It is on record that the first motorcar on the streets of India was seen in 1898. Mumbai (earlier Bombay) had its first taxicabs by the turn of the century and in 1903, an American company began to operate a public taxi service with a fleet of 50 cars. For about 50 years after the first car arrived in India, cars were directly imported until foreign manufacturers began to realize the vast potential India had with its vast distances and large population. Before world war-1, around 4,000 motor vehicles (cars and commercial vehicles put together) were imported. During the years between the wars a small start for an automobile industry was made when assembly plants were established in Mumbai, Calcutta, and Chennai (Earlier madras). The import / assembly of vehicles grew consistently after the 1920s, crossing 30,000 units by 1930. It was towards the end of the war that the importance of establishing an indigenous automobile industry in India was realized when Premier Automobiles Ltd. (PAL) and Hindustan Motors (HM) set up factories in the mid 40s for progressive manufacture rather than assembly from imported components. HM was established in 1942 for the manufacture of certain auto components, but it was only in 1949 that the company actually began making cars. PAL was founded in 1944 by Seth Walchand Hirachand, a visionary and industrialist of pre-independent India, and as early as 1946 assembly of the Dodge DeSoto and Plymouth cars at PAL's Kurla Plant commenced.
In the next five decades following independence, PAL and HM together symbolized India's car industry. The cars the offered (and still do) were products of a highly controlled economy and all that was wrong with the licensing system.
While PAL and HM focused on passenger cars at the time of independence, the Mahindra brothers, Kailash Chandra and Jagdish Chandra founded Mahindra & Mahindra in 1945 with the objective of making utility vehicles. With industrialization gaining priority and with it transportation, a vehicle that could diverse the vast and harsh Indian hinterland was the order of the day. Four wheel drive vehicles were considered most suitable at the time for cross country as also for the army. Mahindra brothers decided to manufacture the world's most popular four wheel drive vehicle then - the American Jeep. Initially no modifications what so ever were carried out on the vehicle, not even the switch from let to right hand drive.
Independent India classified automobiles as an industry of importance, which would be controlled and regulated by the government. For starters, the import of completely built-up units was severely restricted. If not completely banned. In 1952 the government appointed the first Tariff Commission to look on the recommendations drawn by the Tariff commission, the government terminated the activities of assemblers that did not have any manufacturing program. This was to restrict the then limited market only to those companies which had a genuine program for phased manufacture. At the same time its was decided that the number of models selected for production would be kept to a realistic minimum so as to offer economies of scale for each type.
The Indian Rupee was not convertible on current account. In march 1954, most assemblers such as General Motors and Ford decided to down shutters and leave India rather than to undertake manufacture. Thus 1954 can be said to be the turning point of the Indian Auto-history. By 1956, the Indian auto industry was sealed off from new players in view of the very limited volumes available. And the government also had a say in what make and type of vehicle each manufacturer should market. Categories of vehicles were limited to three passenger cars, three medium trucks, one heavy truck. Each product existed within its own private segment and their was never any fear of competition. No new entrant was to be allowed in even if it did have a full fledged manufacturing program.
In the decade that followed the establishment of the industry in 1954, local manufacturers concentrated on import substitution and indigenization. Model changes were minimal. PAL switched to FIAT 1100 Delite which is the Padmini of today, although the car retains the same power-train and mechanical dating back to 1964. Until 1968, foreign collaborations with equity participation were permitted.
Late 1960's was also the time in India when the Government for their requirement of Steel Plant was under heavy influence of the Russians. This was also the time when India was under strenuous relationship with Pakistan and again Russian tie ups with India regarding Strategic Military aid influenced the policy makers of Government of India.
Growing criticism about the auto industry relying too heavily on foreign technology prompted the Mudaliar committee to look into the whole issue of foreign collaborations. The stricter approach advised by the committee thereafter discouraged the acquisition of technology through foreign investment of the western world.
This was a tough period for passenger car makers whose so called elitist products came under more and more controls. A control on imports meant that manufacturers were forced to indigenize completely and quality, in particular, suffered. The failure rate of components climbed and quality sank to an all time low. Breakdowns were regular and it was considered foolish to travel long distance without a bag full of spares. Drivers of Ambassadors used to be known for even carrying a spare drive shaft.!!!
The other control imposed on carmakers was on capacity and distribution. Though capacity control is cited by manufacturers to be a barrier to growth, the fact is that licensed capacity was in excess of installed capacity during this period. It was price controls that seriously affected carmakers, where Govt. fixed the prices, even the dealer commission. With their bottom line at stake carmakers went to Supreme Court in 1969, resulting into Car Price Commission to work out a formula for incremental price increases - though it wan not until 1985 that Price control was completely abolished.
The three decades following the establishment of the passenger car industry leading up to the broad banding period of the early 1980s were the dark ages for the consumer whose choice throughout this period was limited essentially to two models the Ambassador and the Padmini. Car ownership was usually a bitter experience thanks to the indifference of car companies and the shabby quality of their products indeed, the cars being churned out of factories were so bad it took upto ten days to do the pre-delivery inspection. Still if everything did work on the car on delivery you were one lucky owner.
First winds of liberalization in the early 1980s a series of liberal policy changes were rapidly introduced marking a crucial turning point for the automobile industry. This change of attitude on the part of the govt. coincided with the sate taking a direct interest in the auto business, with 74% stake in Mauri Udyog Ltd. (MUL) and the joint venture between SUZUKI of Japan and the Indian Government. This was revolutionary departure from the government restrictions, previous policies on the foreign equity and technology.
In 1985 Govt. of India announced its famous broad banding policy which gave new licenses to brad groups of automotive products such as two and four wheeled vehicles.
Several new products were launched during this period. All three traditional car manufacturers added a new model to their ranges. Standard Motors returned to the car business after a break of 10 years when in 1985, it introduced the Standard 2000, a Rover SD1 body with the old two liter Vanguard engine and gearbox. HM brought in a 1972 Vauxhall Victor transplanted its aging Ambassador engine into it and Contessa was born. Premier meanwhile brought in Fiat 124 (so called 118NE in India - due to 118 crores of revenue generation from bookings). This car had a Nissan A12 power-train.
The outdated hybrids brought in, were to a certain extent, due to the unwillingness of the government to allow freedom in model selection.
The de-licensing of the industry in 1993 opened the sluice gates a flood of international auto-makers that rushed into what they saw as the last remaining untapped market - the largest democratic market of the world. The next couple of years saw an unprecedented growth in the industry with assembly lines working overtime to meet demand. Dazzled by the potential of India's 100 million odd people, car companies planned ambitious capacities. However, India was a much tougher markets than they had imagined. They under estimated Maruti's strangle hold of the bottom end of the market and were unable to compete with it on price and sheer value for money.
This forced most of the new entrants into the premium end of the market the so called mid sized luxury segment. With prices ranging from Rs. 500,000 to 800,000/- affordable by only a handful, there are predictably few takers for these cars. Peugeot, Daewoo, Hyundai, Ford, GM Opel, Mitsubishi, Honda, Mercedes Benz are all saddled with excess capacities.
Manufacturers are rethinking their strategies and rationalizing capacities to cope with what is currently seen as a temporary hiccup. Many are still optimistic about mid - sized segment and expect it to have the maximum growth potential. Daewoo, Hyundai and Telco have recently entered into the small segment cars but are finding a great deal difficult to enter the M800 market. Ford has launched its IKON sedan (a variant of the Ford Fiesta hatchback) with a capacity of 20,000 / annum.
Eventually the combination of a good value from the manufacturer will decide who will last in the shake out that has already begun.