:"1~.'8 ,i;':_2~.37- ,

-;:;~~~~: ~jb~~~n:St~~'-~~m~~te~~,
.' d'" "N' " al'P .', C ffi"
m ustey?, pmm ,rotectton -', ..
,.Z~::~~I~~t:;:·
'-,~'~~~~~1~;'~~~~~~7'"
,oe, lClent'
",,~..,:~:,,~~:
·c·
",
~:;~,:"'3D~~~
,"','
':,'~',~"i':f~~;~;~t~J·:~-/~,, .
,Value··,'",·,,--l., '38.55 -.':163.59,',;,· <'--.7.0,00,_ .... 38,84,
'<'··•..
'.' . >, ,- i''',' <:.-.,__
-- ' -, --. . '.
(NPC) ~tid:Eft'ective~'J>,roteciion,Coeffi-. ' SOU(Cf1:Month/y, S(at!stics of the Foreign Trade oflndia, r~levanlissues,":~~':::'~":'c .:"":,
~'- .',' .. '. . . . - .. ~._\-.. - --~.' :.~ ...- -.;: '.', .'~' ; ~~~.:"'-<:...:. -
" .)'.'"
~
'.
_: "
.". ~. ';, . '. '- . -
Economic-and, Political Weekly ',March 24,'2001"
'"
 retain the sharein thedomestic'marketand ". ' ,': expoits.(tiu&l1rid bus',lyres) were 7 per cent border'price is defined as. the 'FOB: priCe at
f . h' . th··. k ':.., and 18 per cent,~spectiyely. Cochin, The present study made use of lhe
to pene.t~ate u~t er IOto e.~x~rt mar et" ~ 6. Goodyear ~n1i~is ,the'(Jnly one MNC wbic~ methodology suggested by Garry Purseel and
. The cnucal fac~ors de.terrmmng t~e .sug ~.' ... : has 'continued its'manufacturi'ng'tonforming Roger Neil, in order' to compare with' the ,'.
vival ofIndian tyre'c6inpani~ are camPen:.' .. '~;'to -therules lllid'regulatio~s by the govern- set estimated NPc and EPC in an' earlier 'Study
tivenes~ in price and quality,~ectfm)lbgic'it(': ?, ment'OfIndla 'o,:~iq~e }e~~s:~~~'',' ~'J" . '. , ~)[for~c1etail~see Ma!1i.'l9931.'~ ':: ':.:.: ::"
compatibility':to thedevelopments>in've~ .' 9J~.1996; 'the.v.aru7'ia.n:d':10.~1 assets oJ R
.,.,' ";'. f" ,. .> ; ',~~

. " '.' .' ,....... ,..."':', ~ndg~ton.ean~_Mlchellli:..were, US$ 15,2 . .... e erences, .
hide geometry and· the C~P~I,ty t~ ove~~·· :., billion anQ,U~"'$'14.70 billion. respectively, .' .. ' . ",,;.;" .'
come-the lirilitatioilsirilposed-by tlie.~w:;' . ::The relativ~.'~lieiof'the;'tiidifu-iCtYre_ industry . ATMA (1998);' All :Overview of IndiQJI Tyre
ingimportanceofre.,'gion~ ..eGpnomicgro'.
~
,
upS> ,:,'.
, . ....
'is'evident from th~~t.i.m.a.ted'value.·
f R 7 r 203 II d
o'fits toml .
1997 98
. indUStry, Auiomotive- Tyre Manufacturers
" I..'
., .' Association, l~ew Del~i, p ..,'
9
...
.
in as. The operational levelconstraims to ....' .r.:'.assets. 9 c, ~, ,'" m! IOn>; unrg, . - . ATMA (1999): Proliueti011 Statistics, Automotive
./:> •• , ,.. '~, -,",.,,:,Inanope(:luonals~,nse,lh.f;totalvalueof~ .
achleve.the deSIred competitiveness In the., ". of. all Inc!ian.'tyre'c6mp~nies~constituteonly 'Tyre Manufacllirers'Association, New Delhi,'
globalised pioductionare t<XteYident. The .'''' .about II per cent of the asielSbfBridgestone .p 65. " ... ' :'
. , , " B.alrissa;B, (1977):. The Structur:e oj ProTection
entry of the iylNCs into the prOO1.!Ctionsector .' . [CMIE 1999'an_d;UN0~j)l.l999L:-·-·. . In Developillg'Cou~lt~ies; Johns Hopkins
and the emerg'ing.:u·endsin foreio-n' trade'· 8;Tlie cross:border-)nerge,I]:~l1dacquls!tlons m ,-' University Press, Baltimore.'
, .... .. '~". ,.:. b. .' " the global tyreindustry sinciq 980s are given
.... '. . . .' .
