Tuesday, January 25, 2011

India becomes world's 3rd largest SMALL CAR MANUFACTURER

It is 2011 now. Try watching any old Hindi movies of 70's and 80's. You will notice 2 standard cars on an average - Ambassador and Fiat. These were the only 2 cars one could possess until the entry of Suzuki (Maruti) in 80's. Thanks to Sanjay Gandhi and Indira Gandhi. He insisted that a common man must have a car and Indira Gandhi allowed for the collaboration of Suzuki with Indian govt thus creating the first auto revolution in India.

Post liberalization, auto production has been growing, but in the latter half of the 2000 decade, car production has tremendously increased. Today, on Indian roads, you will find an amazing variety of cars from Maruti to Nissan, from Volkswagen to BMW. The people have so many choices that if you still possess the Maruti Esteem, please think of synchronizing with the market. It is very old to have it!!

Have a look at some incredible statistics: (Source1 and Source2).

There are about 13 foreign companies (BMW, Fiat, Ford, GM, Honda, Hundai, Benz, Mitsubushi, Nisan,Toyota etc), 6 domestic companies (Tata, Chinkara, Mahindra, etc) involved in car production in India thereby heating up the market.

Car manufacturing total units as per 2009:(Source)

  • Cheap and skilled labor. Almost 10-15% costs lesser against US and Europe - a huge gain for multi national companies
  • Huge market size.
  • The Auto Policy of 2002 that allows foreign companies to directly assemble/manufacture cars instead of collaboration route with local companies which China mandates.
  • Volkswagen, Hyundai, Nissan, Mitsubushi are investing in heavy R&D (research and development) to develop small cars customized to Indian roads. Huge job opportunities to people.
  • Hyundai cars made in India are a huge hit in Russia, Taiwan, Latin America and Africa.
  • Indian tractors are a huge hit in the US.  US is still the largest market for Indian tractors.
  • Pune has emerged as the hub of research of tractors mainly led by Mahindra and Mahindra and Deere
  • The Govt's new policy of emission standards - Bharat Stage III that is pressurizing car manufacturers to produce fuel-efficient and low emission output cars.
  • The growing number of RURAL PEOPLE PURCHASING CARS. It shows signs of a growing urban class.
  • An urban middle class of 300 million - almost 1/3rd of the population.
  • Banks making car loans easier - from 17% interest rate to 13-14% interest rate. (It is now bound to increase because of inflation).
  • Reduced costs of raw materials - almost 11% cheaper than US or Europe.
  • Lower manufacturing tax (8% excise duty).
  • Small cars suit most people because of crunching parking spaces and suits most middle class homes with respect to price/cost.
  • Unlike China which has been always having issues with non-safety components, The Auto Policy of India ensures that the foreign companies are putting the best practices and components in cars. Shocked about China...It is true....This is from CHINA DAILY newspaper
  • The cost of steel in India is one of the cheapest in the world.


Between 2008-2010 when the Europe and the US car companies where drowning in recession, India overtook China in car exports. Which means cars manufactured in India were exported in huge numbers than China. Here's the bloomberg report and times of india news confirming this. The biggest bet India has taken is that people will continue to buy small cars and hence the demand will always be there. However, we don't know how far will we go, though the future looks optimistic. The rising inflation which is burning the pockets of the common man, and huge deficit in city roads (highways are expanding) are continuing to be show stoppers for zooming car sales.

A bloomberg report which was published in Sept 2010 says that in less than 10 years sales of Mercedes Benz in India is going to be that of U.K as the growing number of millionaires are on the rise in India.

Hynudai exports 50% of its cars produced in India. It's i-20 and i-10 models are a huge hit overseas. Even several models of Maruti are being produced only for the purpose of exports.

Nissan expects to export 250,000 cars by the end of 2011. Fiat is planning to get $1 billion worth of auto components from India.

Britain, Italy, Germany, Netherlands and South Africa are countries that received exports worth $4.5 billion last year. This year it is expected to jump to $12 billion.

TATA NANO makes headlines in the US and forces China to invent such a vehicle.

Tata Nano is truly India's invention. With almost 10 patents in its favor, Nano is making inroads. However, due to the entry of many other companies giving several luxury features in cars, and production not matching the demand quickly, Nano sales have been going down. The management is aggressively marketing Nano by offering a lot of incentives and warranties.

