chapter 6 analysis on foreign direct investment...
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126
CHAPTER 6
ANALYSIS ON FOREIGN DIRECT INVESTMENT INFLOWS
SECTION-1
The objective of this section is to analyse the Foreign Direct Investment (FDI)
inflows in general in the following areas:
1. Foreign Capital total inflows and outflows in to India and its prediction.
2. Analysis on country wise FDI inflow
3. Financial year wise FDI inflow
4. Share of top investing countries FDI equity inflows
5. Statement on Regional offices with state covered FDI equity inflows.
6. Sectors attracting highest FDI inflows.
6.1 FOREIGN DIRECT INVESTMENT INFLOWS IN TO INDIA
Foreign direct investment (FDI) inflows to India declined by 29 per cent to
$26 billion in 2012 due to slow economic growth and high inflation, according to
the UNCTAD. The Indian economy experienced its slowest growth in a decade in
2012, and also struggled with risks related to high inflation. As a result, investor
confidence was affected, and FDI inflows into India declined significantly. However,
a number of other factors would influence FDI prospects in the country positively. It
turns out that most of the FDI coming to India is into subsidiaries of foreign firms. A
cumulative FDI inflow of just $195.6 billion between April 2000 and April 2013,
which works out to a modest $15 billion per annum pro-rata. It is not the kind of
investment to set the balance of payments right in this decade or the next. Hence, this
section need to analyse the FDI Inflows in to India in the above mentioned areas.
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6.1.1 Analysis on Auto-ARIMA Model
In statistics, the time series analysis, an autoregressive integrated moving
average (ARIMA) model is a generalization of an autoregressive moving
average (ARMA) model. These models are fitted to time series data either to better
understand the data or to predict future points in the series (forecasting).
In interpreting the results of an ARIMA model, most of the specifications
are identical to the multivariate regression analysis. ARIMA is a much more
computationally intensive and advanced econometric approach. This section of the
study presents the empirical results of the impact on capital inflows on India in and at
Automobile Industry.
The Following table 6.1, shows Inflow and Outflow of Foreign Direct
Investment from the year 1991-92 to 2008-09, and the result shows prediction in the
following table 6.1.1 , up to 2015 using ARIMA Model.
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TABLE - 6.1 FOREIGN CAPITAL - TOTAL - INFLOW AND OUT FLOW (1991-92 TO 2008-09)
YearRs. Crore USD million % change over previous year
Inflow Outflow Net Inflow Inflow Outflow Net
inflow Inflow Outflow Net inflow
1991-92 60,505 48,615 11,890 24,579 19,883 4,696 -0.18 21.58 -43.221992-93 70,275 54,785 15,490 24,240 19,076 5,164 -1.38 -4.06 9.971993-94 91,827 63,335 28,492 29,276 20,194 9,082 20.78 5.86 75.871994-95 81,360 58,252 23,108 25,914 18,555 7,359 -11.48 -8.12 -18.971995-96 81,642 73,081 8,561 24,176 21,802 2,374 -6.71 17.50 -67.741996-97 1,28,559 89,404 39,154 36,191 25,160 11,031 49.70 15.40 364.661997-98 1,46,102 1,11,783 34,319 39,292 30,066 9,226 8.57 19.50 -16.361998-99 1,43,561 1,09,331 34,230 34,170 26,128 8,042 -13.04 -13.10 -12.831999-00 1,75,822 1,31,616 44,206 40,531 30,347 10,184 18.62 16.15 26.642000-01 2,47,491 2,06,996 40,495 54,126 45,312 8,814 33.54 49.31 -13.452001-02 2,06,404 1,65,324 41,080 43,257 34,706 8,551 -20.08 -23.41 -2.982002-03 2,24,237 1,71,871 52,366 46,368 35,528 10,840 7.19 2.37 26.772003-04 3,47,974 2,70,747 77,227 75,885 59,149 16,736 63.66 66.49 54.392004-05 4,41,675 3,16,308 1,25,367 98,539 70,517 28,022 29.85 19.22 67.442005-06 6,39,946 5,27,981 1,11,965 1,44,376 1,18,906 25,470 46.52 68.62 -9.112006-07 10,51,767 8,48,094 2,03,673 2,33,291 1,88,088 45,203 61.59 58.18 77.482007-08 17,36,225 13,02,452 4,33,773 4,33,007 3,25,014 1,07,993 85.61 72.80 138.912008-09 13,73,684 13,41,303 32,381 3,02,456 2,93,310 9,146 -30.15 -9.75 -91.53
Source: Foreign Trade & Balance of Payments, CMIE, October 2009.
The result are presented in the following table.
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129
TABLE - 6.1.1 COEFFICIENT OF FOREIGN CAPITAL-TOTAL INFLOW AND OUT FLOW (1991 TO 2015) RESULT FROM ARIMA MODEL (Rs. In Crore)
Year Actual value of inflow
Predicted valueFit_1
Actual value of Outflow
Predicted valueFit_2
Actual value ofNet inflow
Predicted valueFit_3
1,992 60,505 -1,55,271.098 48,615 -1,31,877.140 11,890 -25,079.451,993 70,275 61,098.900 54,785 92,921.258 15,490 -18,598.7451,994 91,827 52,640.909 63,335 76,282.790 28,492 -21,807.3901,995 81,360 1,17,198.997 58,252 1,07,692.489 23,108 6,917.3331,996 81,642 1,08,455.913 73,081 96,642.351 8,561 8,800.4791,997 1,28,559 1,51,579.714 89,404 1,37,271.414 39,154 36,561.4711,998 1,46,102 2,12,147.760 1,11,783 1,49,946.780 34,319 48,156.8631,999 1,43,561 2,32,706.113 1,09,331 1,87,448.704 34,230 50,828.6812,000 1,75,822 2,56,129.239 1,31,616 1,76,229.188 44,206 76,925.0072,001 2,47,491 3,13,318.062 2,06,996 2,27,788.249 40,495 82,695.8522,002 2,06,404 3,90,947.185 1,65,324 3,15,099.464 41,080 99,350.3392,003 2,24,237 3,41,872.055 1,71,871 2,20,576.820 52,366 1,13,981.9892,004 3,47,974 4,26,644.392 2,70,747 2,99,832.950 77,227 1,28,402.2982,005 4,41,675 5,41,203.155 3,16,308 4,03,013.234 1,25,367 1,38,270.8482,006 6,39,946 6,07,819.413 5,27,981 4,18,849.742 1,11,965 1,45,861.8462,007 10,51,767 8,08,841.775 8,48,094 7,14,396.971 2,03,673 1,43,019.3572,008 17,36,225 11,48,912.822 13,02,452 9,93,305.586 4,33,773 1,79,498.1702,009 13,73,684 16,85,479.290 13,41,303 14,66,344.357 32,381 1,38,829.9062,010 -- 10,41,602.181 -- 12,54,130.644 #NULL! 80,140.9622,011 -- 11,16,898.632 -- 12,74,370.212 #NULL! 3,41,461.2812,012 -- 11,87,667.054 -- 13,04,521.246 #NULL! 1,45,486.1382,013 -- 12,56,465.449 -- 13,42,413.837 #NULL! 1,98,599.4502,014 -- 13,24,406.735 -- 13,86,353.132 #NULL! 2,75,908.0572,015 -- 13,91,975.117 -- 14,35,015.334 #NULL! 2,17,946.953
129
130
FINAL PARAMETER:
Sum of squares / Residual variance = 651590.8 /4383852
TABLE - 6.1.2 COVARIANCE MATRIX
(B) Co-efficient SEB
(Standard Error of B)
T-RatioT - Value
Approx: P - Value
AR 1 0.435 0.844 0.515 0.614MA 1 -0.582 1.400 -0.416 0.683 YEAR 67281.191 22304.679 3.016 0.009CONSTANT -134179403.642 44620701.505 -03.007 0.009
Figure 6.1 Foreign Capital-Total – Inflow
FDI inflows to India reached $11.1 billion in calendar year 2006 almost double
the 2005 figure and increased in the year 2011-12. Consistent with the global pattern,
FDI inflows into India declined between 2001 and 2003, before experiencing a
resurgence that surpassed average global growth, with year on year increases of 45 to 72
percent, respectively, in fiscal year 2004-05 and 2005-06. The FDI Inflows to the
country in the month of March 2006 was at US $1,244 Millions. The trend of capital
flows has been shown in figure 5. 1. Shows positive, except in the year 2008-09.
20142012
20102008
20062004
20022000
19981996
19941992
2000000
1000000
0
-1000000
Inflow
Fit for INFLOW from
ARIMA, MOD_8 CON
Rs.
in C
rore
s
Year
131
TABLE - 6.1.3 ARIMA RESULTS FOR OUTFLOWS: INITIAL VALUES
Variables in the Model:
(B) Co-efficient
SEBStandard Error of B
T-RatioT - Value
Approx: P – Value
AR 1 0.781 0.24 3.25 0.005
MA 1 -0.591 0.46 -1.27 0.223
YEAR 65512.096 23020.91 2.84 0.012
CONSTANT -130631903.06 46053643.07 -2.83 0.013
Note : 0 to 0.01 = ** denotes significant at 1 % level
0.011 to 0.05 = * denotes significant at 5 % level
> 0.05 = denotes No significant.
Covariance Matrix:
AR1 MA1
AR1 .05768949 .08398222
MA1 .08398222 .21581398
Correlation Matrix:
AR1 MA1
AR1 1.0000000 .7526606
MA1 .7526606 1.0000000
The three main confidence levels used to test for significance are 90%, 95% and
99%, if a coefficient’s t-statistic exceeds the Critical level, it is considered statistically
significant. Alternatively, the P-Value calculates each t-statistic’s probability of
occurrence, which means that the smaller the P-Value, the more significant the
Coefficient. The usual significant levels for the p-value are 0.01, 0.05 and 0.10.
corresponding to the 99%, 95% and 99% confidence levels. The Coefficients with
their P-values highlighted indicate that they are statistically significant at the 90 %
confidence or 0.10 alpha level. The FDI is stable and positive after the liberalization.
The flow of Foreign Direct Investment to India in the month of March 2009-10
increased at a faster pace. It is expected to grow FDI Rs.13,41,303 crores in 2009 to
14,35,015 crores at 2015.
132
TABLE - 6.1.4 ARIMA MODEL RESULT FOR NET INFLOWS
(B) Co-efficient
Standard Error of B
T-RatioT - Value
Approx: P - Value
AR 1 -0.736 2.7 -0.282 0.782 AR 2 -0.468 1.0 -0.462 0.651 MA 1 -0.785 2.9 -0.272 0.789 YEAR 11637.30 3336.2 3.488 0.004 CONSTANT -23206600.82 6674110.3 -3.477 0.004
Covariance Matrix:
AR1 AR2 MA1 AR1 7.3330643 -.1429977 7.6479627 AR2 -.1429977 1.0257873 .2408472 MA1 7.6479627 .2408472 8.2897277
Fig.6.2 Foreign Capital-Total - Outflow Fig.6.3 ARIMA Model result for Net Inflows
The R-Square, or coefficient of Determination indicates the percentage
variation in the dependent variable that can be explained and accounted for by the
independent variables in this regression analysis. The multiple Correlation co-efficient
(Multiple R) measures the correlation between the actual dependent variable (Y) and the
estimated or fitted (Y) based on the regression equation.
During the last 15 years, India has attracted more than US$ 40 billion of foreign
investment (Table-5.1). At a time, when the flow of private capital to developing
countries has shrunk considerably, private flows to India have strengthened, and are
currently running at 3,02,456 $US million at 2009 and outflow of 2,93,310 $US million
increased and net inflow $US 32, 381 at 2008-09 increased to $US 37,763 million at
2009-10.
20142012
20102008
20062004
20022000
19981996
19941992
500000
400000
300000
200000
100000
0
-100000
Net inflow
Fit for NETINF from
ARIMA, MOD_15 CON
Rs.
in C
rore
s
Year20142012
20102008
20062004
20022000
19981996
19941992
2000000
1000000
0
-1000000
Outflow
Fit for OUTFLOW from
ARIMA, MOD_10 CON
Rs.
in C
rore
s
Year
133
ANALYSIS ON COUNTRY-WISE FDI INFLOWS
6.1.2 Country wise Sources of FDI
FDI is the sum of equity capital, other long-term capital, and short-term capital
as shown in the balance of payments. Foreign investors have begun to take a more
active role in the Indian economy in recent years. By country, the largest direct investor
in India is Mauritius, largely because of the India-Mauritius double-taxation treaty.
Firms based in Mauritius invested $16.0 billion in India between 1991 and 2006, equal
to 39 percent of total FDI inflows. Between 1991 and 2005, the United States ranked
first in terms of total FDI approvals, which amounted to $67.8 billion (24 percent of
total FDI approvals). The largest shares of U.S. investment are directed to the fuels,
telecommunications, electrical equipment, food processing, and services sectors.
It is proposed to analyze the country-wise share of foreign direct investment in
India from 2000-2010. The data relevant to the analysis is presented in the following
Table.6.2.
The second largest investor in India is the United States, with total capital
inflows of $ 5.6 billion during the 1991-2006 period followed by United Kingdom, the
Netherlands and Japan. Leading investors into India with major FDI inflows were led
by Mauritius with a staggering US$8.91, with Singapore coming a close second with
US$1.7 billion. The US had an overall US$1.58 billion in FDI inflows into India over
the same period of time.
134
TABLE - 6.2 STATEMENT ON COUNTRY-WISE/YEAR-WISE FDI INFLOWS
FROM JANUARY 2000 TO MARCH 2010 (Top Twenty) (Amount in millions)
Country 2000-2005 (Jan-Dec)
2006(Jan-Dec)
2007(Jan-Dec)
2008(Jan-Dec)
2009(Jan-Dec.)
2010(Jan- Mar.)
Cumulative Total
FDI in Rs FDI in Rs FDI in Rs FDI in Rs FDI in Rs FDI in Rs in Rs.
Mauritius 349,666.91 222,207.52 319,437.05 598,586.46 56,0128.88 67,095.41 2,117,122.22
Singapore 27,588.56 28,532.04 58,306.08 157,758.64 148,262.44 31,065.94 451,513.70
U.S.A. 117,639.49 33,203.78 36,383.72 75,419.79 98,730.55 16,532.76 377,910.09
U.K. 57,435.70 78,247.30 19,670.99 70,085.39 22,594.22 12,529.05 260,562.65
Netherlands 62,934.56 22,457.28 27,894.49 42,813.50 40,056.60 5,960.53 202,116.97
Cyprus 4,136.88 2,570.04 22,043.19 58,250.15 77,691.41 13,089.56 177,781.23
Japan 56,757.64 5,229.22 27,751.60 16,976.32 60,943.17 4,735.71 172,393.65
Germany 30,914.29 13,972.47 14,155.04 33,288.58 28,812.82 3,992.57 125,135.78
U.A.E. 5,943.77 10,972.14 8,842.18 12,416.59 30,148.01 1,932.98 70,255.67
France 22,888.72 3,876.56 5,208.04 20,444.93 14,360.47 2,792.97 69,571.69
Switzerland 17,285.36 3,151.00 9,017.24 6,268.80 6,983.69 1,024.25 43,730.34
Italy 10,879.88 2,576.28 1,171.16 14,868.48 7,249.58 3,739.30 40,484.68
Sweden 14,826.20 274.33 3,427.04 3,993.54 11,862.72 120.39 34,504.23
Cayman Island
4,723.32 887.2 12,384.65 8,941.57 2,365.42 1,036.19 30,338.36
Korea (South)
8,077.90 2,935.48 2,805.80 6,214.49 3,207.16 4,950.69 28,191.52
Indonesia 1,153.86 16.71 146.95 245.08 6,518.79 19,856.04 27,937.43
British Virginia
2,477.56 2,275.69 6,207.08 5,837.41 6,632.82 3,297.17 26,727.73
Spain 1,161.34 1,318.29 4,067.37 12,348.11 4,372.57 1,602.60 24,870.27
Hongkong 3,648.15 2,142.14 4,083.23 5,663.63 7,017.87 785.32 23,340.35
Bermuda 1,900.13 18,554.13 3.62 1,430.49 487.24 45.83 22,421.45
Note: (i) *Stock swapped from 2002 to October 2009, II) Advance of inflows pertaining to the
years 2000 to 2004.
ii) ** RBIs NRI schemes for the period from 2000 to 2002.
