P a g e No.: 1

CHAPTER 1

EVOLUTION OF AUTOMOBILE INDUSTRY IN

1.01. INDUSTRIAL SCENE IN PRE-BRITISH PERIOD. 2

1.02. INDUSTRIES IN BRITISH-INDIA PERIOD. 2

1.03. THE ARRIVAL OF AUTOMOBILE IN INDIA. 4

1.04. THE BEGINNING OF AUTOMOBILE MANUFACTURE. 4

1.05. POST INDEPENDENCE PERIOD. ... 7

1.06: AUTOMOBILE INDUSTRY COMES OF AN AGE. 9

1.07. THE INDIAN TWO WHEELER INDUSTRY. 10 P a g e N o.: 2

CHAPTER 1

EVOLUTION OF AUTOMOBILE INDUSTRY IN INDIA

1.01. INDUSTRIAL SCENE IN PRE-BRITISH PERIOD:

The industrial growth in India is recent phenomena.

This country had been producing agricultural products for centuries. The village and cottage industry produced products such as muslin of Dacca, sarees of Banaras, calicos of Bengal which were famous worldover^. Textile handicraft was famous in this country over many years. Stone carving, wood work, marble work done by artistic industry was also famous in ancient India. India had been exporting cotton, silk and woolen cloth, pepper, opium, indigo to Europe in

17th and 18th centuries. The fineness of cloth woven by artisans was described as, ”A piece of muslin 20 yards long and one yard wide could be made to pass through a finger ring and required six months to manufacture”.^ The growth of various agro based industries in India took place only with the support of the Kings, Princes and Nawabs of Indian states.

1.02. INDUSTRIES IN BRITISH-INDIA PERIOD:

The East India Company which ruled India for over a century from 1757 to 1858 and British Government which ruled from 1858 to 1947 did not make any attempt to industrialize this country. The British Government had its own interest to protect their trade and industries in their motherland. P a g e N o.: 3

During 19th century, the Indian traders and money­ lenders were having money but were looking for profits in their business. They did not want to take risk of starting large scale industries in India. The private sector developed slowly.During 19th century the indigenous industries changed from small scale to large scale by private entrepreneurs. During the period from 1850-55, first cotton mill and jute mill was started in India. The first railway was started immediately after this period.

After the first World War, British Government granted some protection to Indian industries. The war created good demand for industrial goods. Production of iron and steel, jute, leather goods, milk products started on large scale.

However the growth was limited by non availability of indigenous machinery. In 1923, Government on the recommendations of fiscal Commission's report, granted protection to sugar, textile, cotton, iron and steel, matches and paper & pulp industries. The Indian industries were mostly controlled by Britishers.

The history of development of industries in India reveals that no systematic efforts were made in this direction by British Government. The idea of British

Government in India was to use India as a base for production of raw material which was fed to the industries in Europe. India continued to export cotton to U.K. and imported textile goods. The hostile attitude of British

Government discouraged Indian industrialists to start P a g e N o.: 4

industries in India.

The automobile industry has existence of only 50 years in this country. Though the first car was designed in 1885 by Karl Benz of Mannheim, it took more than a half century to start automobile manufacture in this country.^

1.03. THE ARRIVAL OF AUTOMOBILE IN INDIA:

The first car was imported in India by Mr. Foster of

M/s. Crompton Greaves Co. in 1897. The first car owned by an

Indian was that of Mr. Jamshedji Tata in 1901.^

The automobiles were mainly imported in India upto

1928. In this year assembly of automobiles viz. cars and trucks started in India. M/s. General Motors India Ltd. started assembly of automobiles in Bombay in 1928. They imported parts in knocked down condition from U.S.A. In

1930-31, M/s. Ford Motor Co. of India started assembly of automobiles at Madras and Calcutta from imported components in completely knocked down (CKD) condition.^

1.04. THE BEGINNING OF AUTOMOBILE MANUFACTURE:

In 1934, Sir. M. Visvesvaraya, Dewan of Mysore State mooted the idea of starting Automobile Industry in India.

However, Indian industrialists were in favour of selling imported cars than to manufacture as it was profitable business. Ford and General Motors were already having auto assembly in India with imported components from USA. In

1936, Dewan of Mysore gave his proposal to set up an

Automobile Industry in India to various industrialists. The P a g e N o.: 5

Government of Bombay showed keen interest towards this proposal. Seth Walchand Hirachand(1882-1953) thought it as an opportunity. However, due to World War II, no progress could be made in this direction. Seth Walchand pursued his goals and formed a company called, "Indian Motors Limited,

Bombay, managed by Seth Walchand Hirachand, Dharamsey M.