Looking at the new research output which India has given to the world, China invented a similar one - Jiangnan Alto in Aug 2010.


Mahindra and Mahindra and Tata are truly most successful indigenous car production companies of India. The new electric car by TATA INDICA called VISTA is a huge hit in Bangkok. It promises 200 km on a single charge and acceleration of 0 to 100 km in 10 seconds. Nano, Vista and Indigo Manza are being exported to Mexico, Brazil. The order is for 100,000 cars. The demand may go up to 300,000. Here's the livemint article.

Mahindra's diesel trucks are going to hit US roads - Made in India, Drive in America. As it is tractors are the largest exported item to US market. The target is to capture at least 5% of US market. If this happens on a full fledged scale, it is a huge phi-lip to Indian auto industry.

Mahindra's jeeps run on ITALY's roads. Click here for the picture.

But, what is the share of India's exports on a global scale?

It is 1%, which is a very small number, but in less than 5 years, the industry expects to go up to 3% and if that happens then the expectations would be beaten and not just met.

Future Outlook:

The future of auto industry is very positive. Just to gauge this statement, look at the following developments happening. The list below is just some. Many more will happen.

Challenges before India's auto growth
  • It is very important that production of components keeps pace with demand. 
  • Power supply shortages
  • Infrastructure bottlenecks
  • More emphasis on R&D and management skills
  • Customer service skills and more customer friendly measures/discounts.
  • More emphasis that needs to be given to safety and fuel-efficiency.
  • It is very important that Indian auto industry starts investing in bringing more hybrid vehicles, vehicles which run on green energy. This is very crucial.
What are the bad effects of such an unprecedented growth?

  • Because of such an exponential growth, the number of cars on the road have increased leading to traffic mess in cities.
  • The traffic management is getting more challenging.
  • More parking spaces and open areas are required which puts a lot of stress on cities and highways.
  • Safety could be a big issue if the small car manufacturers do not take adequate measures to suit Indian roads where driving is a hell.

This booming auto industry is changing the economic landscape of India. Aurangabad was a sleeping city in the past decade. Now with BMW setting up plant, Aurangabad is booming. So many malls are being set up, apartments are being built, real estate is heating up, jobs are being created.

Another example is how Kanchipuram has changed. Earlier known for temples and sarees, it is now a huge production base for Hyundai. Read this BBC article that captures the details of this news item where 300,000 cars are produced annually.

Chennai has become DETROIT OF INDIA. Chennai is home to
  • 5 global car majors production facilities.
  • 2 commercial vehicle production facilities.
  • 3 earth moving companies.
  • tyre major and 100 major auto component manufacturing companies.
  • 1.28 million cars are produced from this city (in the region Tiruvalluvar to Maraimalainagar)
  • It is home to National Automobile Testing center.
Another interesting newspaper article is NEW YORK TIMES - MORE CARS COMING FROM INDIA.

According to industry experts, 22 million jobs are created till date because of the growing auto industry. Halol in Gujarat has now become the new industrial hot bed after Nano plant has been set up. Many more companies are targetting the same place to compete with Tata.

Tier-II and Tier-III cities are increasingly being penetrated so that car manufacturers can reach semi-urban and rural areas. 

At present 5% of India's GDP comes from auto sector which is significant with respect to industrial contribution which is about 20%.. 17% of Indirect taxes to Govt comes from this industry.

I hope that industry sets new benchmarks in automobile industry and become a major contributor to the Rising India story.

Tuesday, January 11, 2011

Why have onion prices skyrocketed? Solution?

Onion is one of the most common vegetables used in every household - be it in a poor, middle class or rich family. For everything onion is used. The rising onion prices brought down the government of Delhi headed by Sushma Swaraj in 1998.  Exactly last year around this time, I had written an interesting and a well researched article - Why vegetable prices are soaring? Read this article just to refresh the mind and it would be easy to follow the content below.

This is what the most intelligent political minister (apart from Manmohan Singh whose intelligence is never allowed to come out free and fairly) in the current Government led by Congress who is also a Harvard university graduate  gave a statement like this.

