The automobile industry in India

Abstract

Looking at India’s development as a country, and the development of the automotive industry since the 1980s one can conclude that both sides have profited from each other. The government’s liberalisation of India has benefited both the population of India and various industries such as the automotive one. Through its investments in education the Indian government has created a human capital stock that can engage in activities throughout the value chain, and thereby opened up for a whole industry to flourish. Its liberal attitude towards FDI has further strengthened the industry, since a large amount of foreign car manufacturers have aimed at capitalizing on India’s unique combination of capabilities. The foreign passenger car manufacturers though have not just capitalised on India, but also brought wealth to the nation. The GDP has risen steadily since the liberation in 1991, and foreign companies may have contributed to this. The growth of the car industry since the liberalisation may be an indicator that it has contributed to the overall growth. However, this position as wholly integrated in the global value chain is not unthreatened. Rising salaries can challenge India’s manufacturing and assembling activities, as these in general are placed in low-cost labour countries. The Indian government will have to evaluate if it is a sustainable and profitable solution to have 97% of total production in the country, or if the industry will be better off by offshoring certain activities, and increase focus on more value adding and high technology activities. Moreover, India’s management of its increasing wealth does not come without criticism. There are reports of increasing social gaps between the richest and absolute poorest, although the middle grows and is estimated to keep doing so. India and its industries need to find a way to manage this problem to decrease the poverty of the population. Otherwise India might not be able to exploit the full potential of its domestic markets, which in the long run will hurt manufacturing companies.