135
India’s 83% of cumulative FDI is contributed by nine countries while remaining
17 per cent by rest of the world. The analysis of country wise inflows of FDI in India
indicates that during 2007-2010, the total amount of Rs 526537 million of FDI was
received from 113 countries including NRI investments. India’s perception abroad has
been changing steadily over the years. This is reflected in the ever growing list of
countries that are showing interest to invest in India.
During April 2010, Mauritius invested US$ 568 million in India, followed by
Singapore which invested US $434 million and Japan invested US $327 million
according to latest data released by DIPP (Department of Industrial Policy and
Promotion, Government of India statistics 2012). It shows that there has been a
significant shift in the character of global capital flows to the India in recent years in
that the predominance of private account capital transfer and especially portfolio
investment increased considerably.
Mauritius emerged as the most dominant source of FDI contributing 44 % of the
total investment in the country. Singapore was the second dominant source of FDI
inflows with 9% of the total inflows. However, USA slipped to third position by
contributing 7% of the total inflows. UK occupied fourth position with 5% followed by
Netherlands with 4%, Japan with 4%, Cyprus with 4%, Germany with 3%, France with
1%, UAE with 1%.
Italy ranked at 12th place in receiving FDI, received Rs. 14,868.48 million (2007)
and decreased to RS. 3,739 million at 2009 and Bermuda received FDI Rs. 1,900
million in the year 2005 and decreased to 487.24 million in the year 2009 and there by
decreased to 45.83 million in the year 2010.
It has been observed that some of the countries like Israel, Thailand, Hong Kong,
South Africa and Oman increased their share gradually. It is also interesting to note that
some of the new countries such as Hungary, Nepal, Virgin Islands, and Yemen are
making significant investments in India.
136
6.1.3 Financial year wise FDI equity inflows
As a part of the national accounts of a country, and in regard to the national
income equation Y=C+I+G+(X-M), I is investment plus foreign investment, FDI is
defined as the net inflows of investment (inflow minus outflow) to acquire a lasting
management interest (10 percent or more of voting stock) in an enterprise operating in
an economy other than that of the investor. Analysis of financial year wise FDI Equity
inflows shows percentage growth comparing previous years from 2000 to 2010.
TABLE - 6.3 FINANCIAL YEAR WISE-FDI EQUITY INFLOWS
Sl.NoFinancial YearApril-March
Amount of FDI inflows In ‘ Crores In US$ million
% age growth over previous year
(in terms of US$)
1 2000-01 10,733 2,463 --
2 2001-02 18,654 4,065 (+)65 %
3 2002-03 12,871 2,705 (-)33 %
4 2003-04 10,064 2,188 (-)19 %
5 2004-05 14,653 3,219 (+)47 %
6 2005-06 24,584 5,540 (+)72 %
7 2006-07 56,390 12,492 (+)125 %
8 2007-08 98,642 24,575 (+)97 %
9 2008-09 142,829 31,396 (+) 28 %
10 2009-10 1,23,120 25,834 (-) 18 %
11 2010-11 88,520 19,427 (-) 25%
Source: DIPP’S –FDI fact sheet year April 2012.
India had received FDI (equity capital components only) worth $25.9 billion in
2009-10, around 5.28 per cent lower than $27.3-billion in 2008-09 – the fall mainly
attributed to the aftermath of the global financial crisis. FDI inflows in the first four
months of this fiscal (April-July) were $7.6 billion, down 27.9 per cent from $10.53
billion in the same period of 2009-10. The country has got a cumulative FDI of $123.3
billion from April 2000 till July 2010, of which $101 billion have come since 2006-07.
137
TABLE 6.3.1 COEFFICENT OF FDI EQUITY INFLOWS
ARIMA MODEL RESULT
Sl.No
Financial YearApril-March
Amount of FDI inflows In ‘ Crores
% age growth over previous year
(in terms of US$)
YEAR Actual Value FDI
Predicted value -FIT_1
1 2,001 10,733 -5,847 -- 2 2,002 18,654 18,928 (+)65 % 3 2,003 12,871 24,801 (-)33 % 4 2,004 10,064 21,051 (-)19 % 5 2,005 14,653 26,780 (+)47 % 6 2,006 24,584 34,514 (+)72 % 7 2,007 56,390 47,517 (+)125 % 8 2,008 98,642 84,736 (+)97 % 9 2,009 1,42,829 1,15,239 (+)28 % 10 2,010 1,23,120 1,27,968 (-)18 % 11 2,011 88,520 73,856 (-)25 % 12 2,012 #NULL! 1,35,567 --- 13 2,013 #NULL! 1,47,866 --- 14 2,014 #NULL! 1,60,429 --- 15 2,015 #NULL! 1,73,111 ---
Amount of FDI inflows for the financial year 2012-13 for the month of
December 2012 was US$ 1.1 billion. Amount of total FDI equity inflows into India
(equity inflows + re-invested earnings + other capital) for the financial year 2012-13
(from April 2012 to December, 2012) was estimated at US$ 27.19 billion. Cumulative
Amount of FDI Equity Inflows (excluding, amount remitted through RBI’s-NRI
Schemes) (from April, 2000 to December, 2012) was recorded at US$ 187.80 billion
From the result it is expected that, FDI inflows increased from Rs. 1,604. 29
billion in the year 2014 to Rs. 1731.11 billion (Rs. 173,111 crores) in the year 2015.
138
TABLE - 6.4 YEAR-WISE FDI INFLOWS
(Equity capital components only)
S.No Year
(April – March) AMOUNT OF FDI INFLOWS
(In rupees crore) (In US$ million) 1. 1991 - 1992 408 1652. 1992 – 1993 1,094 3933. 1993 – 1994 2,018 6544. 1994 – 1995 4,312 1,3745. 1995 – 1996 6,916 2,1416. 1996 – 1997 9,654 2,7707. 1997 – 1998 13,548 3,6828. 1998 – 1999 12,343 3,0839. 1999 – 2000 10,311 2,439
10. 2000 – 2001 12,645 2,90811. 2001 – 2002 19,361 4,22212. 2002 – 2003 14,932 3,13413. 2003 – 2004 12,117 2,63414. 2004 – 2005 17,138 3,75415. 2005 – 2006 24,613 5,54616. 2006 – 2007 70,630 15,72617. 2007 – 2008 98,664 24,57918. 2008 – 2009 122,919 27,30919. 2009 – 2010 123,120 25,83420. 2010 – 2011
( up to Feb 2011 ) 83,687 18,355
GRAND TOTAL
Note : FDI inflows include amount received on account of advances pending for issue
of shares for the years 1999 to 2004.
TABLE - 6.4.1 CO EFFICIENT OF EQUITY INFLOWS
(B) Co-efficient
Standard Error of B
T-RatioT - Value
Approx: P - Value
AR 1 0.447 0.402 1.113 0.307 MA 1 -0.94 4.121 -0.228 0.827 YEAR 12777.12 3219.651 3.968 0.007 CONSTANT -25572867.24 6457021.776 -3.960 0.007
Note:*= 0 to 0.01 denotes 1 % significant level.
139
Figure 6.4 Year wise FDI Equity Inflow
During the global financial crisis FDI fell by over one-third in 2009 but
rebounded in 2010. Between 1991-2005, the United States ranked first in terms of total
FDI approvals which amounted to $ 67.8 billion (24 percent) of total FDI approvals.
FDI value increased from US $ 24,579 million in 2008 to US $ 27,309 million at
2009 and decreased to US $ 25,834 million in the yar 2010. ‘P’ value ‘0.007’ shows
significant in year 2011. Foreign investors have began to take a more active role in the
Indian economy in recent years. By country, the largest direct investors in India is
Mauritius, largely because of the India-Mauritius double-taxation treaty.
Conclusion: Foreign exchange reserves are an essential element in the analysis of an
economy's external position. Foreign exchange reserves are accumulated when there is
absorption of the excess foreign exchange flows by the RBI through intervention in the
foreign exchange market. The twin objectives of safety and liquidity are the guiding
principles of foreign exchange reserves management in India. During the year 2011-12,
foreign exchange reserves stood at US$ 294.39 billion as compared to US$ 304.82
billion in the year 2010-11. In the current fiscal 2012-13, the reserves were recorded at
US$ 290.57 billion as on March 01,2013.
0
20000
40000
60000
80000
100000
120000
140000
Rs. In Crore
Rs. In Crore
140
TABLE - 6.5 SHARE OF TOP INVESTING COUNTRIES FDI EQUITY
INFLOWS (Financial years): (Amount in crores (US$ in million)
Ranks Country 2008-09(April- March)
2009-10(April-March)
2010-11(April-Nov.)
Cumulative Inflows
(Apr’00-Nov.’10)
% age to total
Inflows ( US $)
1. MAURITIUS 50,899(11,229)
49,633(10,376)
23,576(5,158)
234,482(52,398)
42 %
2. SINGAPORE 15,727(3,454)
11,295(2,379)
6,198(1,367)
51,344(11,557)
9 %
3. U.S.A 8,002(1,802)
9,230(1,943)
4,247(926)
41,436(9,204)
7 %
4. U.K 3,840(864)
3,094(657)
1,765(385)
27,764(6,269)
5 %
5. NETHERLANDS 3,922(883)
4,283(899)
3,643(802)
23,769(5,289)
4 %
6. JAPAN 1,889(405)
5,670(1,183)
4,141(917)
21,036(4,631)
4 %
7. CYPRUS 5,983(1,287)
7,728(1,627)
2,746(598)
20,523(4,498)
4 %
8. GERMANY 2,750(629)
2,980(626)
473(104)
12,941(2,903)
2 %
9. FRANCE 2,098(467)
1,437(307)
1,569(340)
8,488(1,870)
2 %
10. U.A.E 1,133(257)
3,017(629)
1,289(278)
8,312(1,828)
1 %
TOTAL FDI INFLOWS* 123,025(27,331)
123,120(25,834)
64,083(14,025)
556,819(124,436)
-
Note: (i) includes inflows under NRI Schemes of RBI.
(ii) Cumulative country-wise FDI equity inflows (April 2000 to November 2010)
(iii) %age worked out in US$ terms & FDI inflows received through FIPPB/SIA+RBI’S Automatic Route+ acquisition of existing shares only.
Table 6.5 shows the actual investment flows of top ten countries during the
period of 2008-09 to 2010-11. The FDI stock for this period from Mauritius is the
largest 42 percent. The other top nine countries are Singapore, USA, UK, Netherlands,
Japan, Cyprus, Germany, France and UAE. It implies that these top ten countries
accounted for well over 78 percent of the FDI inflows during the above period. The
Mauritius which was not in the picture till 1992 has the highest growth rate because
such investment is represented by the holding companies of Mauritius set up by the US
firms. The reason behind the US companies have routed through Mauritius is the tax
treaty between Mauritius and India stipulates a dividend tax of five percent while the
treaty between Indian and US stipulated a dividend tax of 15 percent.
141
6.1.4 FDI Top contributors to India
Top Investing Countries FDI Inflows in India has registered significant growth
over the last few years due to the several incentives that have been provided by the
Indian government. The increase in the Top Investing Countries FDI Inflows in India
has helped in the growth of the country's economy. Flows to manufacturing are
expected to increase as well, as a number of major investing countries, including Japan
and the Republic of Korea are establishing country or industry specific industrial zones
in India. As per UNCTAD forecast, FDI in 2013 will remain close to the level of 2012,
with an upper range of $1.45 trillion.
TABLE - 6.6 TOP CONTRIBUTORS TO INDIA
Rank Country 2010-11 (Apr-Feb) in SB
1 Mauritius 6.6
2 Singapore 1.6
3 Japan 1.5
4 Netherlands 1.1
5 U.S.A 1.1
6 Cyprus 0.83
7 France 0.71
8 U.K 0.52
9 U.A.E 0.32
10 Germany 0.16
Source: Ministry of Commerce & Industry
Mauritius continues to be the preferred route for directing FDI into India. About
36 per cent of FDI came via Mauritius in the first 11 months of the last financial year -
mainly because most of the investors want to take advantage of the double taxation
avoidance agreement between Mauritius and India and Mauritius-based investors do not
have to pay capital gains tax in India. Singapore is the second largest contributor of FDI
after Mauritius, accounting for nearly 9 per cent of the investment during the same
period. Japan comes in third with 8.3 per cent, followed by the Netherlands and the
USA with 6.1 per cent each, and Cyprus with 4.5 per cent. The UK is a distant eighth in
FDI ranking, contributing only 2.8 per cent of the inflow into India during April-
February 2010-11.
142
6.1.5 Distribution of FDI within India
FDI inflows within India are heavily concentrated around two major cities,
Mumbai and New Delhi, with Chennai, Bangalore, Hyderabad and Ahmedabad also
drawing significant shares of FDI inflows (Table-5.7). For statistical purposes, India’s
Department of Industrial Policy and Promotion (DIPP) divides the country into 16
regional offices. The top 6 regions account for two-thirds of all FDI inflows to India
between 2000 and 2006, with the Mumbai and New Delhi regions together accounting
for just under one half of the total. The key industries attracting FDI to the Maharashtra
region are energy, transportation, services, telecommunications, and electrical
equipment. Maharashtra’s transportation industry holds a particular concentration of
MNC affiliates in auto components manufacturing.
The key sectors attracting FDI inflows to Delhi are similar: telecommunications,
transportation, electrical equipment (including software), and services. Delhi ranks
second in total FDI inflows behind Maharashtra. U.S.-owned IBM is not only the
largest computer services company in India, but is also the MNC with the largest
number of employees in India (approximately 53,000), second only to IBM’s work
force in the United States. In addition to Delhi, IBM also has facilities in Bangalore,
Chennai, Kolkata, Pune, Gurgaon, and Hyderabad. Goodyear, one of the largest global
tire manufacturers, has built two manufacturing facilities near Delhi, entering into a
joint venture with Indian company Ceat Ltd. and acquiring India-based South Asia
Tyres.
Other sectors attracting FDI include port infrastructure, ICT, and electronics.
The bulk of projects in Andhra Pradesh, which includes the city of Hyderabad, are
associated with software and, to a lesser extent, hardware for computers and
telecommunications. The same is true of projects in Karnataka, where Bangalore is
located; Karnataka also has a large number of projects in the automotive sector.
India’s more rural areas have attracted a smaller number of high-value projects.
Large Greenfield FDI projects in Odisha include bauxite mining and associated
aluminium smelting operations as well as steel and automotive facilities. Pohang Iron
and Steel Co.’s (POSCO - Korea) planned steel mill in Odisha is expected to be the
largest FDI project in India, and will ultimately involve $12 billion in total FDI on 4000
acres, with an annual steelmaking capacity of 12 million tons by 2020.
143
TABLE-6.7 STATEMENT ON RBI’S REGIONAL OFFICES RECEIVED FDI EQUITY INFLOWS (April 2000 to February 2011) RBI’s-Regional
Office2 State covered 2008-09(Apr.Mar.)
2009-10(Apr.-Mar.)
2010-11(Apr.-Feb.)
Cumulative2000 to 2011
TotalUS$%
MUMBAI MAHARASHIRA, DADRA & NAGAR HAVELI, DAMAN & DIU 57,066(12,431)
39,409(8,249)
26,331(5,799)
200,132(44,770)
35
NEW DELHI DELHI, PART OF UP AND HARYANA 7,943(1,868)
46,197(9,695)
11,230(2,464)
112,735(24,876)
19
BANGALORE KARNATAKA 9,143(2,026)
4,852(1,029)
6,065(1,317)
36,589(8,213)
6
AHMEDABAD GUJARAT 12,747(2,826)
3,876(807)
3,148(692)
31,547(7,124)
6
CHENNAI TAMIL NADU, PONDICHERRY 7,757(1,724)
3,653(774)
6,026(1,332)
30,758(6,831)
5
HYDERABAD ANDHRA PRADESH 5,406(1,238)
5,710(1,203)
5,152(1,129)
25,960(5,827)
5
KOLKATA WEST BENGAL, SIKKIM, ANDAMAN & NICOBAR ISLANDS 2,089(489)
531(115)
401(89)
6,343(1,482)
1
CHANDIGARH CHANDIGARH, PUNJAB, HARYANA, HIMACHAL PRADESH - 1,038(224)
1,818(400)
4,611(1,008)
1
PANAJI GOA 134(29)
808(169)
1,375(302)
3,325(724)
1
BHOPAL MADHYA PRADESH, CHATTISGARH 209(44)
255(54)
2,044(440)
2,961(643)
0.5
JAIPUR RAJASTHAN 1,656(343)
149(31)
202(45)
2,422(514)
0.4
KOCHI KERALA, LAKSHAWEEP 355(82)
606(128)
163(36)
1,654(367)
0.3
BHUBANESHWAR ORISSA 42(9)
702(149)
68(15)
1,207(261)
0.2
KANPUR UTTAR PRADESH UTTRANCHAL - 227(48)
513(112)
812(177)
0.1
GUWAHATI ASSAM, ARUNACHAL PRADESH, MANIPUR, MEGHALAYA, MIZORAM, NAGALAND, TRIPURA
176 (42)
51 (11)
0 (0)
280 (64)
0.1
PATNA BIHAR, JHARKHAND - - 25 (5)
27 (6)
0
REGION NOT INDICATED 18,300 (4,181)
15,056 (3,148)
19,126 (4,176)
114,527 (25,755)
20
GRAND TOTAL 4 123,025 (27,331)
123,120 (25,834)
83,686 (18,355)
576,422 (128,765)
-
143
144
1. Includes ‘equity capital components’ only. 2. The Region-wise FDI inflows are classified as per RBI–Regional Office
received FDI inflows, furnished by RBI, Mumbai. 3. Represents, FDI inflows through acquisition of existing shares by transfer
from residents to non residents. For this RBI Regional wise information is not provided is not provided by Reserve Bank of India.
