Indian Automobile Industry

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1. INTRODUCTION :

Indian automobile industry embarked on a new journey in 1991 with delicensing of the sector and subsequent opening up for 100 percent FDI through automatic route. In view of this, the study attempts to estimate the economic performance of Indian automobile industry in terms of capacity utilization at an aggregate level. It estimates econometrically rate of capacity utilization in the industry at aggregate level and analyses its trend during the post liberalization period from 1991-92. The study also tries to assess the impact of various factors influencing capacity utilization. In this paper, optimal output is defined as the minimum point on the firm’s short run average total cost curve and the rate of capacity utilization is merely ratio of its actual output to capacity output level. We use an econometric model to determine the optimal capacity output. Our result shows that capacity utilization has been improved after the path breaking economic reforms initiated in 1991 at the rate of around 5 percent per annum but capacity grows more rapidly than output growth. In view of identifying several factors that influence capacity utilization, result suggests that coefficient of export-intensity variable, import penetration ratio are negative which indicate that capacity utilization was relatively lower in firms belonging to industry characterized by high export-intensity and import penetration. A positive relationship is found between size and capacity utilization and similarly between market share and capacity utilization Indian automobile industry went aboard on a new journey in 1991 with delicensing of the sector and subsequent opening up for 100 percent FDI through automatic route. Since then ,almost all the global majors have set up their facilities in India taking the level of production from 2 million in 1991 to 9.7 million in 2006[SIAM,2007-08].The growth of Indian middle class with increasing purchasing power along with strong growth of

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