Indian automobile manufacturers are scaling up production, unfazed by rising inflation.
The Indian commerce ministry has announced that it has set India’s export target at $200 billion for 2008-2009. This export target is a part of India’s trade policy initiative that runs from 2004 to 2009. In 2004-2005, the first year of the new policy, exports were at $63 billion. In 2007-2008 exports reached $155 billion, and for the past four years exports have been growing at a compound rate of 26%. The export policy explicitly states India’s goal of having a 5% share of world trade by 2020, which implies a 12% annual rate of growth in exports for the next 12 years.
India’s export ambitions face at least one major risk factor: rising inflation. The central bank, the Reserve Bank of India (RBI), has expressed concern that a higher export target could put more pressure on prices. By the end of March, estimated inflation in India had crept up to 7.41%, the highest level in three-and-a-half years, largely driven by energy, food and industrial commodity prices. The RBI has begun to tighten money supply in order to bring inflation down to its target rate of 5%. The government has also waded into the fray, banning the export of food and certain other commodities such as cement and steel that are critical to infrastructure and housing construction.
The prospects of higher inflation and slowing real economic growth have not fazed global automobile manufacturers in India. Automobile manufacturers such as Hyundai, Suzuki, General Motors and Ford are all scaling up their production capabilities. Toyota, which currently has a 5% share of India’s 1.2-million-a-year market for passenger cars, has announced the most aggressive expansion. By 2010 it aims to account for 15% of India’s automobile production, which is expected to double to 2.4 million by that time. Toyota will soon begin production at its second manufacturing plant, with a 100,000-unit production capacity, near Bangalore.