4. On the basis of clarification received from RBI, the amount of Stock Swap & advance pending for issue of shares has been deleted From FDI data.
State wise FDI inflows show that Maharashtra, Delhi, Karnataka, Gujarat and Tamil Nadu together accounted more 75 percent of inflows during 2000-2010 because of the infrastructural facilities and favourable business environment provided by these states. Despite troubles in the world economy, India continued to attract FDI inflows mainly because Government of India open-up with flexible investment regimes and policies prove to be the horde for the foreign investors in finding the investment opportunities in the country.
6.1.6 FDI in India’s Service Sector
The service sector has been the primary destination of FDI in India since 1991. As identified by India’s Ministry of Commerce & Industry, the service sector accounted for 17 percent of total FDI inflows to India between August 1991 and December 2006. Another 17 percent of FDI inflows is invested in the telecommunications and transportation industries, which generally involve both equipment and services. Most Indian industries have been fully opened to FDI, with foreigners permitted to own up to 100 percent of equity in Indian companies. However, India continues to limit FDI in a number of industries by enforcing overall caps on total foreign-owned equity shares, with the caps changing as India’s liberalization process continues. Permitted equity limits for foreign investors vary for different industries. The level of FDI activity following each change in regulations testifies to foreign investors’ interest in the Indian market, particularly in key service sectors. Equity limits for foreign investment in most types of telecommunications companies were raised from 49 percent to 74 percent in November 2005, resulting in a wave of new FDI primarily focused on India’s cellular telecommunications industry. Cumulative FDI inflows in telecommunications from August 1991 to December 2006 were $3.9 billion, and annual inflows jumped from $588 million in 2004–05 to $3.0 billion in 2005–06.
145
TABLE - 6.8 SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS
Ranks Sector 2008-09(April- March)
2009-10(April-March)
2010-11(April-Nov.)
CumulativeInflows
(Apr’00-Nov.’10)
% age to totalInflows (in terms
of US $) 1. SERVICES SECTOR
(financial & non-financial) 28,516(6,138)
20,776(4,353)
11,885(2,596)
117.114(26,197)
21 %
2. COMPUTER SOFTWARE& HARDWARE
7,329(1,677)
4,351(919)
2,617(574)
46,464(10,446)
8 %
3. TELECOMMUNICATIONS(radio paging, cellular mobile, Basic telephone services)
11,727(2,558)
12,338(2,554)
4,962(1,093)
45,668(10,023)
8 %
4. HOUSING & REAL ESTATE 12,621(2,801)
13,586(2,844)
4,569(999)
41,938(9,356)
8 %
5. CONSTRUCTION ACTIVIES(including roads & highways)
8,792(2,028)
13,516(2,862)
3,762(834)
39,455(8,887)
7 %
6. POWER 4,382(985)
6,908(1,437)
4,491(984)
25,411(5,611)
5 %
7. AUTOMOBILE INDUSTRY 5,212(1,152)
5,754(1,208)
2,399(533)
23,221(5,129)
4 %
8. METALLURGICAL INDUSTRIES 4,157(961)
1,935(407)
4,402(960)
17,842(4,090)
3 %
9. PETROLEUM & NATURAL GAS 1,931(412)
1,328(272)
2,421(529)
13,925(3,195)
3 %
10. CHEMICALS(other than fertilizers)
3,427(749)
1,707(362)
1,238(271)
12,513(2,767)
2 %
Note: Cumulative Sector- wise FDI equity inflows (from April 2000 to November 2010)
(Investing In India Sectoral Profiles, Published by Investment & Technology Promotion Division, Ministry of External Affairs,
Government of India, March 2010.)
145
146
The sectors receiving the largest shares of total FDI inflows between August
1991 and December 2010 were the electrical equipment sector and the services
sector, each accounting for 17 percent. These were followed by the
telecommunications, transportation, fuels, and chemicals sectors.
Flextronics (Singapore) have entered into separate joint ventures with
SemIndia to build semiconductor manufacturing facilities in Hyderabad. The $3
billion AMD-SemIndia joint venture will produce semiconductor chips which can
then be used to manufacture electronic products in the Flextronics-SemIndia $3
billion joint venture. SemIndia is attempting to capitalize on India’s domestic
demand for semiconductors, predicted to grow from $3.3 billion in 2006 to $40
billion in 2016. Cumulative amount of FDI inflows up to March 2005 was
US$ 33.351.2 Million. In the April to December, fiscal year of 2009, foreign
investments in India inflows peaked at an impressive US$26.5 billion. That was in
addition to the total FDI inflows of US$23.82 made in January to October of the
same year. The Department for Industrial Policy and Promotion estimates that
October last year had a 56% in FDI at a sum of US$2.33 billion. The Indian services
sector attracted net FDI estimated at US$3.54 billion from April to December, 2009.
Computer software and hardware sector got around US$595 million in the same
period. US$2.36 billion marked the Telecommunications earnings in FDI over the
same time.
Cumulative FDI inflows reached just over US$60 billion between August
1991and July 2007. Since 2002, some sectors such as electrical equipment, services,
drugs and pharmaceuticals, cement and gypsum products, metallurgical industries
have also been doing very well in attracting FDI. The electrical equipment sector
and the services sector in particular received the largest shares of total FDI inflows
between August 1991 and July 2007. Clearly, India has attracted significant overseas
investment interest in services.
By 2015, the employment at Auto Service sector is expected to grow by 65%
to 1.3 million. In the similar lines extending the growth to 2020 by the same
percentage, it would be 2.2 million. For justified reasons the majority of the
requirement is projected in Technical skills being a service center.
147
SECTION 2
AUTOMOBILE INDUSTRY IN INDIA
The Impact on Foreign Direct Investment on India’s Automobile Industries:
This section provides the study of empirical results of the impact of FDI inflows on
automobile industries after post liberalization era. The result is based on ARIMA
forecasting techniques on regression analysis.
6.2 INTRODUCTION
Automobile industry comprises FDI approvals granted for automobile sector,
passenger car, Auto ancillaries etc. During the period from January 200 to December
2009, cumulative FDI inflows received from FIPB/SIA, acquisition of existing
shares & RBI’s automatic routes only. The amount of FDI inflows project specific in
respect of all countries & Sector are not centrally maintained prior to January 2000.
The liberalization of the portfolio investment led to a surge inflow of capital for
investment in the primary and secondary market for Indian equity and corporate
bond market. In 2009, the automobile industry is expected to see a growth rate of
around 9%, with the disclaimer that the auto industry in India has been hit badly by
the ongoing global financial crisis.
The automobile industry in India happens to be the ninth largest in the world.
Following Japan, South Korea and Thailand, in 2009, India emerged as the fourth
largest exporter of automobiles. Several Indian automobile manufacturers have
spread their operations globally as well, asking for more investments in the Indian
automobile sector by the MNCs.
148
TABLE - 6.9 FOREIGN INVESTMENT INFLOWS IN AUTOMOBILE
INDUSTRY (1991-2011)
Year A. Direct Investment Rs. Crore US $ million
B. Portfolio Investment Rs. Crore US$ million
TOTAL (A+B)Rs. Crore
US$ million 1 2 3 4 5 6 7
1990-91 174 97 11 6 185 103
1991-92 316 129 10 4 326 133
1992-93 965 315 748 244 1713 559
1993-94 1838 586 11188 3567 13026 4153
1994-95 4126 1314 12007 3824 16133 5138
1995-96 7172 2144 9192 2748 16364 4892
1996-97 10015 2821 11758 3312 21773 6133
1997-98 13220 3557 6794 1828 20014 5385
1998-99 10358 2462 -257 -61 10101 2401
1999-00 9338 2155 13112 3026 22450 5181
2000-01 18406 4029 12609 2760 31015 6789
2001-02 29235 6130 9639 2021 38874 8151
2002-03 24367 5035 4738 979 29105 6014
2003-04 19860 4322 52279 11377 72139 15699
2004-05 27188 6051 41854 9315 69042 15366
2005-06 39674 8961 55307 12492 94981 21453
2006-07 103367 22826 31713 7003 135080 29829
2007-08 138276 34362 109741 27271 248017 61633
2008-09 161481 35168 -63618 -13855 97863 21313
2009-10 188815 37763 161880 32376 350695 70139
2010-11 135120 27024 157355 31471 292475 58495
Source: Table No. 6.2.(vi) FDI In Automobile Industry, (as on 31.12.2009, DIPP & RBI monthly bulletin statistics 2011)
Note:
1) Data for 2007-08 and 2008-09 are provisional. 2) Data from 1995-96 onwards include acquisition of shares of Indian
companies by non-residents under Section 6 of FEMA, 1999. Data on such acquisitions are included as part of FDI since January 1996.
3) Data on FDI have been revised since 2000-01 with expanded coverage to approach international best practices.
4) Negative (-) sign indicates outflow. 5) Direct Investment data for 2006-07 include swap of shares of 3.1 billion.
149
TABLE - 6.9.1 RESULT – CURVE FIT MODEL-LINEAR & COMPOUND MODEL FOR DIRECT & PORTFOLIO INVESTMENT
Year Direct Investment
Fit for DIR_INV from
CURVEFIT,MOD_1 LINEAR
Fit for DIR_INV from
CURVEFIT,MOD_1
COMPOUND
Portfolio Investment
Fit for POR_INV from
CURVEFIT,MOD_1 LINEAR
1 1992 316 -34412 1193 10 -180762 1993 965 -25826 1576 748 -128153 1994 1838 -17239 2083 11188 -75544 1995 4126 -8653 2754 12007 -22935 1996 7172 -67 3639 9192 29686 1997 10015 8519 4810 11758 82297 1998 13220 17105 6358 6794 134898 1999 10358 25691 8403 -257 187509 2000 9338 34278 11107 13112 24011
10 2001 18406 42864 14680 12609 2927211 2002 29235 51450 19402 9639 3453312 2003 24367 60036 25644 4738 3979413 2004 19860 68622 33894 52279 4505514 2005 27188 77208 44799 41854 5031515 2006 39674 85795 59211 55307 5557616 2007 103367 94381 78260 31713 6083717 2008 138276 102967 103437 109741 6609818 2009 161481 111553 136714 -63618 7135919 2010 188815 120139 180697 161880 7662020 2011 135120 128725 238830 157355 8188121 2012 . 137312 315665 . 8714122 2013 . 145898 417219 . 9240223 2014 . 154484 551444 . 9766324 2015 . 163070 728850 . 102924
Total 24 20 24 20 24 24
TABLE - 6.9.2 CORRELATIONS
Direct Investment
Portfolio Investment
Direct Investment Pearson Correlation 1 .563(**)Sig. (2-tailed) . .010N 20 20
Portfolio Investment Pearson Correlation .563(**) 1Sig. (2-tailed) .010 .N 20 20
** Correlation is significant at the 0.01 level (2-tailed). Linear Model: Y = a + bt, Y = -42998+8586.16, Compound Model : Y = a (bt)
150
TABLE - 6.9.3 CURVEFIT, MODEL-1 LINEAR & COMPOUND
Year TotalInvestment
Fit for Total Investment
Linear
Fit for Total Investment Compound
1 1992 326 -52487 27682 1993 1713 -38640 35783 1994 13026 -24793 46254 1995 16133 -10946 59795 1996 16364 2901 77296 1997 21773 16748 99907 1998 20014 30595 129148 1999 10101 44442 166949 2000 22450 58289 2157910 2001 31015 72136 2789411 2002 38874 85983 3605712 2003 29105 99830 4661013 2004 72139 113677 6025014 2005 69042 127524 7788215 2006 94981 141371 10067516 2007 135080 155218 13013717 2008 248017 169065 16822218 2009 97863 182912 21745319 2010 350695 196759 28109120 2011 292475 210606 36335221 2012 . 224453 46968822 2013 . 238300 60714323 2014 . 252147 78482524 2015 . 265994 1014506
Total 24 20 24 24
TABLE - 6.9.4 COMPOUND MODEL RESULT FOR INVESTMENTS
LinearModel
Compound Model L C L C
Direct Investment Portfolio Investment Total Investment
R Square 0.697 0.908 0.327 --- 0.646 0.815F Value 41.38 178.25 8.76 --- 32.86 79.15P Value 0.000 0.000 0.008 --- 0.000 0.000 A -42998 902.280 -23336 --- -66334 2141.39 B 8586.16 1.3217 5260.85 --- 13847.0 1.2927
151
A linear equation is an algebraic equation in which each term is either a constant or the product of a constant and (the first power of) a single variable. A linear equation can involve more than two variables. The general linear equation
in n variables is:
In this form, a1, a2, …, an are the coefficients, x1, x2, …, xn are the variables, and b is the constant. When dealing with three or fewer variables, it is common to replace x1 with justx, x2 with y, and x3 with z, as appropriate.
Total investment (direct + Portfolio Investment) was 103 $US million at 1990-91 gradually increased to US $ 15, 699 million at 2003-04 and decreased to US $ 21,313 million at 2008-09 when compare to previous year 2007-08 US $ 61,633 due to some US crisis, affected the automobile industries and IT industries. Above Table FDI in Automobile Industries, and result predicted for the year 2013 to 2015 provides total foreign investment inflow during 1992 to 2010, Periods. India has attracted about $22 billion in portfolio investments since 1993-94 and more than $ 18 billion FDI and 32,376 $US million at 2009-10 the portfolio investment gradually increased in automobile sectors. These portfolio flows began in 1993 when India attracted more than $5 billion in few months and continued at the level of $ 2-3 billion per year till the Asian crisis. The year 1998 witnessed a marginal out flow from the India stock market but soon the inflows went back to the US$ 2-3 billion per year level. The above table shows that, annual rise is (8586.16 x 100) = 85 therefore 15 % decreased, Growth rate= 32.17 % increased on direct investment, 48 % decreased in portfolio investment and then 38 % increased in total investment.
6.2.1 FDI Growth Rate for Automobile Industry
The favourable Indian market conditions are acting as a catalyst for luxury and premium carmakers, which are receiving impetus from new launches. The top-end carmakers have posted double-digit growth for the quarter ended June 30, 2013, with firms like Honda at 45 per cent and Audi recording 28.8 per cent, besides others. The production of passenger vehicles in India was recorded at 3.23 million in 2012-13 and is expected to grow at a compound annual growth rate (CAGR) of 13 per cent during 2012-2021, as per data published by Automotive Component Manufacturers Association of India (ACMA).
