Automobile Demand and Supply Analysis in India
INTRODUCTION
Indian Automotive Industry started its new journey from 1991 with de-licensing of the sector and subsequent opening up for 100 percent FDI through automatic route. Since then almost all the global majors have set up their facilities in India taking the production of vehicle from 2 million in 1991 to 9.7 million in 2006.
The surge in number of people with higher purchasing power along with strong growth in economy over a past few years has attracted the major auto manufacturers. The market linked exchange rate and availability of trained manpower at competitive cost has added to the attraction of Indian market. This increasing pull of Indian market on one hand and the near stagnant rate of growth in auto sector in markets of USA, EU and Japan have worked as a push factor for shifting of new capacities and capital in the auto industry to India. The increasing competition in auto companies has not only resulted in a spurt in choices of Indian consumers at competitive costs, it has also ensured an improvement in productivity by almost 20 percent a year in auto industry, taking it to one of the highest in Indian manufacturing sector.
The production of all categories of vehicles has grown at a rate of 16% per annum over the last five years.
The Demand Side Analysis
1. Law of demand
2. Movements along the demand curve and shifting of demand curve
1. Law of demand
The Law of Demand states that the relationship between a good’s price and the quantity demanded of that good is negative. This is referred to as a “change in quantity demanded”. Own-price change cause movement along a given demand curve.
The demand for automobiles for is dependent of certain factors:
The demand function for X:
XD = f (PX, Ps, Pc, I, T&P, Pop, A, O, PPP, R, SP, Av, In, Tr, F)
Where: XD = quantity demanded PX = X’s price; the price of a automobile Ps = the price of substitutes Pc = the price of complements PPP = Purchasing
Indian Automotive Industry started its new journey from 1991 with de-licensing of the sector and subsequent opening up for 100 percent FDI through automatic route. Since then almost all the global majors have set up their facilities in India taking the production of vehicle from 2 million in 1991 to 9.7 million in 2006.
The surge in number of people with higher purchasing power along with strong growth in economy over a past few years has attracted the major auto manufacturers. The market linked exchange rate and availability of trained manpower at competitive cost has added to the attraction of Indian market. This increasing pull of Indian market on one hand and the near stagnant rate of growth in auto sector in markets of USA, EU and Japan have worked as a push factor for shifting of new capacities and capital in the auto industry to India. The increasing competition in auto companies has not only resulted in a spurt in choices of Indian consumers at competitive costs, it has also ensured an improvement in productivity by almost 20 percent a year in auto industry, taking it to one of the highest in Indian manufacturing sector.
The production of all categories of vehicles has grown at a rate of 16% per annum over the last five years.
The Demand Side Analysis
1. Law of demand
2. Movements along the demand curve and shifting of demand curve
1. Law of demand
The Law of Demand states that the relationship between a good’s price and the quantity demanded of that good is negative. This is referred to as a “change in quantity demanded”. Own-price change cause movement along a given demand curve.
The demand for automobiles for is dependent of certain factors:
The demand function for X:
XD = f (PX, Ps, Pc, I, T&P, Pop, A, O, PPP, R, SP, Av, In, Tr, F)
Where: XD = quantity demanded PX = X’s price; the price of a automobile Ps = the price of substitutes Pc = the price of complements PPP = Purchasing