III truck and bus lyresunderlinea le.ndenc~ .: 'in the following table. The four firm concen~ Barlow, C,S Jayasuriya, and C T Suan (1994):
for the historical retreal of thdndtan tyte' tnition (Biidgestone, Miclielin, GOodyearand World Rubber Illdustry, Routledge, London,
manufacturing industry to its second phase C;ontin~htal)inglobaltyre l'(lm:ket has increased B~~v~2~'~1970): bomesticbe~and and Ability
of evolution-dominated by·MNCs:under M .:,.,;;rA',,~. "r . . to E*.port,Joutnal QjPolitical ECOIlOi1lY.78.:2.
a different e~on6mic,cdntext. ~ ';'_' '. .,.. .ergers. an.' ?,!ulsll~ns pp 331:-337,' . ~.' ',." . ,
.: '.. " Acquiring.Company· AcquiredIMergedCompany-. Burger, K; V Har.idasan,H·P Sinit·and·W·Zant
N . (-1995):The Indian Rubb'er Econwny: History,
,- otes···..·:"~~~:,..!, Suinilomo(19~) D'unlop(UI<) "C Analysis o/ui Pp!icy' Perspflctives, Manohar ,
,': •. ~; ... ~ ,.,1,:',,:;,;..,.' ~ "~>(Japari): ""'" ,. ,', ":':', .:: ." >~ PUbJicatiOlis','NewDelhi;pp'-779~784.
[We are gr<\teful'io..D Narayana' fo( valuab,le' . Ul)iroyill ..(1987.);'-· ': Goodrich(USA>'. q.lIE (1996): india's lnausfrial Sector, Economic
commentsonan~arliiJ~er~Th~~4!~laiin,erS,; (liSA) <.,' . "" ,:,. Intellig'ence: Sel"?ice, Centre' for Monitoring
apply.r ., "'." -" ','- -'-' ,<.' ".' . Pirelli(1988),: . ""i~ArmstronQ(USAr '
,', .;" ';:',', :.·:'<t.' '0' ".' "; (Italy)~..... , ....,.-;j./.;,;;:".,:/':J '" ., " ..... - .. ' ,Indian, Economy, J,anuary,:.Mumoaip 209,
.
In iheautomoiive.ty·remanufaeturinO:in,dustry: C'on.linenlaltyre(1988) ' .:..,'.:....: .. " .:,. (1999.)'; Illdusfry: .FinaJlcial"Agg' regates. llJld
t> (Germany) '., .:. Generai'ryfe'(USA): . ,Ratios' EconOlJlic Int.eIJigence, ..c;enfre for'
in' India, the..truck' ancl bus. JY~ segmel)t .. Yokohama·(1989).'. " . Mo'hawkRubber . Monitoring Indimf Ecoh.omy,Jurie, Bombay, ,
accounts for about 70 per cent of the ionnage. (Japan)" .Company(USA) .' p' 443., . ..:.. . .
of production and turnover.as well,'ris'more Michelin(1990):__ ... Uniroyal·Goodrich ,Debr9Y,B (1992): 'Trade Policy Reform in India ",
than 90 per cenl of the toial value'ofexports (France) '." (USA)' . .. and. the Import Regime:.,. Foreign Trade
of tyre producls[j\TMA 1998]. _;AI: ... ;' • Gciodyear(1999)' (. SUniiicinio(Japa'n)* ".- Review,.27:3.pp 243:56.' , . .,
2 The statistics 'on the quillltity and:value of (USA) ~ .' ',.. .- -'.' ErU (1999): A Reyiewoj Mana"A'AcTivity In The
exportsandimports.oftyrepfoduc·ts·h:,lvebeel)· ----------------~ Automotive RUbber Marketl,The Economist
culled ('rom the Monthly. SfJll4tics· or the.' J;J0te: * Marke~ng~ ariang;-mej)l.Year of acquisltiorl Intelligence UnIt,Automl'lUyeRubber Tre.nds.
Forl'igTi Trade' or.
~.
'.Ind.ia .. 'The 'quaniily' 'and' ", ; l mergerInparentheses, '. . . ~
S K . ak' Y 1999 .
.' ,'.
2nd Quarter, pp 57-75..,'
, ..
. '" : '.. ..
of
value of exports imd impOrts truCKand bus ouree: .~IIZ_I, ••• ' ., Government o(Jnd'ia' (1947): 'Report ojlruiian
lyres are' p,rovided' under the"eigllt;digit .:. frum 49 per cent in 1979·';060.10 per cent Tariff Board on' the"ProteeriOli'ojthe Rubber
cO:'ll:.nodity,
c1assiflcatioD(~mrpod\ty code in 1998 [Barlp\\, ei, al,:1994; EIU 1999] Manufacturing Industry, Deparvnent of
rioAO11200).The e?,portsand imPortsof truCK.. . 9' It has been reported'lilallhe lyre manufacturing 'Commerce, Bombay; p 'l7. '. .
and bus'tyres'i'nciude diffefent.types of tyres units of Modistpne anel J)uolop-.are .being '. - .(1988): Report 011 Automotiv.e 1)re .Industry
andintlieabsenceofspeofiC3tloriwise'silitisti~s . 'locked' Ot!l ' ..... ". (Phase 11 study), Bureau of Industria) Costs
of the qu-anfityandva~ueof,ty~ impOI1:<!. and 10' Figures'on producti6lr includes lhe prixluctiod· :and Prices, Minist!)' of InduStry~.New Delhi,
exported, ~e .o:nly~altem.auve IS t9 ~pt thC',), ·oftYr.es.fortruck aridbus, paSscngerear:jeep, ~"pJ1l7. ..•• .,"'.; ><. .