152
TABLE - 6.10 FDI-GROWTH RATE-FOR AUTOMOBILE (%)
Year PAT % Sales % Total Income
1991-92 0.0 11.5 1.4
1992-93 0.0 4.2 8.2
1993-94 0.0 21.0 17.8
1994-95 228.6 35.6 33.0
1995-96 62.8 32.4 36.6
1996-97 16.1 19.2 18.6
1997-98 -4.8 -2.9 -3.8
1998-99 -30.2 1.4 4.2
1999-00 -16.0 32.0 23.4
2000-01 0.0 0.2 1.9
2001-02 0.0 2.3 3.2
2002-03 139.4 12.0 13.8
2003-04 69.6 22.2 24.4
2004-05 33.2 25.9 24.8
2005-06 36.5 14.8 15.9
2006-07 25.4 25.2 25.7
2007-08 12.2 11.1 11.5
2008-09 -31.4 3.4 3.4
2009-10 92.3 25.0 24.2
Source: Corporate Sector, CMIE, May 2000, Jan 2011, page-12 & 44
Profit after Tax growth is only after 1993-94 228.6% decreased to 16.1% at
1996-97 and gradually increased to 139.4 % (2002-03) and reduced to -31.4 % due to
US crises at 2008-09. Sales also 0.2% (2001-02) increased to 25%. (2009-10). Total
income growth rate of the automobile industry is increased from 3.4 (2008-09) to
24.2% (2009-10).
153
TABLE - 6.10.1 COMMERCIAL VEHICLE-GROWTH RATE (%)
Year PAT % Sales % Total Income % 1991-92 0.0 15.3 18.31992-93 0.0 -3.7 -1.3 1993-94 0.0 25.3 11.51994-95 371.0 42.6 48.21995-96 69.9 35.5 39.21996-97 29.2 24.9 25.31997-98 -64.9 -23.7 -24.0 1998-99 0.0 -8.6 -11.3 1999-00 0.0 33.1 36.62000-01 0.0 -5.4 -5.4 2001-02 0.0 7.8 6.4 2002-03 13.5 13.0 7.2 2003-04 68.5 25.5 14.22004-05 31.2 27.6 12.22005-06 3.6 19.4 9.5 2006-07 26.9 26.5 13.32007-08 5.2 14.8 5.3 2008-09 -20.1 3.2 1.3 2009-10 45.2 7.4 4.5
Profit after Tax growth rate of the commercial vehicle total income 48.2%
high (1994-95) decreased in the years 1997-98, 1998-99 and totally affected to 1.3%.
(2008-09). Therefore vehicle growth rate incomes are expected to decrease
significantly in developed countries including India.
6.2.2 Passenger Car and Multi Utility Vehicles
India is emerging as an export hub for sports utility vehicles (SUVs). Global
automobile majors are looking to leverage India's cost-competitive manufacturing
practices and are assessing opportunities to export SUVs to Europe, South Africa and
Southeast Asia too. India is also one of the key markets for hybrid and electric
medium-heavy-duty trucks and buses. Passenger car sales stood at 1.89 million units
in 2012-13. Additionally, share of luxury cars to the total passenger car market of
India is expected to increase to four per cent by 2020. The total number of passenger
cars in India is likely to touch around 8 million units by 2020, (Boris Fitz, 2012).
154
TABLE - 6.10.2 GROWTH RATE OF PASSENGER CAR AND MULTI UTILITY VEHICLE (%)
Year PAT % Sales % Total Income % 1991-92 0.0 9.5 7.1 1992-93 0.0 13.7 10.71993-94 0.0 30.1 24.61994-95 103.9 30.2 32.91995-96 86.4 45.3 47.41996-97 -13.5 19.4 17.11997-98 72.8 1.9 1.5 1998-99 -44.5 3.3 -1.6 1999-00 -17.6 31.3 31.62000-01 0.0 3.8 2.6 2001-02 0.0 -6.4 -6.0 2002-03 120 7.1 5.2 2003-04 39.3 13.5 10.22004-05 13.3 15.6 1.1.4 2005-06 13.3 9.2 12.32006-07 13.6 13.3 15.52007-08 6.2 7.4 51.52008-09 -11.4 1.1 1.5 2009-10 52.3 3.4 4.5
Source: CMIE-Corporate Sector, 2004, 2009 & January 2011-p-12.
Profit after Tax on Passenger Car and MUV is 103.9( 1994-95) decreased to
-44.5% ( 1998-99) and increased to 52.3%( 2009-10). Sales also increased from 7.1%
(2002-03) to 15.6%(2004-05) and decreased to 3.4 % ( 2009-10) and are expected to
remain stable in 2011-12 4.5 to 5 %.
Passenger Car Growth Rate: Excise duty hike, high interest rates and fuel
prices hit passenger car sales in April 2012. Sales in this segment grew a mere 3.4%
in the month, data from industry body Society of Indian Manufacturers Association
(Siam) showed. After record high sales in March, domestic passenger car sales grew
to 1,68,351 units in April 2011-12, from 2,29,866 units a month earlier. Growth in
the popular entry-level car segment crawled by a mere 0.7%, indicating the common
man is finding it tough to drive in their dream car.
Though overall commercial vehicles segment grew 4.3% in April (2012),
sales of medium and heavy truck and buses fell 11.6% to 19,914. Smaller light
commercial vehicles continued to buck the trend growing by 15.8% to 36,343.
155
TABLE - 6.11 GROWING TRADE, INVESTMENTS & FOREX RESERVES (In US $ bln)
Year Imports % Exports % FDI % FE Reserve %
2002-03 61.4 52.7 4.2 75.4
2003-04 78.2 27 63.8 21 3.1 -26 107 42
2004-05 111.5 43 83.5 31 2.6 -16 136 27
2005-06 149.2 34 103.1 23 5.5 112 142 4
2006-07 181.3 22 124.6 21 15.7 185 173.1 22
2007-08 253 40 163 31 24.57 56 281 62
2008-09 291 15 182.6 12 27.3 11 252 -10
2009-10 279 -4 177 -3 33 21 274 9
(Growth rate %) Source: ACMA Growing Trade page 5. , May 2010.
TABLE - 6.11.1 CO-EFFICIENT OF GROWING TRADE, INVESTMENTS &
FOREX RESERVES - ARIMA MODEL RESULT (In US $ bln)
Year ImportsActual Value
Predicted Value
ExportsActual Value
Predicted Value FDI Predicted
Value FE
ReservePredicted
Value
2002-03 61.4 48.75 52.7 66.92 4.2 46.95 75.4 55.78
2003-04 78.2 84.99 63.8 84.72 3.1 67.48 107 67.43
2004-05 111.5 121.22 83.5 107.27 2.6 88.00 136 81.52
2005-06 149.2 157.46 103.1 135.81 5.5 108.53 142 98.55
2006-07 181.3 193.69 124.6 171.96 15.7 129.05 173.1 119.13
2007-08 253 229.93 163 217.71 24.57 149.58 281 144.02
2008-09 291 266.16 182.6 275.65 27.3 170.10 252 174.10
2009-10 279 302.40 177 349.00 33 190.63 274 210.47
2010-11 --- 338.64 --- 441.88 --- 211.15 --- 254.43
2011-12 --- 374.87 --- 559.47 --- 231.68 --- 307.58
2012-13 --- 411.11 --- 708.35 --- 252.20 --- 371.83
2013-14 --- 447.34 --- 896.85 --- 272.73 --- 449.50
2014-15 --- 483.58 --- 1,135.51 --- 293.25 --- 543.39
156
TABLE - 6.11.2 Result for Growing Trade, Investments & FOREX Reserves
Linear Model
Compound Model L C L C
FOREX Reserve
Imports Exports FDI
R Square 0.961 0.958 0.965 0.963 0.886 0.845 0.903 0.926
F Value 149.11 136.78 166.35 154.96 46.79 32.63 55.90 74.88
P Value 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000**
A 12.51 52.85 26.42 46.13 -6.86 1.60 41.77 70.76
B 36.23 1.26 20.52 1.20 4.74 1.48 30.72 1.20
The general linear equation in n variables is:
In this form, a1, a2, …, an are the coefficients, x1, x2, …, xn are the variables,
and b is the constant. The forecasting equation for the linear trend model is:
Annual raise in Imports 26 percent, Growth rate raised on Exports are 20
percent, in FDI 48 percent and at FOREX Reserve increased to 20 percent. Imports
values are expected to increase significantly in the years to come from the year 2008-
09 ($174 US billion) to ($543.39US billion) in 2014-15.
Exports value increased in the year 2006-07 ($124.6billion), 2007-08( $163
billion), 2008-09 ($182.6billion), 2009-10 ($177 billion) and expected to increase in
the year 2010-11 ($231.8 billion), 2014-15(US$ 1,135.51billion).
157
TABLE - 6.12 VEHICLE PRODUCTION IN INDIA
(EXPECTED/ESTIMATED)
(In ‘000 units)
YEAR Passenger Vehicles SCVs LCVs M&HCVs
Two & Three
Wheelers Tractors
2009 2200 150 120 200 10230 420 2010 2987 170 130 267 14175 548 2015 (E) 5100 300 400 720 22075 710 2020 (E) 8700-9700 350 450 870 31618-33500 940-1050
Source: ACMA –EY Vision 2020 –p-13.
Figure 6.5 Vehicle Production in India
Passenger vehicle grow from 2798000 units at 2010 when compare to
2200000 units at 2009. All other SCV and LCV expected to grow gradually at 2015.
The overall Commercial Vehicles segment registered marginal growth of 0.75
percent in April 2013 as compared to the same month last year. Medium & Heavy
Commercial Vehicles (M&HCVs) registered negative growth at (-) 6.66 percent and
Light Commercial Vehicles grew at 4.81 percent. Within the Passenger Vehicles,
passenger cars and vans dropped by (-) 10.43 percent and (-) 13.42 percent
respectively, while utility vehicles grew marginally by 3.99 percent in 2012.
158
6.2.3 Automobile Segments Forecasting Process
Statistical Method and Delphi Technique used for forecasting, considering all
the relevant demand drivers for each segment. Econometric Model prepared after
considering an exhaustive list of relevant variables .
TABLE - 6.13 FORECASTS OF AUTOMOBILE SEGMENTS 2011-12
Automobile segments 2011-12 Growth over 2010-11 (per cent) 2014
Passenger cars 16 -18 % 3 - 5% Utility Vehicles 12 – 14 % 11-13%LCV (goods) 18 – 21 % 10-12%MHCV (goods) 10 – 12 % 1 – 3 %
Commercial vehicles (buses) 8 – 10 % 6 – 8 % Motorcycles 11 – 13 % 6 - 8% Scooters 15 – 17 % 6 – 8 % Three wheelers (Cargo) 4 – 6 % 3 – 4 % Three wheelers (passengers) 10 – 12 % 3 – 5 %
Automobile Industry 12 - 15 % 6 – 8 %
Inference: Overall, Passenger car, Utility Vehicles, MHCV, Motorcycles,
Three wheelers growth rate every year increased by 2% gradually. Other segments
increased by 3% growth every year. The overall sales in Passenger Vehicles
declined by (-) 8.21 percent in April 2012 and the segment grew at 4.66 percent
during April-March 2012 over same period last year.
Passenger Cars grew by 2.19 percent, Utility Vehicles grew by 16.47 percent
and Vans by 10.01 percent during this period. In March 2012, domestic sales of
Passenger Cars grew by 19.66 percent over the same month last year. Also, sales
growth of total passenger vehicle in the month of March 2012 was at 20.59 percent
(as compared to March 2011). For the first time in history car sales crossed two
million in a financial year.
159
The overall Commercial Vehicles segment registered growth of 18.20 percent
during April-March 2012 as compared to the same period last year. While Medium
& Heavy Commercial Vehicles (M&HCVs) registered a growth of 7.94 percent,
Light Commercial Vehicles grew at 27.36 percent. In only March 2012, commercial
vehicle sales registered a growth of 14.82 percent over March 2011.
Three Wheelers sales recorded a decline of (-) 2.43 percent in April-March
2012 over same period last year. While Goods Carriers grew by 6.31 percent during
April-March 2012, Passenger Carriers registered decline by (-) 4.50 percent. In
March 2012, total Three Wheelers sales declined by (-) 9.11 percent over March
2011.
160
TABLE 6.14 AUTOMOBILE INDUSTRY-COMPARATIVE PRODUCTION,
DOMESTIC SALES AND EXPORTS - APRIL 2011 (Number of Vehicles)
Category Production Domestic Sales Exports
Segment/Sub segment
April 2010
April 2011
(% change)
April 2010
April 2011
(% change)
April 2010
April 2011
(% change)
I Passenger Vehicles (PVs)
Passenger Cars 185,314 228,856 23.50 143.862 162.825 13.18 37,479 42,075 12.26
Utility Vehicles 25,282 27,559 9.01 24.923 26,481 6.25 358 379 5.87
Vans 14,363 19,220 33.82 13.318 18.298 37.39 87 273 213.79
Total Passenger Vehicles (PVs)
224,959 275,635 22.53 182,103 207,604 14.00 37,924 42,727 12.66
II Commercial Vehicles (CVs) MEHCVs
Passenger Carriers 3,947 3.346 -15.23 3.337 2.667 -20.08 554 430 -22.38
Goods Carriers 20,578 25.923 25.97 18.889 19.724 4.37 883 1.072 21.40
Total MEHCVs 24,525 29,269 19.34 22,236 22,391 0.70 1,437 1,502 4.52
LCVs
Passenger Carriers 4,025 4.521 12.32 4,481 3.321 -25.89 150 320 113.33
Goods Carriers 26,879 35.386 31.65 22,445 27,490 22.48 2.270 3,424 50.84
Total LCVs 30,904 39,907 29,13 26,926 30.811 14.43 2,420 3,744 54.71
Total Commercial Vehicles
55,429 69,176 24.80 49,162 53,202 8.22 3,857 5.246 36.01
III Three Wheelers
Passenger Carrier 52,602 61,400 16.73 25.967 25,418 -2.11 27.239 37.131 36.32
Goods Carriers 7,422 9,542 28.56 7,177 8.370 16.62 65 263 304.62
Total Three Wheelers
60.024 70,942 18.19 33,144 33,788 1.94 27,304 37,394 36.95
IV Two wheelers
Scooter 161,351 193.131 19.70 118.232 175.054 48.06 4.597 6,107 32.85
Motor cycles / Step-Throughs
798,566 958,391 20.01 656.096 809.565 23.39 127.336 169,575 33.17
Mopeds 52,025 59,400 14.18 51,304 59,351 15.68 525 185 -64.76
Total Two wheelers 1011,942 1210,922 19.66 825,632 1,043,970 26.44 132,458 175,867 32.77
Grand Total 1352,354 1626,675 20.28 1,090,041 1,338,564 22,80 201,543 261.234 29.62
1. Passenger Vehicles production increased to 23.5 percent. Domestic sales 13.18 percent and Exports 12.26 percent from the year 2010 to 2011.
2. Total Commercial vehicle increased to 24.80 percent, domestic sales to 8.22 percent and export increased to 36.01 percent from the year 2010 to 2011.
3. Overall production percentage increased from the year 2010 to 2011 to 20.28 , sales to 22.80 percent and export to 29.62 percent shows good growth of the automobile industry using FDI successfully in India.
161
SECTION 3
6.3 PASSENGER VEHICLES (PVs) COMPARATIVE PRODUCTION,
DOMESTIC SALES, AND EXPORTS-MARCH 2011
Objective of this section is to analyse the source of FDI in to Indian
passenger car segments and also provides trends in production, sales and investment,
export, imports process and technical aspects of the Indian Passenger Vehicle
Industry, and forecasts domestic sales as well as exports for each of the next five
years till FY 2012-15.
6.3.1 Comparative Production of Passenger Vehicles in India
With expected sales of 2.5 million passenger vehicles in FY 2011, India’s
passenger vehicle market ranks as world’s seventh largest, larger than markets like
United Kingdom, France and Spain by volume. India has been one of the few
markets globally to buck the recessionary trend and record a strong 25.6% volume
growth in FY 2010. The growth momentum continues to be on track with first
eleven months of FY 2011 registering a growth of 29.8%. Low penetration of
passenger vehicles (PV) in India provides a sustained long-term growth opportunity
for original equipment manufacturers (OEMs).
TABLE 6.15 TOTAL PASSENGER VEHICLES
Year Production Domestic Sales Exports
March 2010 2357411 1951333 446145
March 2011 2987296 2520421 453479
% Change 26.72 29.16 1.64
Source: Motor India May 2011 Statistics. Page-102.
162
Figure 6.6 Comparative Production of Total Passenger Vehicles
Total passenger vehicles sales, production and exports has been increased in
2011 shows the good revenue for automobile industries, and shows improvement in
FDI. Passenger Vehicle (PV) industry to grow by 6% and 12% in FY 2014 and FY
2015 respectively.
6.3.2 Passenger Vehicles and Utility Vehicles in India
Passenger cars and utility vehicles are the main segments of the Indian
passenger vehicle industry with the former accounting for 78% of total volumes.