Khatau and Tulsidas Kilachand. Proposal was made to have technical collaboration with foreign manufacturers such as

Ford or Chrysler of USA. Seth Walchand sought Government help for the project in terms of protection. The World War

II created demand for defence vehicles but the Government instead of allowing local manufacturer to do this business, imported 60,000 vehicles in 1940. Ford and General Motors were greatly benefited by this War.^

In mid 1930's the Birla group under the leadership of

Mr. Brij Mohan Birla (1905-1982) thought of starting automobile manufactur in India. The group was having considerable experience in Sugar, Paper and Insurance business. Due to World War II, this idea could not be persuaded. After World War II, Walchand group and Birla group both wanted to manufacture cars in India. Brij Mohan

Birla states in his autobiography:

'• Mr. V.T.Krishnamachari, Dewan of Baroda, persuaded me to put up an assembly plant at Okah in 1942, and he was prepared to subscribe substantially to the capital of the company and also give a subsidy for supporting the automobile industry there. That is how the Hindustan Motors P a g e No.: 6

was registered in Baroda State. was kept

informed of all the developments. But due to the Quit India

Movement and the War, the project got delayed. After

Gandhiji was released from prison in 1944, he called GD

(Ghanshyamdas Birld (1894-1983) brother of Brij Mohan) and

me to Poona and gave his whole hearted blessings to expedite

the project." ®

In 1942, when Birlas and Walchand were also trying to

establish Automobile manufacture in India. Sir

Purushottamdas Thakurdas, a businessman in India wished that

both Birlas and Seth Walchand should make joint efforts to

have one firm to manufacture Automobiles in India in order

to avoid double investment. However, in 1942, Birlas formed

Hindustan Motors Limited in Calcutta with a capital of about

Rs. 5 crores and in 1944, Seth Walchand formed

Automobiles Limited in Bombay with capital of around Rs. 2

crores.

In 1942, Hindustan Motors Ltd. decided to assemble cars

and trucks at Calcutta in collaboration with Studebaker

Corporation of U.S.A. Initially fully assembled automobiles were imported. In 1948-49, they started assembling these vehicles from components imported in CKD condition. In 1950, they started manufacturing components of cars and trucks and balance components were imported in CKD condition from the collaborators. P a g e N o.: 7

In 1944, Premier Automobiles Ltd. was established at

Bombay to assemble cars and trucks from imported components

in collaboration with M/s. Chrysler Corporation of U.S.A.

Until 1947, both Birlas and Walchand did not get permission

from Government to start automobile production in India. In

March 1947, Premier Automobiles Limited started car

assembly. Hindustan Motors Limited still was looking for

suitable site. In 1950, Premier Automobiles had another

collaboration with M/s. Fiat Spa of Italy for manufacture of

cars. They also manufactured the components for these

products.

1.05. POST INDEPENDENCE PERIOD:

In 1949, Standard Motor Products of India Ltd. was

formed at Madras and in 1950, they started assembly of

Standard Vanguard cars in collaboration with M/s. Standard

Motor Co. U.K.

The only company manufacturing jeeps since independence

is Mahindra & Mahindra(M&M). M&M imported jeeps from Willys

Overhand Co. Ltd (now American Motors), a company with whom

M&M had earlier contacts. In 1947, 75 jeeps were imported in

CKD condition from Willys. This was a great success. They purchased a leased land at Bombay for building an assembly plant. M&M also got rights to produce petrol jeeps. The years were birth of Automobile in India. Walchand Setting

Premier Automobiles, Birlas, Hindustan Motors, Tatas and

Ashok Leyland producing trucks, M&M assembled jeeps from imported components. Mr. B.R. Sule, MD of M&M states: P a g e N o.: 8

"As the Indian Government began to formulate its

automobile policy, they stressed that companies would have

to indigenize. Hindustan Motors, Premier Auto, we and some

others said we would. Ford and others refused and pulled out

of India. If we had known what was going to be involved, I

don't think we would have agreed. We just didn't know what

we were talking about. And we didn't get much help from the

Americans. The plans they proposed were expensive -they

were based on much bigger volumes. We had a good set of

engineers, but we were operating at a shoestring budget. The

Americans simply left us alone to cope with our markets as best we could".^

In post independent era, Government of India announced

its economic policy in 1948. Under the policy, the automobile industry was classified as industry of importance and subjected it to regulation and controls. The entry of various firms then onwards was governed by these regulations and licensing policies. The Automobile Manufacturing firms were mainly importing the CKD (Completely Knocked Down) components and assembling in India. Due to constraint of availability of foreign exchange, in 1954, Govt, allowed to continue only those automobiles firms who were also manufacturing o«fn components. Those who were only assembling automobiles from imported components, were asked to close.

Two wheeler industry was started only after independence. P a g e N o.: 9

1.06: AUTOMOBILE INDUSTRY COMES OF AN AGE:

The Indian automobile industry grew only after

Independence. Large number of firms started production of automobiles in India especially after 1975. Prior to that only 18 firms were in this field. In 1971-80 decade, as many as 26 firms entered afresh. Such a large number of firms entering in Indian automobile industry was possible only due to Government support and changed economic policy.

