Testing Times Ahead For India’s Booming Two-wheeler Market

India has emerged as the world’s largest two-wheeler market leaving behind China and Japan. In the financial year 2016-17, a total of 17.7 million two-wheelers were sold in India. According to the Society of Indian Automobile Manufacturers (SIAM), India sold 17.7 million two-wheelers in 2016 (over 48,000 units every day), against China’s sales of 16.8 million two-wheelers.

China’s domestic motorcycle market has seen a downturn in recent years as the Chinese domestic market is highly regulated with about 200 municipalities and cities banning motorcycles completely from their downtown areas. “The Chinese market has been coming down from the highs of 25 million or so from a few years back,” says Sugato Sen, deputy director general of SIAM.

As for Japan, companies now control over a third of our domestic two-wheelers market. The nation has the potential to move ahead in the global rankings in the upcoming years with Yamaha and Honda leading the charge.

Market dynamics

The two-wheeler sector contributes to around 7 per cent to our gross domestic product. It has the largest market share of automobile sector in India, holding 78 per cent of the market. The two-wheeler industry in India is basically divided into three segments – motorcycles, scooters, and mopeds. The bulk of India’s two-wheeler sales come from commuter motorcycles and automatic scooters.

Indian and foreign two wheeler companies are concentrating more on exports, particularly from India to Vietnam, Thailand, Indonesia, Middle East, Latin America and African nations, where two-wheelers business is exhibiting colossal potential.

In order to keep up with the growing demand, several automakers have started investing heavily in various segments of the industry over the last few months. The industry has also attracted foreign direct investment worth $15.79 billion during the period April 2000 to September 2016, according to data released by Department of Industrial Policy and Promotion (DIPP).

The government’s push

The goods and services tax is sure to bring in more to the automobile sector by doing away with the complex indirect tax network. The Indian government has been stressing on the infrastructure sector by allocating huge funds in the consecutive annual budgets which give the automobile industry a reason to rejoice. The government aims to make automobiles manufacturing the main driver of its ‘Make in India’ initiative, as it expects the passenger vehicles market to triple to 9.4 million units by 2026, as highlighted in the Auto Mission Plan 2016-26.

Emission norms and much more

Earlier this year, the Supreme Court banned the sale and registration of Bharat Stage III (BS-III) vehicles from 1 April 2017, drawing a strong line on environmental issues. Two-wheeler majors such as Hero MotoCorp, Bajaj Auto and Suzuki Motorcycle had to offer massive discounts of up to Rs 22,000 on existing BS-III models to liquidate stocks after the decision was rolled out.

As a result, the two-wheeler industry took a Rs 600-crore hit due as there were close to 671,000 unsold BS-III units at the end of the financial year. However, the market is far from being discouraged as companies are affirmative of rolling back and registering positive growth in 2017.

“If there were any unsold inventory left, we had the possibility to export as we are a big exporter to around 70 countries across the world,” S Ravikumar, Bajaj Auto president (business development and assurance), told Press Trust of India.

The market holders had already made provisions to comply with the new law. Pawan Munjal, chairman, Hero MotorCorp said, “I welcome this move by the Supreme Court in the interest of public health. Hero MotoCorp recognizes the need of the hour. We had reduced our BS-III inventory significantly in the past few months with the aim to minimize our stakeholder losses.”

Road ahead

With setbacks of demonetization and ban on BS-III vehicle sale, the growth of India’s two-wheelers industry might slow down. While India has made remarkable progress in building new roads, highways, expressways and support infrastructure such as airports, ports, railways and power plants, infrastructure growth has not kept pace with growing demand.

The growth of the two-wheeler market can be owed to a growing middle class, young population and increasing per capita income of the country. It is imperative to recognize that infrastructure is a major driver of growth for the auto industry. Thus, the government’s effort for better infrastructure will unlock rural demand for vehicles and help India realize its true potential in personal mobility.