FDI in Automobile

Foreign direct investment (FDI) is a direct investment into production or bus iness in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. Foreign direct investment has many forms.

Broadly, foreign direct investment includes “mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intracompany loans”.

In a narrow sense, foreign direct investment refers just to building new facilities. FDI Inflows to Automobile Industry have been at an increasing rate as India has witnessed a major economic liberalization over the years in terms of various industries. The automobile sector in India is growing by 18 percent per year.

The Automobile Sector in India- The automobile sector in the Indian industry is one of the high performing sectors of the Indian economy.

This has contributed largely in making India a prime destination for many international players in the automobile industry who wish to set up their businesses in India. The automobile industry in India is growing by 18 percent per year. The automobile sector in India was opened up to foreign investments in the year 1991. 100% Foreign Direct Investment (FDI) is allowed in the automobile industry in India.

The production level of the automobile sector has increased from 2 million in 1991 to 9. 7 million in 2006 after the participation of global players in the sector.

FDI IN AUTOMOBILE

• The automobile industry in India is growing by 18 percent per year. The automobile sector in India was opened up to foreign investments in the year 1991.
• 100%Foreign Direct Investment (FDI) is allowed in the automobile industry in India.
• The production level of the automobile sector has increased from 2 million in 1991 to 9. 7 million in 2006 after the participation of global players in the sector.
• Import of components is allowed without any restrictions and also encouraged.

Advantages of FDI in the Automobile Sector in India

The basic advantages provided by India in the automobile sector include, advanced technology, cost-effectiveness, and efficient manpower. Besides, India has a well-developed and competent Auto Ancillary Industry along with automobile testing and R&D centers.

The automobile sector in India ranks third in manufacturing three wheelers and second in manufacturing of two wheelers. Opportunities of FDI in the Automobile Sector in India Opportunities of FDI in the Automobile Sector in India exist in

• Establishing Engineering Centers
• Two Wheeler Segment
• Exports
• Establishing Research and Development Centers
• Heavy truck Segment
• Passenger Car Segment.

Important Aspects of FDI in Automobile Industry

• FDI up to 100 percent, has been permitted under automatic route to this sector, which has led to a turn over of USD 12 billion in the Indian auto industry and USD 3 billion in the auto parts industry
• The manufacturing of automobiles and components are permitted 100 percent FDI under automatic route
• The automobile industry in India does not belong to the licensed agreement
• Import of components is allowed without any restrictions and also encouraged.

The FDI or Foreign Direct Investment in Indian Automobile Industry has opened up new avenues for the development of this important sector of Indian industries. The liberalization of government policies regarding FDI in the automobile industry of India has increased the scope of this industry. Initially, the automobile industry of India was ruled by national vehicle manufacturers like Premier Automobile and Hindustan Motors. The entrance of foreign automobile companies in the market was restricted by the imposition of high import tariffs and other policies and measures.

The first FDI player in the Indian automobile industry was Suzuki. In 1980s this company entered into a joint venture with Maruti Udyog, a state run enterprise. The then Indian government permitted this company to enter the Indian automobile market in 1983. In 1991, the government of India liberalized its policies regarding the automobile industry of India Foreign Direct Investment in the automotive industry of India was permitted. In 1993, FDI was also allowed in the passenger car segment of Indian automobile industry.

The liberalization of governance policies with regard to FDI in Indian automobile industry has resulted in the rapid growth of this industrial sector post 1993. The major global players in the automobile industry have invested in the Indian vehicle manufacture as well as auto component part manufacture. The major foreign players who have a significant role in the development of Indian automobile industry include the following: Ford from USA.

DaimlerChrysler AG from Germany General Motors from USA Suzuki from Japan BMW from Germany Honda from Japan Renault from France Hyundai from South Korea Toyota from Japan Foreign Direct Investment in the automobile industry of India has helped in the growth of this sector in terms of production, domestic sales and export. FDI is also permitted in the manufacture of auto components in India.