India has primarily been a small-car market, mainly due to the high demand for a
cost-effective mode of transportation. Within the passenger car segment, small cars
comprising A1 and A2 segment account for almost 80% of total volumes. Within
industry, it is expected, the growth of utility vehicles (UVs) to normalize and be at
par with growth of passenger cars due to shift towards petrol cars on reversal of trend
in diesel-petrol price ratio.
The trends are analysed in depth for various vehicle segments, namely
passenger cars, utility vehicles and multi-purpose vans. The vehicles are further sub-
segmented based on their size in case of passenger cars and seating capacity in case
of utility vehicles. Various segments and sub-segments are appropriately associated
with the relevant products and companies for enhancing the understanding of the
competitive scenario in the industry.
0
500000
1000000
1500000
2000000
2500000
3000000
Production Domestic Sales Exports
Num
ber o
f Veh
icle
s
Total Passenger Vehicles
Mar-10
Mar-11
163
TABLE - 6.15.1 UVs (Utility Vehicles)
Year Production Domestic Sales
Exports
March 2010 272883 272740 2823
March 2011 318576 324212 3789
% Change 16.74 18.87 34.22
In the last quarter of Financial Year 2009, 2010 Hyundai Motor India Ltd, the
country's third largest car manufacturer and the largest passenger car exporter,
achieved the feat of selling 162,273 units as compared to 121,565 units sold in the
same period last year. In March 2010, exports grew 23,534 units in contrast with
21,405 units in same period a year ago. Even General Motors announced its plans of
exporting about 50,000 cars . Manufactured in India by 2011.
Figure 6.7 Comparative Production of Utility Vehicles
A compact MPV is a car classification used in Europe to describe multi-
purpose vehicle versions of small family cars (sometimes also referred to as
"compact cars"), fitting between the mini MPV and large MPV sub-segments. Some
compact MPVs referred to as six-seaters have three seats both in the front and rear
row — examples are the Fiat Multipla and the Honda FR-V.
0
50000
100000
150000
200000
250000
300000
350000
Production Domestic Sales Exports
Num
ber
of V
ehic
les
UTILITY VEHICLES
Mar-10
Mar-11
164
TABLE 6.15.2 MPVs. (Multi Purpose Vehicles)
Year Production Domestic Sales Exports
March 2010 151908 150256 1613
March 2011 215607 213507 2287
% Change 41.93 42.10 41.79
Figure 6.8 Comparative Production of Multi purpose Vehicles
In Utility vehicles and in Multi Purpose vehicles, Production, sales and
Exports increased gradually when compare to previous year. Production increased
substantially to 41.93 percent in the year 2011. Technology changes shrinking
economic distance and new management methods favour international production.
Impact is however countered by cyclical fluctuations in income and growth.
0
50000
100000
150000
200000
250000
Mar-10 Mar-11 % Change
Num
ber o
f Veh
icle
s
MULTI PURPOSE VEHICLE
ProductionDomestic SalesExports
165
TABLE - 6.16 SUMMARY REPORT FOR THE MONTH OF APRIL 2011 (Number of Vehicles)
Category Production Domestic Sales Exports
For the month
of
For the month
of
For the month
of
Segment/Sub segment April April April
Manufacturer 2010 2011 2010 2011 2010 2011
I Passenger Vehicles (PVs )A. Passenger Cars
BMW India Pvt Ltd 340 468 272 534 0 0
Fiat India Automobiles Pvt Ltd
1582 2139 1800 2049 222 166
Ford India Pvt Ltd 7206 9962 7226 7105 172 1167
General Motors India Pvt Ltd 11108 9456 8904 7941 53 29
Hindustan Motors Ltd 770 461 769 415 0 0
Honda Siel Cars India Ltd 3767 3530 3507 1990 2 0
Hyundai Motor India Ltd 54045 54558 28501 31604 23519 20422
Mahindra Renault Pvt Ltd 535 992 303 1006 150 0
Maruti Suzuki India Ltd 84300 99136 68668 73905 12937 9819
Mercedes-Benz India Pvt Ltd 355 509 297 467 0 0
Nissan Motor India Pvt Ltd 0 9460 24 1205 0 9431
Skoda Auto India Pvt Ltd NA 3013 1285 2314 0 0
Tata Motors Ltd 20446 21723 19762 19544 424 1041
Toyota Kirloskar Motor Pvt Ltd 860 5001 904 5458 0 0
Volkswagen - Audi 0 0 154 292 0 0
Volkswagen India Pvt Ltd NA 8448 1486 6996 0 0
Total A: Passenger Cars 185314 228856 143862 162825 37479 42075
Source: Primary data collected from the production companies 2009-10 and 2010-11.
Hindustan Motors Production and sales decreased when compared to 2010-11, and
no export growth for the years.
General Motors Sales and export growth also decreased due to financial crises.
Total passenger car production and sales were increased from the year 2010 to 2011
and export also increased from 37479 to 42075 units ( 2010-11).
166
6.3.3 Passenger Car Company wise Trends
Objective of this section is to compare and analyze the FDI inflows in
passenger car segment in terms of market size and growth rate of selected
companies. Superior small-car portfolio, a wide distribution and service network and
competitive pricing on the back of locally sourced auto components are going to be
the key factors in determining the success of a foreign OEM in the Indian market.
TABLE - 6.17 PASSENGER CAR COMPANY WISE TRENDS IN SALES FROM 2003 - 2010 (Rs. Crore)
Year Maruti Suzuki
HundaiMotor
Tata Motors
HondaSiel Car
Ford India GM Toyota
Kirloskar MahindraRenault
2003-04 10355.30 5490.52 3464.24 1516.33 1100.23 884.44 726.58 --
2004-05 12407.50 6930.17 4664.67 2525.26 1365.13 845.05 726.58 --
2005-06 13734.20 7867.72 5152.31 2928.83 1539.92 614.15 792.12 --
2006-07 16034.10 9283.09 6098.51 4634.08 2400.78 727.42 652.16 --
2007-08 19549.00 11179.41 6092.96 4835.12 2188.00 1716.45 641.50 1219.07
2008-09 21186.56 16336.82 7100.00 4191.08 1865.00 1664.53 806.71 677.21
2009-10 29602.10 20565.81 9585.45 4850.82 2196.74 2052.18 806.71 280.50
Year HindustanMotors
N.H Fiat
India
International Cars
&Motors Premier
Mercedes Benz
India Pvt
Total Sample
Companies
Total Sales
No .of Sample
cos.
2003-04 612.71 325.96 --- --- 335.15
2004-05 802.42 325.96 --- 1.55 498.58 31092.87 31100 11
2005-06 625.41 ---- 3.47 7.14 493.59 34867.15 35900 12
2006-07 597.80 71.56 21.89 16.85 643.84 42296.41 42300 15
2007-08 609.45 105.77 93.96 9.70 922.26 51331.94 51350 16
2008-09 492.74 151.71 197.46 9.48 956.84 58591.13 58600 16
2009-10 517.33 37.11 48.27 29.56 1164.84 77100.00 77200 17
Primary data collected from 13 companies 2010-11.
167
TABLE - 6.17.1 PASSENGER CAR COMPANY WISE TRENDS IN SALES
FROM 2003 TO 2010 - (Rs. Crore) Descriptive Statistics
N Minimum Maximum Mean S.D (Std. Deviation)
Maruti suzuki 7 10355.30 29602.10 17552.6800 6551.60197Hundai Motor 7 5490.52 20565.81 11093.3629 5471.66008Tata Motor 7 3464.24 9585.45 6022.5914 1958.40021Honda siel car 7 1516.33 4850.82 3640.2171 1319.38515Ford India 7 1100.23 2400.78 1807.9714 486.32894GM 7 614.15 2052.18 1214.8886 577.24742Toyota Kirlosker 7 641.50 806.71 736.0514 69.86429Mahindra 3 280.50 1219.07 725.5933 471.15191Hindustan motors 7 492.74 802.42 608.2657 99.77975N.H Fiet India 6 37.11 325.96 169.6783 126.85159International Cars and Motors 5 3.47 197.46 73.0100 77.44004
Premier 6 1.55 29.56 12.3800 9.75164Mercedes Benz 7 335.15 1164.84 716.4429 302.48816Total Sample companies 6 31092.87 77100.00 49213.2500 17041.74720
Total Sales 6 31100.00 77200.00 49408.3333 16904.62708No. of samples cos 6 11.00 17.00 14.5000 2.42899Valid N (list wise) 3
Source: Computed using Software SPSS output
TABLE - 6.17.2 COMPANIES TOTAL SALES, LINEAR &
COMPOUND MODEL
TOTAL COMPANIES TOTAL SALES Linear Model
Compound Model
LinearModel
Compound Model
R Square 0.947 0.988 0.946 0.989 F Value 71.34 329.61 70.51 365.75 P Value 0.001* 0.000** 0.001* 0.000** A 9324.85 20884.0 9853.33 21214.4 B 8864.09 1.1969 8790.00 1.1941
168
Linear Model, companies trends in annual sales has been decreased to 12 % and in compound mode, l the growth rate has been increased to 19 % in last two years from 2009 to 2011. In Compound model, P value is significant.
The composition of the domestic market makes India an attractive FDI destination for automobile components manufacturers. All the companies like Maruti, Hyundai, Tata motors, Honda Siel, GM and Toyota sales increased from 2003-04 to 2009-10, Mahindra Renault, sales started only from 2007-08 and decreased to only 280 Crore on 2009-10. It is because of poor car and petrol maintenance.
Hindustan Motors car sales also decreased from 2007-08 to 2009-10 from Rs. 609 Crore to Rs. 517.33 Crore. Fiat sales also decreased on 2009-10 and has planned to look at strengthening ties in the near future, whether this will result in a cross-holding equity alliance on the lines of VW-Suzuki remain to be seen though observes say it is a strong possibility.
� Mitsubishi, likewise has joined hands with Peugeot and reports have been doing the rounds that the two could end up working on a global car in India eventually.
� Renault’s cross-holding deal with Nissan has been the most successful alliance for years now.
� VW may not have quite got it right with Suzuki but has a host of other brands Skoda, Audi, MAN, Scandia and more recently Porsche.
� Maruti has increased sales and has already invested in developing infrastructure at Mundra port in Gujarat from where it exports A-star car to Europe.
� Honda Motor invest about $331 million on its production capacity expansion plan in India, Indian two-wheeler unit has invested about $331 million, approximately INR15 billion, on its production capacity expansion plan.
In addition to the favorable market and manufacturing environment in India, the presence of a large number of leading motor vehicle manufacturers has attracted a substantial base of non-Indian automotive parts producers. The size of the local vehicle assembly industry also offers sufficient production volumes to warrant the level of investment necessary to support component manufacturing operation in India.
169
TABLE - 6.18 PASSENGER CAR-COMPANY-WISE TRENDS IN MARKET SIZE (Percent)
Year Maruti Suzuki India
Hyundai Motor India
TataMotors
HondaSiel Cars
Fiat India
Ford India
G.M India Pvt
SkodaAuto India
BMW
2003-04 41.71 22.12 13.95 6.11 -- 4.43 3.56 -- --
2004-05 39.89 22.28 15.00 8.12 -- 4.39 2.72 -- --
2005-06 38.25 21.91 14.35 8.16 -- 4.29 1.71 3.09 --
2006-07 37.88 21.93 14.41 1.95 0.01 5.67 1.72 2.62 --
2007-08 38.05 21.76 11.86 9.41 0.18 4.26 3.34 2.27 1.78
2008-09 36.15 27.87 12.11 7.15 0.87 3.18 2.84 2.42 1.75
2009-10 38.34 26.64 12.42 6.28 3.00 2.85 2.66 2.24 1.71
ARIMA RESULT – Predicted value (Percent)
2010-11 36.07 36.15 27.01 26.97 11.61 11.66 6.71 6.13 3.13
2011-12 35.43 35.57 27.89 27.95 11.15 11.27 6.71 6.12 2.87
2012-13 34.80 34.99 28.77 28.97 10.69 10.88 6.70 6.11 2.61
2013-14 34.16 34.43 29.65 30.02 10.23 10.51 6.70 6.11 2.36
2014-15 33.53 33.88 30.53 31.11 9.77 10.16 6.69 6.10 2.10
170
Year Benz Toyota
Kirloskar Hindus Motors
Mahindra Renault
International Cars
New Holland Fiat Premier
2003-04 1.35 2.93 2.47 -- -- 1.31 --
2004-05 1.60 2.34 2.58 -- -- 1.05 --
2005-06 1.37 2.21 1.74 -- 0.01 -- 0.02
2006-07 1.52 1.54 1.41 -- 0.05 0.17 0.04
2007-08 1.80 1.25 1.19 2.37 0.17 0.21 0.02
2008-09 1.63 1.38 0.84 1.16 0.34 0.26 0.02
2009-10 1.51 1.04 0.67 0.36 0.06 0.05 0.04
ARIMA RESULT –predicted value in (percent)2010-11 3.06 2.53 2.52 1.68 1.68 0.59 0.87
2011-12 2.86 2.50 2.51 1.71 1.72 0.29 0.73
2012-13 2.66 2.47 2.49 1.75 1.76 -0.02 0.62
2013-14 2.48 2.44 2.48 1.78 1.80 -0.32 0.52
2014-15 2.31 2.41 2.47 1.82 1.84 -0.63 0.44
The predicted value of Maruti Suzuki decreased from 38.34 (2009-10) to 33.53(2014-15). Hyundai Motor value increased from 26.64 percent( 2009-10) to 33.88(2014-15), Tata Motors also increased from 12.42 ( 2009-10) to 30.53 (2014-15) Honda Siel changed from 6.28 to 31.11, Fiat India increased from 3 percent to 9.77 percent, Ford India 2.85 to 10.16, GM India rose from 2.85 to 6.69 , Skoda increased from 2.24 to 6.10 percent and BMW changed from 1.71 to 2.10 percent in 2014-15.
Benz value expected to increase from 1.51 (2009-10) to 2.31 percent , Toyota from 1.04 to 2.41, Hindus Motors 0.67 to 2.47, Mahindra from 0.36 to 1.82, International Cars Company from 0.06 to 1.84, New Holland Fiat from 0.05 to -0.63, Premier from 0.04 to -0.44 in the year 2014-15).
The number of new model launches has increased substantially, particularly in the higher priced/premium end of the segment. Being the largest segment by volumes, the small-car segment has witnessed the highest numbers i.e. 11 new launches in the last three years (of which five were launched in 2010) with major ones being Ritz, A-Star, Zen Estilo (from Maruti Suzuki), i10, i20 (from Hyundai), Indica Vista (from Tata Motors), Ford Figo, Chevrolet Beat, Polo (from VW) and Etios (from Toyota). In the near term, Honda is also expected to enter the small-car segment (with launch of Brio) and Toyota is expected to launch the hatchback version of Etios.
171
TABLE - 6.19 KEY STATISTISTICS FOR PASSENGER CARS (2004 To 2010)
Year Production ‘000 nos
ExportQuantity ‘000 nos
Exports Value
Rs.Crore
Imports Quantity ‘000 nos
Imports Value Rs.
Crore
Sales Value
Rs.Crore
2004-05 1030.1 20.8 433.1 0.1 1.7 31100
2005-06 1118.4 12.2 222.9 -- 1.8 35900
2006-07 1326.3 39.2 666.7 0.2 23.3 42300
2007-08 1543.0 40.4 646.9 0.2 21.9 51350
2008-09 1652.0 63.2 1370.0 0.1 13.3 58600
2009-10 2118.2 112.5 3275.7 -- 1.6 77200
Source: CMIE Industry Market size & shares, April 2011.
TABLE - 6.19.1 DESCRIPTIVE STATISTICS
(Passenger Cars Production, Export, Sales and Import values)
N Minimum Maximum Mean Std.Deviation
Production in 000's 6 1030.10 2118.20 1464.6667 399.05635
Export Quantity in '000 no. 6 12.20 112.50 48.0500 36.18827
Export value in crores 6 222.90 3275.70 1102.5500 1132.57582
Import Quantity in '000 no. 4 .10 .20 .1500 .05774
Import value in crores 6 1.60 23.30 10.6000 10.33363
Sales values in crores 6 31100 77200 49408.33 16904.627
Valid N (list wise) 4
Tata Motors, Mercedes Benz, GM, Hindustan Motors, Fiat, ford India and
Honda Siel Cards sales were estimated using production data from Society of India
automobile Manufacturers. In addition to strong domestic demand, India is well on
its path of becoming a global production hub for small-cars.
