Especially as the initial policy did not have any mention of localisation content, export obligations or production quotas.

This coupled with the vast potential of a lucrative domestic market saw international auto majors drive into India.

Where there were only three domestic manufacturers producing about 1.20 lakh vehicles per year, there are now as many as 15 auto manufacturers, with planned capacities in excess of a staggering 11.81 lakh units by the year 2000. These planned capacity expansions, incidentally, do not include the capacities of the nation's largest automotive manufacturer namely -- Maruti Udyog Ltd (MUL) which has capacities in excess of three lakh vehicles per annum. Given these kind of capacities, obviously the question that springs to mind is: whether the demand can soak up these capacities?

Unfortunately, going by the available data, the answer to this questionlies in the negative. Currently, the capacities for cars and sports utility vehicles in the country is around 7.84 lakh vehicles per annum, including the 3 lakh of MUL.

Now consider the demand scenario, which enjoyed three good years from 1992 to 1995, with demand growing at an exponential compounded annual growth rate of nearly 24.5 per cent. Reflecting this explosion in demand is the growth in unit terms from 2.03 lakh units in 1992 to almost 3.90 lakh vehicles in 1995.

However, since then the growth in demand has tapered off with figures for 1998-99 set to reveal a negative growth of 8 to 10 per cent.

Vehicular sales for 1998-99 have clocked a miserable 4.56 lakh units (for the period to February 1999), which were the sales levels breached by the automotive sector way back in 1996.

1Thus even if the automotive industry (which is likely to finish the year with sales of 4.7 lakh vehicles), were given a hypothetical growth scenario where demand did grow in the next two years at an exponential rate of30 per cent year-on-year, the demand would only account for a mere 7.94 lakh vehicles.

This would still leave Indian automotive companies with capacities in excess of nearly seven lakh vehicles per annum come the year 2000.

Furthermore, given that India is currently in the throes of an economic slowdown one can expect a mere single digit growth at best in the next two years.

All of which reveals that the most serious problem facing the automotive industry is that of overcapacity, and that overcapacity is likely to persist for quite some time. The build-up of production capacities in the country has been far greater than than even the most optimistic projections of demand.

The problems for car manufacturers will only be compounded, by the government's insistence to adhere to the WTO norms and allow free imports of second hand cars.

Importantly, the possibility of developing large scale exports as an alternative is also bleak at best in the interim, given the Asian crisis which has ruined the ASEANcar markets. All of which once again points to a possible shakeout in the domestic automotive industry, wherein only the players with deep pockets will survive! The domestic automotive industry suffered years of stifling controls until 1991, where motor vehicles and cars in particular were viewed as luxuries subject to strict government control and crippling taxes.

A result of which was a scenario with only three domestic vehicle manufacturers, producing around 1.20 lakh vehicles a year.