The two wheeler sector which was started by Automobile

Products of India Limited with Lambretta brand scooters was progressing with entry of Bajaj Auto's Vespa scooters and

Enfield India's Royal Enfield motor cycles. The sector grew in amount of production, size, investment and number of firms only after independence. In Moped segment. Pearl

Scooters, Saund and Mopeds India were earlier players in

Indian automobile industry.

The Table No. 1.01 gives an account of major automobile firms which started vehicle production after 1946. Some of these firms have stopped automobile production as of today.

In the table, the year of entry is considered the calendar year in which the firm started an automobile production.

Exit year is considered the calendar year from which the firm stopped the automobile production. The list of firms entering the industry with year of commencement of production is given in Annexure 1.01. P a g e N o.: 10

TABLE NO. 1.01

Number of automobile manufacturing firms

Period Entry of Firms Exit of Firms Active Nos. Cumulative Nos. Cumulative firms

1946-*50 3 3 0 0 3

1951-55 5 8 0 0 8

1956-60 3 11 0 0 11

1961-65 7 18 0 0 18

1966-70 0 18 0 0 18

1971-75 13 30 1 1 29

1976-80 13 43 5 6 37

1981-85 11 55 8 14 41

1986-90 5 60 6 20 40

1991-95 0 60 3 23 37

1.07. THE INDIAN TWO WHEELER INDUSTRY:

The annexure 1.01 reveals that in the history of Indian

Automobile industry, the majority firms entered in two wheeler segment. Table No. 1.02 summaries the above 60 firms segmentwise based on their main product. The analysis shows that more than 58% firms entered in two wheeler segment followed by tractor 17% and commercial vehicles 15%. The balance firms constitute cars and jeep product segment.

The major reasons for higher number of firms entering in two wheeler sector are i) that the two wheeler has become a need of a common man and ii) the relative investment to P a g e No.: 11

start two wheeler firm is much less compared to other types

of automobiles.

Table No. 1.02 Automobile firms classified by product

Product type No.of Firms %

Passenger Cars 5 8

Commercial Vehicles 9 15

Jeeps 1 2

Tractors 10 17

Two Wheelers 35 58

Total 60 100

The indigeneous two wheeler segment entered in Indian markets with introduction of ”Lambretta" scooter by M/s.

Automobile Products of India Limited, Bombay in 1955. The

firm obtained the two wheeler technology from Innocenti of

Italy. In 1960, M/s. Bajaj Auto Limited entered in this

segment. The firm obtained technology from M/s. Piaggio of

Italy. Enfield India Limited introduced motor cycles on

Indian roads. This firm obtained technical know-how from

Enfield of United Kingdom. Escorts obtained technical know­ how from Poland.

For over 40 years in past, Indian scooters are manufactured with the same Italian design. Recently, the

Motor Cycles introduced on Indian Roads are manufactured using technology of Japan. The Kawasaki, Honda, Suzuki and

Yamaha have extended financial and/or technical P a g e No.: 12

collaboration to Indian two wheeler firms in a big way. The

Motor cycle market is now dominated by Japanese vehicles.

The moped sector uses the designs obtained from Japan, Italy

and Austria.

The Indian automobile firms in two wheeler segment

brought out several changes in the original product design.

This is to suit Indian road conditions. The Motor Vehicle

Regulation of Government made certain features compulsory

for safety of rider and general public. The Indian firms not only adopted all such changes but further developed the models to make them more economical, attractive and fuel efficient.

The Indian automobile faced numerous problems in the past. Due to various controls prevailing in the industry, every firm had some or other problem with Government. These problems of the Indian automobile industry were from time to time taken up to Government by various associations of the industry^^ P a g e N o.; 13

References:

1. Dutt, Ruddar and Sundharam, Indian Economy, S. Chand & Co., New Delhi, 1994, Economic Transition in India, pp. 15-16.

2. Gadgil, D.R., Industrial Evolution of India, p.34.

3. lengar, H.V.R., Industrial Development of India, Policy and Problems, Orient Longman, 1973, Role of Private Sector, p. 29.

4. Herdeck, Margaret L. and Parimal Gita, India's Industrialists, Vol. 1, Three Continents Press, Inc, Washington, DC, 1984, p. 411.

5. FADA journal. Federation of Automobile Dealers Association, Bombay, July 1992, p.13.

6. Government of India, Car Prices Enquiry Commission, Report on the fair selling price, 1971, p.7.

7. Herdeck, Margaret L. p. 413.

8. ibid, p. 91.

9. ibid, p.213.

10. Government of India, p.7.

11. Balakrishnan, T.S., A Critical Evaluation of Indian Two Wheeler Industry, 1991, Thesis , Saurashtra College, Madurai, Chapter I.

12. Association of Indian Automobile Manufacturers and Automobile Component Manufacturer's Association, New Delhi.