Indian auto has the edge over China - Views on News from Equitymaster

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Indian auto has the edge over China

Sep 8, 2009

India's auto market maybe only 19% of that of China, but the former seems to be having the edge when it comes to exports. The Indian auto industry had a tough FY09 when the economic slowdown curbed demand as a result of which sales and profits of automakers were hit hard. But the scenario seems to be limping back to normalcy. And what is more, from a longer term perspective, global auto majors are making India a hub for overseas sales of minicars as incentives lift demand for smaller, fuel-efficient autos. In fact, SIAM has reported that India's exports of minicars and hatchbacks soared 44% between January and July 2009. Further, India has not only overtaken China when it comes to exports but has also emerged as a serious challenger to Thailand and South Korea as an alternative production center in Asia. In stark contrast, the export performance of the other Asian automakers was not much to write about. As reported on Bloomberg, while China's auto exports plunged 60% between January and July, exports from Thailand and South Korea fell 43% and 31% respectively. Further it is estimated that small cars will account for 95% of the 690,000 passenger vehicles India will export in 2015 and that India may share the top slot with Japan as the world's biggest small car producer, building as many as 3 m units. On the domestic front, interest rates and availability of finance will continue to influence demand for autos, which has of late begun to pick up. Thus, while medium term pressures could impact the Indian auto industry, the long term prospects of the sector look intact.

UNCTAD's take on India's GDP growth
India's GDP growth in 2009 seems to have become a highly debatable issue. While RBI has pegged the growth for 2009 at 6% plus and CMIE at 5.8%, the United Nations Conference on Trade and Development (UNCTAD) has projected India's GDP at a much lower 5% in 2009. Having said that, on one issue it concurs with the rest in that despite the lower growth India will be the second fastest growing economy after China. The global economy, meanwhile, is set to contract by 2.7% in 2009 as tumbling profits, plunging real estate prices and rising unemployment continues to take toll. India's case had been further weakened by the drought this year as deficient monsoons till mid August wreaked havoc on crop production. But a late surge in monsoons has given a flicker of hope that the overall growth in GDP will not be tapered down. Thus, will UNCTAD's projection for this year hold true? Only time will tell.

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