From import substitution to integration into global production networks: the case of Indian automobile industry

Abstract

This paper examines the growth trajectory and the current state of Indian automotive industry, paying attention to factors that underpinned its transition from the import-substitution phase to export orientation through integration into global production networks. Following the liberalisation reforms, India has emerged as a significant producer of compact cars within global automobile production networks. Interestingly there are no significant differences in prices of compact cars sold in the domestic and foreign markets. This suggest that cost competitiveness of Indian cars sold in foreign markets is not rooted solely in the prevailing high tariffs on imported cars in India. Market confirming policies implemented over the past two decades, which marked a clear departure from the protectionist past, have been instrumental in transforming the Indian automobile industry in line with ongoing structural changes in the world automobile industry. Capacity development propelled by the entry of global carmakers and parts and components producers to set up production bases in the country and leaning through competition in foreign markets have been the key factors behind India's emergence as a production base within global automobile production networks.