average umt pncea~sumJng that truck and bus lighttruc;k,tractor and animal-d,rawnvehicles. . Kaizaki, Y.,(l999): 'Keynote 'Speech', IllditlJl
tyres.ex~rt~d and ~mP.Orted ~~f:lhe;~aJll;ce.; ',.>'. The relative ~haresof major manufacturersof ~.' R~bbe.r Jo~mal, Vol 41, /June; p :3)"
speclfi<;atlOn.. ,/~ :.. ',-". -. ~_, _', "3 '_,.,,, ',(wl:}-and three-wheelerty~ areMRF{293-Jper: Kelkl!r. V J (1989): Indian:lmd World'EConomy:
3 During th~, three:)'ea: p¢noo betw~n 19~9 " :.. cent),.TVS Shrichakra {~i522per cenl),RiICoO . Search for Self-Reliance. Eco,!omic Develop'
. anQ 1951, tJ:egross pr~fit.as a perce?tage'oh;:,,'~ (20'2:7'percent)'aiKICeat (15.79 per Cent). . ment Planning in lrldia: India in rhe- World
the total capital empl~y¥ l!l$e-lyre mdustry .~' 11',The chOice of the post-reforms phase Was·' ". Ecollomy, Volume 10, R K Sinha, (ed), Deep
ranged'from 35.96 to 38.48 percent comp.ared . . guided oy the fact that the consequences of 'and DeepPublications, New Delhi, pp 310-33.
~o 8.1Q,to. 10.60 per' ~nt in. the case of all . <. therefo.rrilsonIndian economybecameobvious Kurup, V S R (l999): 'Bridgestone Set to Storm
, IDd~str~es,Moreover, the rate of return on, , . withresPeellothetyremanufac;turingindustry Asian Mhrket, RubberAsia, MarchAprirI999,
, capita.l:employed varied frol~r18.85 to 77.27'..- :,.'si/lce 1992~93, . . . . .c· . . pp 16-32" '. ,>- ' . >', '... ., .... :
: ?<r.ceiit in the~ase-of Quol?!' and FIrestone: 12",In'1996-97,the.unitprice of an.imported trude. Maoi, . S--(1993); JlndUstri~1Con~ntration: aRd
.'>

..dun?? Jhe, penod betwq:n'l.947 aI1d 195J',~;:" and bus tyre was only Rs 4,832. whereas-the . . Economic Behaviout; Case,St~dy 9y.Indian
[M~m:19931;,.,) .....: . <:'" ;. .... ,.. domestic'pricewiis Rs 9,75(1.As a result, the' Tyie)ndu~.t!Y" Monograpli St;ries, Centre for ~c
4In~!a,~.c?lI)pa?I~~,\V?17h.establ~.tyre~~-.< .. numoeroftnickandbus tyres-im~increas-_ .Devdopment Studies; Trivaiidrum, p '304. ,
raetunng faclht(es 'w,ere; Primler Tyres m .', ,..ed from 54 nos 'to 9,449 nos and the import, Mehta, R (1997)':,'Trade Policy Reforms, 1991-92
techniealco.lIflborationwith'US R~bber·CoJ1l-.: :"ofpassengt;r car tyres iriciea~edfrom 220 nos:, .to 1995-9.6: Tl]eir· Impact on· ExternaL
pany (US).IO,·19~2,Madras Ru.bl:lerFactory:. ": to 37,332 nos'between 1987~88and 19%-97. Trade', Economic' and Political Weekly, 32.
(MRF) wllh the t~hnology of Mansfield Tyre 13 The concept of NPC and EPC were given a (15): 779-84. . .' ,
and.Rub~rComp~y.cUS)in 1963an.d.!nchcck ~'. , systematic treatment by Balassa{I97I). In this Mohanakumar, Sand K T George (1999); 'Indian .
'Tyres WiththeTechn.o-~xport.Po,relgn/J:rad,e,"':;.'.. 'study, theestimatesofthe protectioncoefficient Rubber Products'Manufacturing Industry:
Corpor?tion (Czecho~lovak'u) in .196~;·Tlie, : ... werebasedontheexportablehypolhesiswhich - Evolutionary Dynamics 'and Structural
MNCsmcludcd Goodyear (US).andCeatlnter: ;" "was justified as India exports more number:of Dimensions'. 'Monograph, Rubber Research
national of SWi.tzerlan~.(~)n-,1~6;1)..wilh·... I.ruck and bus tyres than its importS, The' . Institute of Indi~, Kottayam, 'Kerala, p 39.
60 per cent equity partiCipation[Ma~11993]. domestic price used for the analysis is the net UNCT AD (1999); World IIIVeSTlIlellt Report:
5 During the period betwee? 1~85~d ~991.'the· . ", dealer price excluding excise duty.and .ocuoi Trends and Determinants, 'J 998, Bookwell,
increase in tyre' p,roductlOnand·quantity Qt·,'· [Government of-India 1988; Mani 19931,1he New Delhi, pp 37·38, - .