"Inflation is high, food inflation is very high... we are not sure whether we have all the tools in hands to control food inflation,"

It is like saying in Hindi - "Saawan jo aag lagaaye use kaun bhujaaye" - i.e If rain which is supposed to extinguish fire itself sets fire, then who is going to extinguish it? If a govt which claims that it is AAM AADMI allows the prices to escalate and then say they have no tools to control, who will help the AAM AADMI? While it is true that there is no single formula to contain inflation, the Govt can do several things to ensure that the prices are in check. Simply raiding on hoarders, cracking down on speculators won't work. How can we convincingly say that the real culprits are being booked for? Several times there is a nexus between the officials and the hoarders and hence it is not effective.  Banning exports is a tried and tested idea.

None of these are able to bring down the prices of onion. In the wholesale market, people purchased onions at Rs. 34/- while from the retail at Rs.80/- What a difference. The margin is more than 120%. What is causing this difference? The profit margin can be at max 30% but not 120%. Who is eating away the money? Why are consumers helpless?

If you carefully analyze my earlier posted article on "Why vegetables prices are soaring high?", it would be aptly clear that there is no regulation on how prices can be increased and decreased. Anyone sets arbitrary prices and that penetrates the market ultimately making the consumer suffer. The farmer never gets the right money. The consumer ends up paying entirely jacked up price. 

The middle layer which consists of hoarders, speculators, commission agents really capture the market. The commission agents get almost 6% paid in several markets in Delhi. These commission agents bring the wholesaler to suppliers and get the profit. In Bangalore, several truck load of onions were auctioned in the market. Here's an article that explains how onions were auctioned in markets in Bangalore. 

When prices dip below, the farmers strike. The middlemen say they are not be blamed. This has distorted the demand supply chain. The govt simply says due to excess rains onions were destroyed in Maharashtra, but couldn't the Govt take enough steps? It simply will not. As long as our system depends on the Govt to deliver, we will fail to see it.

Here's the chart printed in Times of India newspaper indicating the profit margins made in different cities.

So, what's the solution?

It's high time that government gives a serious thought to contract farming and/or allow FDI in retail. In contract farming there is usually a legal agreement between companies/corporates and the farmers. It works both ways - companies assure good prices and farmers assure regular supply. The classic case is how GUJARAT FARMERS are progressing due to contract farming in cotton. Another classic case is PUNJAB farmers and Pepsico have joined hands and are making farmers rich, spurring rural growth.

If just one or 2 companies enter the market, they can create a monopoly. However, if several companies come into the focus, prices will have to come down for each of them to survive.  There is no way for Govt to regulate the prices and assure right prices to farmers through the APMC yards or mandis. These are to protect the farmers, but they are destroying them. 

These APMC yards and government godowns are not good enough to store any vegetables or any farm products. Contract farming will ensure that the supplies are stored and processed correctly. 

What makes contract farming more productive is that companies will emphasize the need for using efficient water irrigation techniques, better seed inputs, fertilizers and guide the farmers. These ensure that the crops are healthy and fetch high value. The knowledge imparted to farmers is immense that they can give it to the next generation while the market and the consumer benefit the most. 

Just think - When BSNL had monopoly over telecom industry, what service and quality did we get? The moment Spice, Vodafone, Airtel and several such companies came into the market, the prices dropped so low that India perhaps has the lowest cellphone tariffs in the world. It is another matter that our broadband hasn't caught up that much. That day is also not far when even this problem will slowly fade away.

There are people who will always complain against capitalization of agriculture. The fact is the existing system is in no way better and is only causing immense distress to the farmer and the consumer. Regulation can be done, but the initiative has to be taken. Convince me as to how the existing system is helping the farmer, forget the AAM AADMI. 

Will someone in the govt listen? Definitely, "No". This is because Congress is assured that it will win the next elections when Rahul Gandhi will become the PM. There is an over confidence and complacency set in the minds of the Congress. The opposition BJP must support contract farming as it allows in its own state of Gujarat and Punjab. It should not catch in votes of the people who will vote against contract farming.

The Govt is busy in drafting National Food Security Act. What use will such an act do if we don't plug the loopholes in our transportation and distribution mechanism of food? There is no denying that Congress party built this country, but will it allow to ruin now?

The AAM AADMI wants solutions. The growing Indian market requires urgently these bold steps. It is important to remove the layer of immense profiteering by several hoarders, middlemen and commission agents.

It simply is pinching the pockets of every Indian. The rising prices of onions has made onion items removed from several restaurants both in Bangalore and Mumbai. WATCH THIS VIDEO FOR THIS. They are charging extra if a person orders Onion Dosa, Onion Sambar etc. It looks like everyone has to jump to the Jain diet of not having onions and garlic.