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PROFILE OF TWO-WHEELER INDUSTRY

PROFILE OF TWO-WHEELER INDUSTRY

Discuss PROFILE OF TWO-WHEELER INDUSTRY within the Business Environment forums, part of the Resolve Your Query - Get Help and discuss Projects category; PROFILE OF TWO-WHEELER INDUSTRY The two-wheeler industry in India has been in existence since 1955. It consists of three segments ...

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PROFILE OF TWO-WHEELER INDUSTRY
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Sunanda K. Chavan
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PROFILE OF TWO-WHEELER INDUSTRY - September 21st, 2010

PROFILE OF TWO-WHEELER INDUSTRY

The two-wheeler industry in India has been in existence since 1955. It consists of three segments

o Scooters

o Motorcycles

o Mopeds

The increase in sales volume of this industry is proof of its high growth. In 1971, sales were around 0.1 million units per annum. But by 1998, this figure had risen to 3 million units per annum.

Similarly, capacities of production have also increased from about 0.2 million units of annual capacity in the seventies to more than 4 million units in the late nineties.

The two-wheeler industry in India began operations within the framework of the national industrial policy as espoused by the Industrial Policy Resolution of 1956.

This resolution divided the entire industrial sector into three groups, of which one contained industries whose development was the exclusive responsibility of the State, another included those industries in which both the State and the private sector could participate and the last set of industries that could be developed exclusively under private initiative within the guidelines and objectives laid out by the Five Year Plans.

Private investment was channelised and regulated through the extensive use of licensing giving the State comprehensive control over the direction and pattern of investment.

Entry of firms, capacity expansion, choice of product and capacity mix and technology, were all effectively controlled by the State in a bid to prevent the concentration of economic power.

However due to lapses in the system, fresh policies were brought in at the end of the sixties.

These consisted of MRTP of 1969 and FERA of 1973, which were aimed at regulating monopoly and foreign investment respectively. Firms that came under the purview of these acts were allowed to invest only in a select set of industries.

This net of controls on the economy in the seventies caused several firms to

Operate below the minimum scale of efficiency

Under-utilize capacity and

Use outdated technology.

While operating below the minimum scale of efficiency resulted from the fact that several incentives were given to smaller firms, the capacity under-utilization was the result of the capacity mix being determined independent of the market demand.

The policy of distributing imports based on capacity, causing firms to expand beyond levels determined by demand so as to be eligible for more imports. Use of outdated technology resulted from the restrictions placed on import of technology through the provisions of FERA.

Recognition of the deleterious effects of these policies led to the initiation of reforms.

In 1975 which took on a more pronounced shape and acquired wider scope under the New Economic Policy (NEP) in 1985. As part of these reforms, several groups of industries were delicensed and ‘broadbanding’ was permitted in select industries.

Controls over capacity expansion were relaxed through the specification of the operate below the minimum scale of efficiency of production for several industries.

Foreign investment was allowed in select industries and norms under the MRTP Act were relaxed.
These reforms led to a rise in the trend rate of growth of real GDP from 3.7% in the seventies to 5.4% in the eighties.

However the major set of reforms came in 1991 in response to a series of macroeconomic crises that hit the Indian economy in 1990-91. Several industries were deregulated, the Indian rupee was devalued and made convertible on the current account and tariffs replaced quantitative restrictions in the area of trade.

The initiation of reforms led to a drop in the growth of real GDP between 1990 – 1992, but this averaged at about 5.5% per annum after 1992. The decline in GDP in the years after reforms was the outcome of devaluation and the contractionary fiscal and monetary policies taken in 1991 to address the foreign exchange crisis.

Thus the Industrial Policy in India moved from a position of regulation and tight control in the sixties and seventies, to a more liberalized one in the eighties and nineties.

The two-wheeler industry in India has to a great extent been shaped by the evolution of the industrial policy of the country. Regulatory policies like FERA and MRTP caused the growth of some segments in the industry like motorcycles to stagnate.

These were later able to grow (both in terms of overall sales volumes and number of players) once foreign investments were allowed in 1981.

The reforms in the eighties like “broadbanding’ caused the entry of several new firms and products which caused the existing technologically outdated products to lose sales volume and/or exit the market. Finally, with liberalization in the nineties, the industry witnessed a proliferation in brands.
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