When Sachs Goldman included India with Brazil, Russia and China in their list of BRIC countries, it wasn’t just to include the necessary vowel in their now famous acronym. With its burgeoning economy going from strength to strength, the world’s seventh largest country, India, more than deserves its inclusion in the worldwide list of top trading nations.
The origins of this boom can be traced back to 1991 when India adopted liberal and free market principles, and in the process opened up its economy to international trade. Automobile production has been at the forefront of this industrial revolution with India now holding the position of sixth largest automotive manufacturer producing some 3.23 million vehicles in the period 2012-13, overtaking Brazil, Mexico and Russia.
Most of this vehicle production is centred on three areas in the north, west and south of the country with 35 percent of vehicles produced near the southern city of Chennai which is often referred to as the “Detroit” of Asia, 33 percent near the western cities of Mumbai and Pune and 32 percent in the Northern National Capital Region.
Despite India’s high position in the global vehicle production table, the figures for vehicle ownership amongst its own population remains fairly low at around 100 million vehicles spread thinly amongst a population estimated in 2013 at 1.27 billion.
A large majority of Indians, especially amongst the younger generation, prefer motorbikes to cars as their vehicle of choice. The reasons for this preference can be traced to the economical price of two wheelers, their excellent fuel efficiency and in no small part to the parlous state of the Indian roads.
Outside of the main urban and manufacturing areas, road conditions in India can be, and often are very poor. With a total of two million kilometers of road only 960,000 kilometers of them are surfaced roads with another one million kilometers in a poorly constructed state. With a large proportion of its population on very low incomes the purchase of 4x4 vehicles to cope with these road conditions is out of the question. With its low initial cost and ability to easily navigate obstacles, the motorcycle is the next best option.
To tap into this vast market for low-priced two wheelers Honda India has produced the “Honda Dream Yuga” priced at $810. In January 2012 car sales in India were down by 12.45 percent while motorcycle sales were up by 7.45 percent, the vast majority of which were manufactured in country making India the second largest producer of two wheelers in the world.
The importance of the motorcycle in India is brought into perspective by comparing two wheeler sales there with those in the U.S. Motorcycle sales in India grew by 14 percent in 2011 to 13.44 million units, 30 times the USA’s total of 440,000. The popularity of motorcycles also is reflected in the Indian automotive aftermarket, which is dominated by the two-wheeler industry, which commands a 49 percent share of the market followed by cars at only 26 percent.
India is a country of amazing diversity, at one end of its social spectrum it has individuals who enjoy vast wealth while at the other extreme there is a large portion of the population, some 29.8 percent, living below the poverty line. This social diversity is also reflected in India’s cities, which range from high tech modernity in the more affluent areas to ramshackle shanty towns just a stone’s throw away.
Despite India’s fast-growing economy, as a group, the richest 5 percent of Indians only have the approximate wealth level of the poorest 5 percent of Americans. The inhabitants of poor countries purchase few automobiles because very few people including the relatively wealthy in those countries can afford to buy them.
Historically, until a national per capita GDP level of about $4,000 is reached the growth in car ownership remains quite low. Beyond this fiscal point the birth and development of a middle class starts to take place and auto ownership increases, rising twice as fast as per capita income.
With an expanding per capita income of $3,300 leading to the emergence of a middle class with money to spare, India is starting to reach the first stages of mass vehicle ownership amongst its population. It has been forecast that its per capita vehicles level will rise from 15 cars per 1,000 people today to 110 per 1,000 in 2030. When these figures are multiplied by the gigantic population of India the projected increases in total vehicles are colossal.
The highest levels of car ownership in India can be found in the larger cities and towns, leading in some cases to traffic congestion and pollution issues. These problems are especially acute in India’s capital Delhi where an average of 1,335 vehicles were added to its roads daily during 2010 and 2011. This has led some experts to predict that by 2021 the capacity of roads in Delhi will be exceeded on most major roads and junctions, but despite these gloomy predictions, owning a vehicle remains a goal for many of India’s growing middle class.
On the back of this increase in sales of new vehicles, the automotive aftermarket in India is predicted to grow to $9.4 billion by 2015 from its present estimated level of $3.7 billion. In contrast to many other countries worldwide, the automotive aftermarket in India is dominated by the two-wheeler industry, which has a market share of 49 percent of sales followed by cars at 26 percent.
With a very large emerging middle class many of whom aspire to vehicle ownership, India has the potential to open up into a vast market for automotive aftermarket services and parts. With its own well-known capabilities for producing non-genuine replacement parts and accessories, India presents a challenging but potentially very profitable market for the budding or experienced U.S. entrepreneur, especially those in the motorcycle business.
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