Abstract
This paper examines the growth trajectory and the current state of the Indian automobile industry, paying attention to factors that underpinned its transition from import substitution to integration into global production networks. Market-conforming policies implemented by the government of India over the past 2 decades, which marked a clear departure from protectionist policies in the past, have been instrumental in transforming the Indian automobile industry in line with ongoing structural changes in the world automobile industry. India has emerged as a significant producer of compact cars within global automobile production networks. Compact cars exported from India have become competitive in the international market because of the economies of scale of producing for a large domestic market and product adaptation to suit domestic market conditions. Interestingly, there are no significant differences in prices of compact cars sold in domestic and foreign markets. This suggests that the hypothesis of “import protection as export promotion” does not hold for Indian automobile exports.
Highlights
The global landscape of the automobile industry has been in a process of notable transformation over the past 3 decades
Growth prospects for vehicle sales are increasingly promising in emerging market economies, whereas the principal automobile markets in the triad have been rapidly approaching a point of saturation in recent years
These structural changes in the global automobile industry have led automakers to set up new assembly bases in countries with large domestic markets to serve regional markets
Summary
The global landscape of the automobile industry has been in a process of notable transformation over the past 3 decades. While the leading automakers headquartered in the triad had assembly plants in many developing countries, most of these plants served domestic markets under heavy tariff protection. This massive transformation in the structure, conduct, and performance of the world automobile industry has opened opportunities for countries in the periphery to join the global automobile production network. An important unresolved question is whether the government in these countries should follow the conventional “carrot and stick” (activist) approach to promote export orientation of indigenous industries with significant domestic value added or a “market-conforming” approach in which multinational enterprises (MNEs) play the leading role in integrating domestic industry into global production networks (GPN). Over the past 2 decades, the industry has shown promising signs of gaining significant capabilities and global competitiveness through integration into GPNs. Most of the world’s leading automakers have well-established production bases in India. According to data reported by the International Organization of Motor
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