Automotive Investment in India

Since the industry opened up to foreign direct investment (FDI) in 1996 and the government lifted all equity caps for foreign automotive investors , India has attracted a
significant amount of FDI in the auto sector. Out of 42 separate industry sectors in India, the
“transportation industry,” which includes but is not limited to passenger vehicles and
components, was the fourth largest recipient of FDI from August 1991.
With a few exceptions, most FDI has been focused on sales to the local market, but recently, many automotive firms are investing in establishing production bases for export. FDI inflows in the sector totaled $3.5 billion, accounting for 7 percent of total FDI inflows from August 1991 through December 1996.
1 This case study will describe the factors contributing to the influx of FDI to the Indian automotive sector, including domestic market conditions and Indian government policies specific to the sector; and examine FDI b passenger vehicle manufacturers in the most recent 5 year period
While rapid growth and extensive FDI in the Indian automotive industry are fairly recent
phenomena, the industry itself has a long history. Indigenous automakers Hindustan Motors
Ltd., Mahindra & Mahindra Ltd., and Tata Motors Ltd. were all founded in the 1940s, with
relative newcomer Maruti Udyog Ltd. founded in 1981. Overall economic liberalization,
which began in 1991, led to the delicensing2 of the passenger car sector in 1993; however,
quantitative restrictions on vehicle imports remained. Many foreign-owned firms establishedIndian joint-venture subsidiaries in the 1990s