172
The growth in export volumes was particularly strong in FY09 and FY10,
benefitting from the demand arising largely from scrappage schemes offered by
most European nations. While the export growth in the current year has the affected
by higher base effect and repeal of scrappage scheme, the long-term prospects
continue to remain strong. While Hyundai Motors and Maruti Suzuki are leading
exporter accounting for over 90% of export volumes, other global players who have
recently marked presence in India are pursuing opportunities set-up India as their
manufacturing hub.
Nissan is expected to start exporting Micra to Europe. India has become the
largest export hub for Hyundai (outside Korea) with over 40% of its small car
production catering to export demand from India (2010-11). However, increased
focus on fuel efficiency and international demand moving towards small-cars also
augurs well for India. The industry is also witnessing a trend towards alliances or
platform sharing in the exports segment.
TABLE - 6.19.2 RESULT (Curve Fit) FOR PRODUCTION, EXPORT QUANTITY, EXPORT VALUE AND SALES VALUE
Compound & Linear Model:
Year PRODUCTION LINEAR
PRODUCTION COMPOUND
EXP_QTY LINEAR
EXP_QTY COMPOUND
EXP_VAL LINEAR
EXP_VAL COMPOUND
2005 946.24 999.84 4.29 14.46 -157.06 249.29
2006 1153.61 1150.95 21.79 21.21 346.79 388.56
2007 1360.98 1324.89 39.30 31.10 850.63 605.63
2008 1568.35 1525.13 56.80 45.62 1354.47 943.97
2009 1775.72 1755.63 74.31 66.91 1858.31 1471.33
2010 1983.10 2020.96 91.81 98.13 2362.16 2293.30
2011 2190.47 2326.40 109.32 143.93 2866.00 3574.49
2012 2397.84 2677.99 126.83 211.10 3369.84 5571.41
2013 2605.21 3082.73 144.33 309.61 3873.69 8683.95
2014 2812.58 3548.63 161.84 454.10 4377.53 13535.35
2015 3019.95 4084.95 179.34 666.01 4881.37 21097.03
11 11 11 11 11 11 11
173
TABLE - 6.19.3 PRODUCTION, QUANTITY, EXPORT VALUE,
Linear & Compound Model Result
Linear Model
Compound Model L C L C
Production Export Quantity Export Value
R Square 0.945 0.978 0.819 0.829 0.693 0.793
F Value 68.92 178.73 18.10 19.44 9.02 15.35
P Value 0.001 0.000 0.013 0.012 0.040 0.017
A 738.86 868.56 -13.220 9.8590 -660.90 159.93
B 207.37 1.15 17.50 1.46 503.84 1.55
Linear Mode l= Y = a + b t = 738.86 + 207.37 t
Compound Model = Y = a + (b ) = 738.86 + (207.37 t)
In 2006, the industry produced 10.9 million vehicles, an increase of 16.22%
over 2005. In 2005, production grew 14.5% over the previous year. The production
of the automotive industry growth rate of over 20 % in 2006-07 and 15 percent in
2007-08.
From the table 5.19, annual rise in production quantity 7 per cent increased
and Growth rate has also increased by 15 percent. Export increased up to 46 percent
export and value increased to 55 percent, Domestic sales value increased to 19
percent this year (2011-12).
174
TABLE 6.19.4 CURVE FIT FOR IMPORT AND SALES VALUE-
COMPOUND & LINEAR MODEL RESULT
YEAR IMPORT VALUELINEAR
IMPORT VALUE
COMPOUND
SALES VALUELINEAR
SALES VALUE
COMPOUND
IMPORT QTY
LINEAR
IMPORT QTY
COMPOUND
2005 8.27 3.79 27433.33 30251.00 .14 .13
2006 9.20 4.45 36223.33 36123.84 .14 .13
2007 10.13 5.23 45013.33 43136.81 .15 .14
2008 11.07 6.15 53803.33 51511.26 .15 .15
2009 12.00 7.22 62593.33 61511.49 .16 .15
2010 12.93 8.48 71383.33 73453.14 .17 .16
2011 13.86 9.96 80173.33 87713.11 .17 .16
2012 14.79 11.70 88963.33 104741.46 .18 .17
2013 15.72 13.74 97753.33 125075.64 .18 .18
2014 16.65 16.15 106543.33 149357.44 .19 .18
2015 17.59 18.97 115333.33 178353.23 .19 .19
11 11 11 11 11 11 11
TABLE - 6.19.5 IMPORT QUANTITY, VALUE, SALES VALUE -
LINEAR & COMPOUND MODEL RESULT
LinearModel
Compound Model L C L C
Import Quantity Import Value Sales Value
R Square 0.29 0.29 0.28 0.051 0.946 0.989
F Value 0.06 0.06 0.12 0.21 70.51 365.75
P Value 0.831 0.831 0.749 0.667 0.001* 0.000**
A 0.13 0.12 7.34 3.22 18643.3 25332.9
B 0.005 1.04 0.93 1.17 8790.00 1.19
From the table above table, annual rise in import value raised to 5 percent
and sales value also increased by 4 percent in the year 2011-12. ‘P’ value 0.005
shows that significant level for import quanity and sales value of passenger car
production.
175
TABLE-6.20 PASSENGER CAR AND MULTI UTILITY VEHICLES:
PRODUCTION, SALES AND EXPORTS- MARCH 2010 TO MARCH 2011
Year Production (Nos)
Production ( % chg)
Sales (Nos)
Sales % (% chg)
Export(Nos)
Export( % chg)
Mar 2010 2,36,608 23.9 2,39,935 20.6 40,281 19.2
Apr 2010 2,27,602 40.1 2,20,074 33.0 37893 28.6
May 2010 2,16,483 30.5 2,23,687 30.9 33112 11.3
June 2010 2,09,191 24.9 2,19,242 22.5 37432 -2.3
July 2010 2,45,153 31.4 2,36,792 30.5 34699 2.7
Aug 2010 2,46,000 31.7 2,42,506 25.3 38279 -7.4
Sep 2010 2,51,417 28.8 2,50,528 21.3 34896 -1.05
Oct 2010 2,59,228 31.6 2,71,804 31.6 39847 3.3
Nov 2010 2,33,233 10.3 2,33,969 13.0 31092 -22.8
Dec 2010 2,45,316 23.6 2,33,613 23.4 39928 -0.4
Jan 2011 2,60,363 18.3 2,66,936 18.0 32942 -14.7
Feb 2011 2,84,094 23.7 2,79,320 20.6 43799 19.4
Mar 2011 3,08,617 30.4 2,96,938 23.8 51097 26.9
Apr-Mar Apr-Mar Apr-Mar Apr-Mar Apr-Mar Apr-Mar
2010-10 2357411 28.2 2397478 27.0 446145 32.9
2010-11 2987296 26.7 2973900 24.0 453479 1.6
(Monthly figures may not add up to the cumulative total due to revisions.
Sales includes exports.)
Source: Monthly Review of Indian Economy, CMIE May 2011.
The following table shows the result of correlations for Production, Sales and
Exports.
176
TABLE - 6.20.1 CORRELATIONS FOR PRODUCTION, SALES AND EXPORTS
Production Sales Exports Production Pearson
Correlation 1 .953(**) .714(**)
Sig. (2-tailed) . .000 .006N 13 13 13
Sales Pearson Correlation .953(**) 1 .639(*)
Sig. (2-tailed) .000 . .019N 13 13 13
Exports Pearson Correlation .714(**) .639(*) 1
Sig. (2-tailed) .006 .019 .N 13 13 13
** Correlation is significant at the 0.01 level (2-tailed). * Correlation is significant at the 0.05 level (2-tailed).
� Production: Number of Production increased gradually from March 2010 to
March 2011, from 23.9 % to 30.4 % and decreased in the month of November
from 31.6 % to 10.3 % due to fuel hike and demand of materials.
� Exports: the cumulative annual growth rate of automotive exports during the
period 2000-01 to 2005-06 was 32.92 per cent. Exports during 2006-2006 and
2007-2008 are expected to grow over 20 per cent. Number of Export has been
decreased from the month April 2010 to January 2011. Total Export 32.9%
on April 2010, slightly raised to 1.6% in the year March 2011.
� Imports: Europe is the biggest importer of cars from India, while African
nations largely account for the import of buses and trucks. China is most
recently making inroads into this market.
� Sales: Passenger Vehicles: Growth in sales of passenger vehicles was 18.45%
in 2006. This was almost three times the growth witnessed in 2005. Sale of
passenger cars expanded by 20.0%. Export of passenger vehicles increased
by 12.9%. Sales also increased when compared to July 2010, from 20.6% to
30.5 % and overall sales has been decreased from the year 2010, 27 % to 24.0%
in the year 2011.
� Overall production, sales and export value has been decreased due to Policy
implication and fuel demand for the customers.
177
TABLE - 6.21 VEHICLE PRODUCTION IN INDIA- SEGMENT WISE
MARKET SHARE : (EXPECTED MARKET SHARE-ACMA)
YEAR Tractors %
Passenger Vehicle
%
SCVs%
LCVs%
Const.Equip.
%
M &HCV
%
Two &Three
Wheelers %2009 3 17 1 1 0 2 762015 (E) 2 18 2 1 0 1 762020 (E) 2 21 3 1 0 1 72
Source: SIAM – EY study-ACMA-page 11.
The figures show that the automobile sector in India has been growing
robustly. The market shares of the different types of vehicles will clearly depict the
demand pattern in this sector. Domestic Market Share for 2008 Passenger Vehicles
15.96%,and increased to 17 % at 2009 Commercial Vehicles 3.95% decreased to1%
in 2009-10 and for Three Wheelers 3.6%, Two Wheelers 76.49%., there is no growth
expected over the years.
Figure 6.9 Segment Wise Market Share for the year 2009
Fig.6.10 Segment Wise Market Share 2015 Fig. 6.11 Segment Wise Market Share for the year 2020 (Expected) (Expected)
178
TABLE 6.22 AUTOMOBILE–PASSENGER VEHICLE–TRENDS (Number of Vehicles)
Exports Production Sales
2004-05 166,402 1,209,876 1,061,572
2005-06 175,572 1,309,300 1,143,076
2006-07 198,452 1,545,223 1,379,979
2007-08 218,401 1,777,583 1,549,882
2008-09 335,729 1,838,593 1,552,703
2009-10 446,145 2,357,411 1,951,333
2010-11 453,479 2,987,296 2,520,421
Prediction Values(ARIMA –result)
2011-2,012 4,88,669 31,19,830 23,93,065
2012-2,013 5,45,579 32,58,770 26,32,403
2013-2,014 5,95,997 35,66,586 28,58,959
2014-2,015 6,47,642 38,40,422 30,79,622
Source: SIAM- Industry Statistics 2011.
TABLE-6.22.1 VARIABLES IN THE MODEL
B SEB T-VALUE P VALUE
AR1 -.188 .817 -.230 .832
MA1 -.997 87.286 -.011 .991
YEAR 41449.598 12368.310 4.159 0.252
CONSTANT -103023330.987 24835581.599 -4.148 0.254
Indian exports of automotive components more than tripled during the period,
with compound annual growth of 20 % and $ 1.8 billion in FY 2005-06, reached
estimated production 2987296 units in 2010-11, also estimated to increased in the
years to come. The ‘p’ value shows 0.991 significant level and constant at 0.254 is
accepted. Red lines indicates that value shows up 2011 and green lines indicates
predicted value will estimated to increase.(2014-15).
179
TABLE 6.22.2 AUTOMOBILE PASSENGER VEHICLE TREND
ARIMA RESULT
B SEB T-VALUE P VALUE
AR1 -.20122 1.7 -.119 0.912
MA1 -.980 27.9 -.035 .984
YEAR 279527.714 56602.2 4.938 0.159
CONSTANT -559406969.241 113657231.5 -4.921 0.160
Production value increased from 1209876 (2004-05) to 2987296(2010-11)
shows positive growth and ‘P’ value indicates that 0.991, and 0.254 at constant level
significant accepted. Production value estimated to increase in the year 2014-15.
TABLE - 6.22.3 PASSENGER VEHICLE-PRODUCTION
ARIMA RESULT
Variables in the Model:
B SEB T-VALUE P VALUE
AR1 .46106 2.4 0.195 0.857
MA1 .954 8.6 .111 .918
YEAR 215621.340 35265.3 6.114 .008
CONSTANT -431393065.513 70812787.5 -6.092 0.008
Sales of Passenger vehicles jumped 12.9 % by selling more than 3,48,800
units against 3.08,700 units sold during April-June 2006. June 2007, Indian
Passenger vehicle marking going strong with over 94000 units sold against over
80700 units in June 2006, a straight growth of more than 60 %. But sale of
commercial vehicle lagged behind by moving lightly over 4 % around 35900 units in
June 2007. In April 2010-11 total sales 2,520,421 from 1,951,333 units. (2009-10)
shows 20 % increase in sales volume.
178
TABLE - 6.23 AUTOMOBILES-DIESEL VS PETROL
Number of vehicles sold in the year 2011.
DIESEL PETROL
COMPANY BRANDS SALES % BRANDS SALES %
M & M Xylo, Scorpio, Verito 115353 97.47 Verito 3,000 2.53
Tata Motors Indica, Vista, Manza, Indigo 180,000 78.26 Indica, Vista, Manza, Indigo 50,000 21.74
Fiat Linea, Punto 6,500 61.90 Linea, Punto 4,000 38.10
Hyundai I20, Verna 50,000 45.45 I20, Verna 60,000 54.55
Suzuki Swift, Dzire 150,000 40.00 Swift, Dzire, SX4, Ritz 225,000 60.00
Ford Figo, Fiesta 31,000 27.93 Figo, Fiesta 80,000 72.07
VW Polo, Vento Jetta, Passat 10,000 20.00 Polo, Vento Jetta, Passat 40,000 80.00
GM Beat, Cruze 10500 18.92 Beat 45,000 81.08
Total 553,353 507,000
Source: Data collected from the production companies ( sales) in India 2011.
180
179
Figure 6.12 Automobiles-Diesel Vs Petrol
0
10
20
30
40
50
60
70
80
90
100
M & M Tata Motors Fiat Hyundai Suzuki Ford VW GM
97.47%
78.26%
61.9%
45.45%40%
27.93%
20% 18.92%
2.53%
21.74%
38.1%
54.55%60%
72.07%
80% 81.08%
Perc
enta
ge o
f Sal
es
CAR PRODUCTION COMPANIES
AUTOMOBILES-DIESEL VS PETROL
Diesel
Petrol
181
182
Italy’s largest car maker fiat may have had a disastrous 15 years in the Indian
car market, but it is more than making up for that with its dominance of car under the
hood. Tata motors, Maruti Suzuki and General Motors (GM), now powers their 16
variants, selling about 290,000 cars per annum.
Diesel Car Makers: European companies such as Volkswagen (VW),
Mercedes Benz, BMW, Renault, Peugeot and Opel have traditionally been the flag
bearers on the diesel engine. Maruti . Currently there are diesel cars with a price tag
of Rs. 4 lakh and more. The Nano, expected at sub-Rs. 3 lakh could just shape up
the market. Korean have reasons to worry because they have already made
investments on petrol engines in India. And it is the pivot on which India’s 2.2
million passenger vehicles market is fast turning into one of the world’s largest diesel
car hubs. It powered 50 percent of all diesel cars sold in India in FY 2011.
Petrol Car Makers: Japanese car makers Toyota, Honda, Suzuki, Nissan and
Korean counterparts Hyundai have invariably preferred making petrol cars.
Both Petrol and Diesel: American companies Ford and GM make both
smaller vehicles in petrol and largest ones in diesel, but tended to lean towards petrol
vehicles. Maruti Sub-4-meter compact SUV will be powered by K-series petrol and
diesel motors.
Toyota market share has risen from 2 percent to 4.1 % ever since the Etios
and Liva were launched. Toyota is also ramping up production from the current
200,000 units to 330,000 units by 2013. VW was able to sell 51,566 cars in 2011.
Compared with only 4,000 in 2010. Both Honda and Toyota petrol players whom
have lost their market share. Diesel cars have an overwhelming 75.2: 25 majority
among all vehicles that are sold with both petrol and diesel variants.
