The automobile industry comes of age

When Maruti started production in India, the total domestic market in India was just about 40,000 passenger vehicles. Maruti made its millionth vehicle in 1994, and at that point in time the total market size was just about 250,000 passenger vehicles per annum.

India was not known as an exporter of automobiles and no one really expected that to ever happen. However, the export growth in the last 5 years have been as stunning as the growth in domestic sales, if not more. From a mere 53,125 passenger vehicles in 2001-02, exports have exploded to 176,000 units in 2005-06 and are expected to cross 200,000 units this fiscal. That's truly amazing. We export volumes that we were consuming domestically just 12-13 years ago.

Now obviously if we are able to export such numbers, the quality of the products must be of international class. The quality and productivity improvements have delivered lower price to the consumers too. I remember Maruti Zen was introduced in 1993 with a price tag of Rs 350,000. Today superior vehicles are available at lower nominal values. If we factor in inflation, car prices have virtually halved during the last 10 years. Meanwhile salaries have gone up by a factor of 5-6.

"The small car hub" is a dream that is being realized fast.

Urbanization

Urbanization is the lifeblood of a modern economy. A modern economy does not rest on rural activities. In 1950 only a quarter of the countries in the world had more than 46 per cent of their population living in urban areas, but by 2000 nearly half had 57 per cent or more of their population living in urban areas. A UN Study forecasts that by 2030 over three-quarters of all countries or areas will have over half of their population in urban areas.

The most urbanized countries or areas are located in Europe, the Caribbean, Oceania, South America, South-eastern Asia and Western Asia. These also happen to be countries with high level of per capita income.

On the other hand, about a third of the least urbanized countries are in Africa, the rest being in Oceania, South-central Asia and South-eastern Asia. No prizes for guessing their per capita income levels, these are among the lowest in the world.

(A list of highly urbanized and less urbanized nations as per data of year 2000, reinforces the points made above – USA – 77.4%, Japan – 78.8%, Germany 87.5%, UK – 89.5%, France – 75.4%, Indonesia – 41%, Pakistan – 33%, Bangladesh – 25%, Ethiopia – 15%)

The transformation of China on the back of rapid economic growth gives us clues to what to expect in India. China had urbanization levels of just 12.5% in 1950 (India had 17.3% urbanization then). From then on it had gone up to 36% in 2000 and is forecasted to reach 59.5% by 2030. Slower pace of development in India during the last century meant that our urbanization levels were only 27.7% in 2000. This is expected to grow to 41% by 2030, or even higher depending on the pace of economic growth. This means that at least 150-160 million people will migrate to cities during the next 25 years. Clearly, our cities are not big enough for this.

The answer lies in rapid build up of urban conglomerates around existing large cities in different parts of the country and simultaneously building entirely new cities afresh. However, there is also a simultaneous large issue of building services for the rural community to control rapid influx into the cities that are not ready to take in more.

This is an interesting blog which deals with the issues of rapid transformation - A Brief Introduction To RISC — Rural Infrastructure & Services Commons. The author puts a very compelling argument for tackling the issues arising out of the transformation. It’s a pretty good recipe for the policy makers to take note of.