Performance of Automobile Sector Post Liberalization Regime



Following India's growing openness, the arrival of new and existing models, easy availability of finance at relatively low rate of interest and price discounts offered by the dealers and manufacturers all have stirred the demand for vehicles and a strong growth of the Indian automobile industry.The data obtained from ministry of commerce and industry, shows high growth obtained since 2001- 02 in automobile production continuing in the first three quarters of the 2004-05. Annual growth was 16.0 per cent in April-December, 2004; the growth rate in 2003-04 was 15.1 per cent The automobile industry grew at a compound annual growth rate (CAGR) of 22 per cent between 1992 and 1997. With investment exceeding Rs. 50,000 crore, the turnover of the automobile industry exceeded Rs. 59,518 crore in 2002-03. Including turnover of the auto-component sector, the automotive industry's turnover, which was above Rs. 84,000 crore in 2002-03, is estimated to have exceeded Rs.1,00,000 crore ( USD 22. 74 billion) in 2003-04. Automobile Dealers Network in India.

In terms of Car dealer networks and authorized service stations, Maruti leads the pack with Dealer networks and workshops across the country. The other leading automobile manufactures are also trying to cope up and are opening their service stations and dealer workshops in all the metros and major cities of the country. Dealers offer varying kind of discount of finances who in tern pass it on to the customers in the form of reduced interest rates.

Major Manufacturers in Automobile Industry

• Maruti Udyog Ltd.
• General Motors India
• Ford India Ltd.
• Eicher Motors
• Bajaj Auto
• Daewoo Motors India
• Hero Motors
• Hindustan Motors
• Hyundai Motor India Ltd.
• Royal Enfield Motors
• Telco
• TVS Motors
• DC Designs
• Swaraj Mazda Ltd

Technology Acquisition

Technology acquisition by a firm can be facilitated through imports [technology transfer from abroad] and in-house R&D efforts. Technology acquisition from abroad consists of technology imports through the market or "arms-length" purchase of technology against lumpsum and royalty payments [LR], intra-firm transfer of technology through foreign direct investment (foreign equity participation [FE]) and technology transfer through the supply of machinery and equipment, where the technology is embodied in the imported capital good itself [IMCAP]. An in-house research and development effort of firms [RD] is one of the important methods of location, adaptation, assimilation and development of the imported technology. Following Ansal [1990], Basant [1997] and Narayanan [1998], it could be argued that the technological strategies adopted by a firm could be different during varying policy regimes. The present study examines the role of all the four technological factors identified above during the two policy periods

 Intra-firm Technology Transfer: Restrictions on foreign equity investment and selective permission allocate a limited rolefor intra-firm transfer of technology. Moreover, since most of the firms during the first period were established with minority foreign equity holding, diffusion of technological knowledge in India could also have been slower. With Liberalisation multinational firms could have majority equity holdings and therefore influence management of the firm as well. This ability to influence the management may have led to transfer of design and drawings which accelerated the diffusion of technological knowledge and also enabled such concerns to develop export markets in association with the Indian firms.

 Disembodied Technology Imports: Restrictions on technology collaborations involving heavy lumpsum and royalty payments resulted in selective use of imports of disembodied technology during the first period.Liberalisation of restrictions on lumpsum and royalty payments could have led to an increase in the use of this mode of technology imports. The increasing presence of multinationals and transfer of better quality technology could have also led to an increase in technology [lumpsum and royalty] payments.

 In-house R & D Efforts: The absence of competitive pressure and the perpetuation of sellers markets may lead tolow R & D activity in firms belonging to a developing country. Limited use of in-house efforts, either for adaptation of imported technology or in locating technology imports could also explain low R & D activity. With a more open policy environment, increasing competition and higher costs of technology imports, firms may realise that to catch up with technological frontier, they need to direct their efforts to build capabilities for technology generation, rather than depend on imports. As a result expenditure on in-house R & D would increase in a liberalized environment. Reddy [1997], on the basis of a survey of 32 R & D units of transnational corporations in India, found evidence suggesting an increasing trend of investments on R & D seeking to develop new products and processes. This, he argued, was facilitated by the availability of trained personnel. Since auto industry has been one of the major beneficiaries of multinational participation during the Liberalisation period, it may be appropriate to hypothesise an increasingly important role for R & D intensity

 Technology Interaction: As stated earlier, firms operating in a restrictive regime directed their in-house R & D efforts either to complement imported technology to facilitate technological trajectory shifts or to locate their technology imports. Some firms in the process of diffusion of imported technology, as a result, could have used the interaction between technological imports and in- house efforts. With the entry of leading multinationals and transfer of design and drawings, the technological search activity during the post Liberalisation period may have resulted in bringing about cost reduction and technological upgradation of vehicles to face global challenges. This could have been undertaken by developing technological trajectory advantages. The study, therefore, analyses the difference in the role played by technology interaction [between imported technology and in-house R & D] variables over the two policy regimes. The means of all the three interaction variables [FE*RD, LR*RD and IMCAP*RD] are expected to be higher in the second period over the earlier one and emerge as important discriminants.







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