183
PASSENGER VEHICLES AND MODELS
SECTION – 4 (A)
6.4 OBJECTIVE AND HYPOTHESIS OF THIS SECTION
Objective of this section is to anlyse the Customer satisfaction and rank the
car manufacturing companies through pilot study using customers of car
manufacturing companies, car owners and business, travels people.
The domestic passenger vehicles industry has been on a relatively steady
growth phase over most of the last decade and has registered a 10 years CAGR of
10.3% during the period. It has been one of the few markets worldwide which saw
growing passenger car sales during the liquidity crisis and recessionary phase
witnessed during FY09. Buoyant economic growth, rising disposable income levels,
favourable demographics, strong growth from tier II/III cities and rural India,
together with improving availability of vehicle financing at competitive interest rates
have been the key factors fuelling growth in the Indian passenger vehicle market.
Among the emerging markets, India continues to have one the lowest car density,
estimated at 13 cars per 1,000 people compared to other markets such as China (45),
Brazil (160), and Indonesia (42).
The growth has also been supported by OEM (Original Equipment
Manufacturers) led initiatives like whole host of new model offerings from both from
existing companies as well as new entrants in the market. Furthermore, in India, the
car prices have remained relatively flat over the years (adjusted for the decline in
duties) compared to steadily rising per capita income levels.
In addition to the strong domestic demand, the OEMs have also been
positioning themselves as competitive small-car makers, benefitting from India’s
technological capabilities in the manufacturing small-cars, scale economies and a
well-established component supplier base.
184
For the purpose of this study, cars of all the Segments types included are:
1. Small Hatchbacks
2. Big Hatchbacks
3. Mid-size Sedans
4. Executive Sedans
5. Luxury Sedans
6. Super Luxury Dedans
7. MUVs/MPVs
8. SUVs
9. Premium Cars
10. Spots Cars
11. Greens Cars.
TABLE-6.24 CAR MANUFACTURER AND NUMBER OF THEIR CAR MODELS (Diesel and Petrol)
Cars-including each models -December 2011 in India
ASTON MARTIN
AUTDI BENTLEY BMW BUGATTI FERRARI FIAT
12 22 4 27 3 4 18
FORCEMOTORS
FORD GM HINDUSTAN MOTORS
HONDA HYUNDAI ICML
2 14 31 9 20 35 3
JAGUAR LAMBORGHINI LAND ROVER
MAHINDRA MARUTI SUZUKI
MASERATI MERCEDES-BENZ
4 3 6 25 53 7 28
NISSAN PORSCHE PREMIER AUTO
ROLLS-ROYCE
RENAULT SKODA TATA MOTORS
16 10 3 2 3 28 42
TOYOTA VOLKSWAGEN VOLVO
32 21 7
50 New Cars introduced at 2012. GRAND TOTAL= 494 + 50 = 544
Source: Car India Article Dec-2011.
1. According to the data collected from the Car Owners 90 percent respondent’s opinion about their cars including new model car, quality, reliability, colour , maintenance, spare parts availability, etc. ( Middle Class People-High Class and Travel/Business)
185
Figure 6.13 Car Manufacturer & Number of Their Car Models (Highest Producer of Car Companies)
Figure 6.14 Car Manufacturer & Number of Their Car Models (Highest Producer of Car Companies 2011)
2 23 3 3 3 3
4 4 4
67 7
910
0
2
4
6
8
10
12
1214
1618
20 21 2225
27 28 2831 32
35
42
53
0
10
20
30
40
50
60
No.
of C
ar M
odel
s N
o.of
Car
Mod
els
186
TABLE - 6.25 SELECTED CARS FROM - CAR OWNERS, DRIVERS, TRAVEL AND BUSINESS PEOPLE’S POINT OF VIEW
Name of the Car Model
Highly Satisfied Satisfied NA Average Poor Score
No of Response
Remarks Type/Value
Audi Sport back
* 5 20 Executive Sedan
Audi A8 * 5 15 Super Luxury
BMW-3 series
* 5 3 Luxury
BMW-6 Series
* 5 5 Super Luxury
Ferrari
Italia
* 2 10 Sports car
Fiat LINEA * 4 15 Executive
Ford FIGO * 3 20 Big Hatchback
Ford Fiesta * 4 15 Mid Size
GM-Spark * 4 15 Small Hatch backs
HM-Mitsubishi
* 5 10 SUVs
HM-CEDIA * 15 Mid Size
Honda CITY * 4 10 Mid Size
ACCORD * 4 10 Luxury
Hyundai SANTRO
* 3 20 Small H.B
I10 * 4 20 Small H.B
I20 * 4 12 Big HB
M & M XYLO
* 3 8 SUVs
SCORPIOVLX
* 3 5 SUVs
Maruti ALTO-LX
* 1 20 Small HB
187
Name of the Car Model
Highly Satisfied Satisfied NA Average Poor Score
No of Response
Remarks Type/Value
A-Star * 3 5 Small HB
RITZ * 3 10 Big HB
SWIFT * 4 20 Big
DZIRE * 5 22 Executive
SX4 * 4 8 Executive
Mercedes Benz-E-class
* 5 5 Mid Size 88 lakhs
R-Class * 4 4 MUVs 80 Lakhs
Nissan-MICRA
* 4 8 Big l HB 7 lakhs
Skoda FABIA
* 4 8 Big HB 7 Lakhs
LAURA * 5 9 Super Luxury 18 Lakhs
TATA INDICA
* 3 20 Big HB 5.30Lakhs
VISTA * 4 16 Big HB 5.50Lakhs
SUMO * 3 12 MPVs9.36
TOYOTA ETIOS
* 5 15 Big HB 6.57
VW-POLO * 4 12 Big HB 7.94
VW-PASSAT
* 5 10 Luxury 29.84
VOLVOS & XC-90
* 5 5 Luxury 40 to 50 lakhs
TOTAL RESPONSE
447/500
Source: Primary data –Questionnaire 1-output.
188
Figure 6.15 Percentage of response of all types of Cars: December 2011
20 percent response from the car users is on executive cars, 15 percent
response for Luxury cars, 30 percent for super luxury, 15 percent for Big and small
Hatch Bags cars including all types of car and models.
TABLE - 6.26 REVIEWS BY TOP 20 BRANDS-CUSTOMER VIEWS
1 Maruti Suzuki 11 Mercedes-Benz
2 BMW 12 Tata
3 Audi 13 Hyundai
4 Toyota 14 Skoda
5 Volkswagen 15 Ford
6 Honda 16 Chevrolet
7 Nissan 17 Mahindra
8 Volvo 18 Fiat
9 Mitsubishi 19 Porsche
10 Rolls Royce 20 Bentley
0%20%40%60%
80%100%
Luxury Super Luxury
Big Hatch Bags
Small Hatch Backs
Driver Owners Travels Business
Perc
enta
ge o
f res
pons
e
189
� Important standard on measuring a vehicle's quality and long term tests is
the willingness of a manufacturer to back up its products. Considering
this, Maruti, Hyundai and General Motors, with long lasting warranties,
are some of the top car manufacturers that score high.(30% including
maintenance, spare parts available, fuel consumption, comfortable etc).
� BMW Car owners response 10 percent only because of luxury car but
reliability and power, it is super brand car in India.
� Audi, the German luxury car manufacturer, continued its excellent
performance in India this year with a sale of 5117 cars from January –
November 2011, thus, surpassing its annual sales target for the year in
first eleven months – an impressive growth of 83 percent. 20 percent
response from the people about the car.
� Toyota is number one for customer satisfaction in the majority of
European countries and has built an excellent reputation across Europe
for reliability and customer service got 40 percent response from all class
people. (including Etios, Innova)
� Ford India's with its 'Most Awarded Car - Ford Figo an engaging and
elevating affair by covering 28 cities, mostly wanted by the middle class
people. (30 % response from the consumers).
� Spacious interiors, solid build and a proven diesel engine come together
to make this a sensible ‘small car’ to buy Mahindra Verito: Rs 4.8 lakh,
Engine: 1.5-litre diesel.20% response from Business people.
� The Mahindra Reva NXR seems to have become a permanent fixture on -
new car list.20% response from Business class people. More powerful
lithium ion batteries, a range of 160km per charge and a claimed top
speed of 104kph makes the NXR the more practical of the two, Price: Rs
3.5-4.5 lakh.
190
TABLE 6.27 DETAILS OF TOP FDI INFLOWS RECEIVED IN AUTOMOBILE INDUSTRY
(Remittance-wise - through Indian companies, January, 2000 to December, 2011)
Name of Indian Company Country
Name of Foreign
Collaborator
Market Share %
FDI Inflow Rs. In. Crores
Rank Top Automobile Company
VE COMMERCIAL
VEHICLES LTD.
Sweden AKITEBOLAGET
VOLVO
1,082.13
NISSAN MOTOR
INDIA PVT LTD
Netherlands NISSAN INTL
HOLDING BV
1.5 1,025.80 10
MARUTI UDYOG LTD Japan SUZUKI MOTOR
CO.LTD.,
37 1,000.00 1
INDIA YAMAHA
(HONDA) MOTORS
PVT LTD
Japan YAMAHA MOTOR
CO LTD
2.9 750.00 8
MAHINDRA &
MAHINDRA LTD.
Cyprus GOLBOOT
HOLDINGS LTD.
1400.00
FIAT AUTOMOBILES
PVT LTD
Italy FIAT AUTO SPA 637.79
FORD INDIA LTD U.S.A FORD MOTOR
COMPANY
3.2 546.77 7
RENAULT NISSAN Japan NISSAN MOTOR 450.00
FIAT INDIA
AUTOMOBILES PVT
LTD.
Italy FIAT AUTO SPA 431.84
VOLKSWAGEN
GROUP
SALES INDIA PVT
LTD
Netherlands VOLKSWAGON
AG
2.4 418.17 9
Hyundai Motors Japan SUZUKI MOTOR
CORPN
14.4 348.51 2
TATA Motors India TATA MOTORS
LIMITED
13.1 300.00 3
MAHINDRA &
MAHINDRA LTD
Mauritius VARIOUS
INVESTORS
11.4 275.40 4
TOYOTA Japan NISSAN MOTOR
COMPANY LTD.
6.4 263.40 5
GENERAL MOTORS
INDIA LTD
U.S.A GENERAL
MOTORS ASIA
PACIFIC
HOLDINGS LLC
3.3 250.50 6
Grand Total 12,381.09
Source: RBI Fact sheet 2011.
191
The Country specific FDI inflows data on in respect of Automobile industry
is available only for the period January, 2000 to December,2011. Cumulative FDI
Equity Inflows (remittance-wise) received during January, 2000–Dec, 2011 were Rs.
747,985.14 crores . Out of this, the amount of FDI inflows in the Automobile
industry during January, 2000 to December, 2011 is Rs. 29,898.95 crores, which is
3.98% of the total FDI inflows. The above table shows, Company wise ranking,
made according to customer’s preference and market share value.
TABLE - 6.28 LIST OF SUPER 10 CARS- INTROUDUCED IN INDIA-2012
SL.NO Name of the Car Model Price
(Approximately)
1 Mercedes-Benz SLR McLaren Roadster $495,000
2 Arie Atom 3
3 Porsche Porsche $194,000
4 Lamborghini Murciélago LP 670-4 SV $450,00
5 Koenigsegg CCXR $2 million
6 Aston Martin One-77 $1.75 million
7 SSC Ultimate Aero, $600,000
8 Ferrari 612 Scaglietti $315,000
9 Bentley Continental Supersports $250,000
10 Bugatti Veyron 16.4 Fbg par Hermés $2,465,430.
1. Mercedes-Benz SLR McLaren Roadster, one of the super car, While the
deceleration from its 205-mph top end is good, bringing it down from 25 mph is
a clumsy business.
2. Ariel Atom 3 is the best car. It easily accelerates from 0-60 mph in about three
seconds, and there are speculations that a V8 version is on its way. Rightly, the
car's price should dip sown to $20,000, mainly because it is a bike on four wheels.
3. Porsche Porsche have included the in this list mostly because of greed, and also
because of the integrity of the Porsche brand.
4. Lamborghini Murciélago LP 670-4 SV, is one of the supercars that should
really become affordable. It will take extra $96,000 to get minor body tweaks, 30
more horsepower, a little less weight (220 pounds), and a little extra speed.
192
5. Koenigsegg CCXR, Swiss car makers are known for their exotic products. The
E85-capable supercar, of which there are six examples, demands a million-odd
dollar jump over other models
6. Aston Martin One-77, Price: Approximately $1.75 million, Everybody wants
to drive like James Bond, and one of the best among them. But with all the
exclusivity and sophistication it has on offer, it is overly priced. Paying millions
for a One-77 does not make much sense.
7. SSC Ultimate Aero, Till recently, the SSC Ultimate Aero held the record for
being the fastest supercar on the planet, but Bugatti Veyron spoiled the show by
snagging the record. But still, this car, with a speed of 255.83 mph, holds a
special corner in the hearts of the speed junkies.
8. Ferrari 612 Scaglietti, The 612 Scaglietti is one of the Ferraris that should be
made affordable. Sometimes even a decent chap deserves to experience a V12
Ferrari, and the 612 is quite spacious too.
9. Bentley Continental Supersport, This green car runs on bio-fuel with 85 per
cent ethanol. While the environmental friendliness would get some brownie
points. It is another supercar.
10. Bugatti Veyron 16.4 Fbg par Hermés, It is one of the most expensive
Volkswagen is the Bugatti Veyron 16.4 Fbg par Hermés edition... This supercar
makes it to top of our list of supercars that should be made affordable.
193
SECTION 4 (B)
CUSTOMER SATISFACTION ON FOREIGN CARS MADE IN INDIA
To explore the relationship between Customer satisfaction, Customer Loyalty
and Word of mouth (WOM) Communication in the passenger car segment in India,
the framework of this study was developed based on American customer satisfaction
Index by Claes Fornell and et al (1996). The brands chosen are from the companies
like BMW, Mercedes Benz, Volkswagen, Maruthi Suzuki, Hyundai and Fiat.
The variables used are Perceived Quality, Perceived Value, customer Loyalty,
Customer Satisfaction and customer expectation and these variable are borrowed
from American customer satisfaction Index by Claes For Nell and et al (1996).
The purpose of this study is to identify the relationship between FDI
Investments in the above mentioned companies, customer satisfaction and its
antecedents and consequences. To identify the customer expectations, perceived
quality, perceived value, customer satisfaction, and customer loyalty were
measured by 18 questions (Fornell, Johnson, Anderson, Cha, & Bryant, 1996).
6.4.1 Profile of respondents
The majority of respondents were males (n=166, 82%) and with regards to
educational qualification, there are 30% professional degree, 20% post graduate, 30%
under graduate and the rest is pre degree. The three categories of employment the
respondents belong were studied are private enterprise, public enterprise and self
employed. The self employed with 44%, public enterprise with 21% and private
enterprise was 35%.
TABLE 6.29 DESCRIPTIVE STATISTICS
Variables Mean Standard Deviation Number of ItemsCustomer Expectations 4.07 0.55 3Perceived Quality 3.96 0.65 3Perceived Value 3.82 0.61 2Customer Satisfaction 3.55 0.66 2Customer Loyalty 2.87 1.05 2Word of Mouth Activity 3.73 1.04 2Word of Mouth Praise 3.33 0.96 3
Source: Output from SPSS (Primary Data)
194
The descriptive statistics include the mode, mean and standard deviation of
the raw score of each of the variables as given the respondents. The mean values for
the 7 variables on Likert scale ranged from 2.87 to 4.07 and the S.D ranged from
0.55 to 1.04. the highest mode and maximum mean were found to be the same for
the variable, Customer Expectation, with the standard deviation being above average.
TABLE - 6.29.1 RELIABILITY STATISTICS
Cronbach's Alpha N of Items
.774 7
Variables Cronbach Alpha (�)
Customer Expectations 0.742
Perceived Quality 0.837
Perceived Value 0.784
Customer Satisfaction 0.687
Customer Loyalty 0.902
Word of Mouth Activity 0.816
Word of Mouth Praise 0.812
Assessing the Reliability of an Index, reliability is satisfied. One way is to
examine the internal consistency of the index used a coefficient known as
Cronbach’s alpha. It is ranges from 0 to 1 the higher the average inter item.
Correlation, the greater the value of � reflected a higher internal consistency for the
Index.
Overall customer satisfaction is a more fundamental indicator of the firms
past, current and future performance. Cronbach’s alpha is equal to 0. 774 the value
of 0.7 considered at normal level of scale reliability and internal consistency value
0.7 is considered acceptable. A value of Alpha in excess of 0.9 is considered very
good level of scale reliability and customer loyalty is very good and considered
acceptable.
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TABLE 6.29.2 INTER-ITEM CORRELATION MATRIX
Variables Customer Expectations
Perceived Quality
Perceived Value
Customer Satisfaction
Customer Loyalty
Word of Mouth Activity
Word of Mouth Praise
Customer Expectations
1.000
Perceived Quality .436 1.000
Perceived Value .349 .645 1.000
Customer Satisfaction
.269 .529 .522 1.000
Customer Loyalty .150 .273 .370 .493 1.000
WO M Activity .325 .329 .233 .208 .383 1.000
WOM Praise .189 .165 .227 .316 .586 .424 1.000
From the above table it is observed that slightly higher correlation between
Customer expectation and customer loyalty because both traits are measured using
the Likert Scale are positive.
Testing the Goodness of Fit of Factor Models with Exploratory Factor
Analysis, the data suggest the number of factors and thus interpretation find choice
of Model could only be justified subjective criteria and “rule of thumb”. The Factor
Analysis was applied to the responses obtained from Passenger Car customers on
various aspects related to customer satisfaction and expectation.
196
6.4.2 Factors underlying customer expectation
II. TABLE 6.30 DESCRIPTIVE STATISTICS OF THE ITEMS
Items with Question number MeanStandard Deviation
Number of Samples (N)
7.OVERALL EXPEC 4.22 .655 504
8.REQUIREMENTS 4.01 .658 504
9.LIKELIHOOD OF REPURCHASE 2.99 1.039 504
22.MENTION ABOUT CAR 3.75 1.110 504
23.TOLD MORE PEOPLE 3.72 1.084 504
25.TALK ABOUT COMPANY 3.09 1.102 504
26.GOOD THINGS TO SAY 3.55 1.128 504
27.PROUD TO SAY 3.35 1.149 504
20.PRICE INCREASE REPURCHASE 2.74 1.134 504
21.PRICE DECREASE REPURCHASE 3.01 1.244 504
13.QUALITY FOR PRICE 3.84 .679 504
14.PRICE FOR QUALITY 3.80 .659 504
10.QUALITY EXPI 3.92 .693 504
11.PERSONAL REQU 4.09 .776 504
12.RELIABILITY EXP 3.86 .747 504
24.SELDOM MISS AN OPPORTUNITY 3.10 .998 504
9.RELIABILITY 3.97 .708 504
16.FALLS SHORT OR EXCEED EXPEC 3.57 .753 504
17.IDEAL PRODUCT OR SERVICES 3.52 .745 504
Source: Output from SPSS version 19.0-Primary Data.
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6.4.3 Confirmatory Factor Analysis (CFA)
CFA enables us to test how well the measured variables represent the
constructs. A conceptual grounded theory can be tested using CFA explaining
different measure items represent important psychological, social or business
measures. Post hoc analysis helps us to fit the model better and thereby two items got
eliminated.
Construct validity is the extent to which a set of measured items actually
reflects the theoretical latent constructs. Construct validity has four important
components:
(1) Convergent validity (2) Discriminant validity (3) Nomological (4) Face
validity.
120
6.4.4 Determination of Convergent Validity and Construct Validity
TABLE 6.31 AVERAGE VARIANCE EXTRACTED AND CONSTRUCT VALIDITY
Items Customer Loyalty
Perceived Quality
Word of Mouth Praise
Word of Mouth
Activity
Customer Expectation
Perceived Value
Customer Satisfaction
Item Reliabilities Sum
Standardised error Variance
(Delta)19.Likelihood of Repurchase
0.855 0.731 0.27
21.Price Decrease Repurchase
0.833 0.694 0.31
20.Price Increase Repurchase
0.789 0.623 2.047 0.38
11.Personal Requirements 0.849 0.721 0.2812.Reliability Experience 0.735 0.540 0.4610.Quality Experience 0.732 0.536 1.797 0.4626.Good things to say 0.833 0.694 0.3127.Proud to Say 0.798 0.637 0.3625.Talk about Company 0.689 0.475 1.805 0.5322.Mention about Car 0.881 0.776 0.2223.Told More People 0.868 0.753 0.2524.Seldom miss an Opportunity
0.579 0.335 1.865 0.66
8.Requirements 0.839 0.704 0.307. Overall Expectations 0.809 0.654 0.359.Reliability 0.698 0.487 1.846 0.5114.Price for Quality 0.774 0.599 0.4013.Quality for Price 0.744 0.554 1.153 0.4516.Fall Short or Exceed Expectations
0.7860.618 0.38
17.Ideal Product/Services 0.659 0.434 1.052 0.57Average Variance Extracted (AVE) (in %) 68.23 59.90 60.17 62.17 61.53 57.65 52.60 Construct Reliability 0.86 0.82 0.82 0.83 0.82 0.72 0.69
198
199
Convergent Validity: A good rule of thumb is an AVE of 0.5 or higher
indicates adequate convergent validity. An AVE of less than 0.5 indicates that on
average, there is more error remaining in the items than there is variance explained
by the latent factor structure you have imposed on the measure. The AVE is above
0.5 which indicate adequate convergent validity for all the constructs.
The above table presents the convergent validity of all the constructs using
composite reliability. Individual Item’s reliability was checked using Cronbach’s
alpha, whereas to test the reliability of the construct or latent variables, composite
reliability was used. The construct reliability varied from 0.69 to 0.86, satisfying
the criteria of 0.6.
Construct reliability (CR) is also an indicator of convergent validity (Hair et
al). It is computed from the sum of factor loadings, squared for each construct and
the sum of the error variance terms for a construct using the below formula. Note:
error variance is also referred to as delta.
The rule of thumb for a construct reliability estimate is that 0.7 or higher
suggests good reliability. Reliability between .6 and .7 may be acceptable provided
that other indicators of a model’s construct validity are good. High construct
reliability indicates that internal consistency exists. This means the measures all are
consistently representing something.
� �
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n
ii
CR
1 1
2
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200
Discriminant validity is the extent to which a construct is truly distinct from
other constructs. This compares the average variance extracted (AVE) estimates for
each factor with the squared inter construct correlations (SIC) associated with that
factor, as shown below:
TABLE 6.32 DETERMINATION OF DISCRIMINANT VALIDITY
Constructs AVE Squared Inter construct correlation (SIC)
Customer Loyalty 0.68 0.10 0.20 0.50 0.02 0.20 0.38
Perceived Quality 0.60 0.14 0.03 0.25 0.56 0.49
Word of Mouth Praise 0.62 0.26 0.15 0.09 0.06
Word of Mouth Activity 0.60 0.04 0.07 0.15
Customer Expectation 0.62 0.16 0.12
Perceived Value 0.58 0.53
Customer Satisfaction 0.53
All variance extracted (AVE) estimates in the above table are larger than the
corresponding squared inter construct correlation estimates (SIC).
This means the indicators have more in common with the construct they are
associated with than they do with other constructs.
Nomological Validity and Face Validity
Nomological validity is tested by examining whether the correlations among
the constructs make sense. In this study the correlations among the constructs are
significant both at 0.01 and 0.001 levels.
Face validity must be established before theory testing with an understanding
on item’s content or meanings. The face validity has been carried by few domain
experts.
201
6.4.5 HYPOTHESIS
Research Hypothesis - Primary Data
H1: There is no significant difference between Customer Expectations and
Perceived quality.
H2: There is no significant difference between Perceived quality and
Perceived value.
H3: There is no significant difference between Perceived Value and
Customer Loyalty.
H4: There is no significant difference between Customer Loyalty and
Customer satisfaction
H5: There is no significant difference between Customer satisfaction and
Word of Mouth Praise
H6: There is no significant difference between Word of Mouth praise and
Word of Mouth Activity
H7: There is no significant difference between Word of Mouth activity and
Word of Mouth Praise
H8: There is no significant difference between Customer Expectation and
Word of Mouth Activity
These above hypotheses were tested with SEM (Structural Equation Model)
and the outcome were presented.
Conceptual Framework and Hypothesis ( Primary Data)
H2 H3 H4 H5
H1 H7 H6
H1 H6 H8
Customer Loyalty
Customer Satisfaction
Word Of Mouth - Praise
Perceived Value
Perceived Quality
Word of Mouth - Activity
Customer Expectations
202
Figure 6.16 American customer satisfaction Index by Claes Fornell – Model
203
TABLE 6.33 PARAMETER ESTIMATES, T-VALUES AND GOODNESS OF- FIT MEASURES FOR THE CONSTRUCTS
A confirmatory Factor Analysis (CFA) with AMOS 5.0 Graphics software
(SEM version 19.0) for the measurement model with five constructs was performed.
Parameter Estimate Significant/ Not Significant
Squared Multiple correlation
Customer_Loyalty_1 1.00 0.840Customer_Loyalty_2 0.864 (15.096) Significant 0.757Perceived_Quality_1 1.000 0.697Perceived_Quality_2 0.948 (11.781) Significant 0.593Perceived_Quality_3 0.857 (12.006) Significant 0.612Word Of Mouth_ Activity_1
1.00 0.890
Word Of Mouth_ Activity_2
0.932 (12.315) Significant 0.737
Word Of Mouth_Praise_1 1.00 0.655Word Of Mouth_Praise-2 0.801(9.323) Significant 0.438Word Of Mouth_Praise_3 0.986 (11.554) Significant 0.686Customer_Expectations_1 1.00 0.309Customer_Expectations_2 1.257(6.995) Significant 0.573Customer_Expectations_3 1.344( 7.033) Significant 0.663Perceived_Value_1 1.00 0.604Perceived_Value_2 1.098 (10.653) Significant 0.689Customer_Satisfaction_1 1.00 0.604Customer_Satisfaction_2 0.869 (8.440) Significant 0.453
NOTE: t-values are in parentheses; all are significant (t > 2.00) (J. Anderson 1987).
AMOS Output (AMOS, a statistical software package for structural equation
modeling, produced by SPSS)
All factors loadings were significant and varied from 0.45 to 0.75 satisfying
the convergent validity criteria, as show in the above Table 6.33.
204
TABLE 6.34 CFA MODEL FIT SUMMARY
Goodness of fit Statistics Values Desirable values
�² value with 98 df 182.39
CMIN/DF 1.861 Less than 2 is desirable
RMR 0.041 Less than 0.05 indicates well fitting model
GFI 0.910 Value between 0.9 and 1.0 indicate better model fit
AGFI 0.859 Values close to 1 indicate better model fit
RFI 0.864 Values close to 1 indicate better model fit
CFI 0.951 Value between 0.9 and 1.0 indicate better model fit
IFI 0.952 Value between 0.9 and 1.0 indicate better model fit
RMSEA 0.065 Less than 0.07 indicates good fit
Source: Output from SPSS (SEM)
RMR = 0.041(Root mean square residual), GFI =0.910( Goodness-of-Fit Index);
AGFI =0.859(Adjusted Goodness of-Fit Index); RFI = 0.864 (Relative Fit Index);
CFI =0.952(Comparative Fit Index); IFI = 0.952( Incremental Index of fit); and
RMSEA = 0.065 (Root mean square error of approximation). The goodness-of-fit
statistics indicated that most criteria met the recommended value in the measurement
model [(�²)/df = 1.861 at p = 0.000.
6.4.6 Structural Equation Modeling (SEM)
According to our Hypothesis, Structural Equation Model was developed to
assess the statistical significance of the proposed relationships between overall
Customer satisfaction and its dimensions.
Customer Satisfaction as the Endogenous variable and all the other variables
Perceived Quality, Perceived Value, Customer Loyalty, Word of Mouth praise, Word
of Mouth Activity as the Exogenous variables.
SEM is a statistical methodology that takes a confirmatory (i.e., Hypothesis
testing) approach to the structural theory bearing on some phenomenon. SEM lend
itself well to the analysis of the data for Inferential purposes.
205
6.4.7 Model specification
When SEM is used as a confirmatory technique, the model must be specified
correctly based on the type of analysis that the researcher is attempting to confirm.
When building the correct model, the researcher uses two different kinds of variables,
namely exogenous and endogenous variables. The distinction between these two
types of variables is whether the variable regresses on another variable or not. As
in regression the dependent variable (DV) regresses on the independent variable (IV),
meaning that the DV is being predicted by the IV. In SEM terminology, other
variables regress on exogenous variables. Exogenous variables can be recognized in
a graphical version of the model, as the variables sending out arrowheads, denoting
which variable it is predicting.
A variable that regresses on a variable is always an endogenous variable,
even if this same variable is also used as a variable to be regressed on. Endogenous
variables are recognized as the receivers of an arrowhead in the model. It is
important to note that SEM is more general than regression. In particular a variable
can act as both independent and dependent variable.
TABLE 6.35 REGRESSION WEIGHTS
(GROUP NUMBER 1 - DEFAULT MODEL)
Estimate S.E. t-value PPerceived_Quality <--- Customer_Expectation 0.705 .137 5.132 ***Perceived_Value <--- Perceived_Quality 0.755 .083 9.089 ***Customer_Satisfaction <--- Perceived_Value 0.881 .108 8.132 ***Customer_Loyalty <--- Customer_Satisfaction 1.061 .154 6.885 ***Word Of Mouth_Communication-Praise
<--- Customer_Loyalty 0.664 .081 8.237 ***
Word Of Mouth_Communication-Activity
<--- Customer_Expectation 0.787 .203 3.869 ***
Word Of Mouth_Communication-Activity
<---Word Of Mouth_Communication-Praise
0.589 .104 5.638 ***
Word Of Mouth_Communication-Praise
<---Word Of Mouth_Communication-Activity
-0.085 .097 -.875 .382
** *indicates P< 0.001 is significant and positive.
206
Word of Mouth Communication and Word of Mouth Activity is negative and
concluded that they did not have a direct significant influence on customer
satisfaction.
HYPOTHESIS AND MODEL RESULT
H2 H3 H4 H5
0.755 0.881 1.061 0.664
H7 H6-0.08 0.589
H1 O.705
H80.787
All the null hypothesis were rejected except H7
Figure 6.17 Hypothesis and Model Result
TABLE 6.36 SEM Model FIT SUMMARY �
Goodness of fit Statistics Values Desirable values �² value with 111 df 203.515CMIN/DF 1.833 Less than 2 is desirable RMR 0.045 Less than 0.05 indicates well fitting
model GFI 0.900 Value between 0.9 and 1.0 indicate better
model fit AGFI 0.862 Values close to 1 indicate better model fit RFI 0.866 Values close to 1 indicate better model fit CFI 0.946 Value between 0.9 and 1.0 indicate better
model fit IFI 0.947 Value between 0.9 and 1.0 indicate better
model fit RMSEA 0.064 Less than 0.07 indicates good fit
�
RMR = Root mean square residual, GFI = Goodness-of-Fit Index; AGFI = Adjusted
Goodness of- Fit Index; RFI = Relative Fit Index; CFI = Comparative Fit Index ;IFI
= Incremental Index of fit; and RMSEA = root mean square error of approximation.
Perceived Quality
Customer Expectations
Perceived Value
Word Of Mouth - Praise
Customer Satisfaction
Word of Mouth - Activity
Customer Loyalty
207
Relationship between constructs Supported/NotSupported�
Perceived Value Customer Expectations Supported�
Perceived Value Perceived Quality Supported�
Customer Satisfaction Perceived Value� Supported�
Customer Loyalty�����������������Customer Satisfaction � Supported�
Word of mouth Praise Customer Loyalty� Supported�
Word of mouth Activity Customer Expectations Supported�
Word of mouth Activity Word of mouth Praise� Supported
Word of mouth Praise Word of mouth Activity Not Supported���
The results provided strong support for all the variables which indicates
positive and direct role of all the variables affecting customer satisfaction.
However, Word of Mouth Praise and Word of Mouth Activity were found to have
either very low or negative parameter estimates.
Therefore, it was concluded that they did not have a direct significant
influence on Brand of Cars, Customer Satisfaction. There fore all null hypothesis
were rejected except H7. The inter correlation between all the variables Customer
Loyalty, Perceived Quality, Customer Expectation, Perceived Value and Customer
Satisfaction were significant and positive.
Hence, Word of Mouth Activity and Word of Mouth Praise might not affect
Customer satisfaction by influencing Customer Loyalty there by select Car Brand.
208
Figure 6.18 ACS Model estimate Customer Satisfaction to select a
Brand of Car