FDI IN AUTOMOBILE INDUSTRY AND ROAD FATALITIES IN INDIA

By G.T. Manjula, School of Economics and Management South West Jiao Tong University 111, 1st Section, Northern Second Ring Road, Chengdu, Sichuan 610031 China

Affiliations: Bachelors of Engineering in Electronics, Bangalore University Master of Business Administration, Webster University of America Pursuing PhD in Finance, South West Jiao Tong University

ABSTRACT

This paper attempts to explore the possible influence of FDI inflows into Indian automobile industry on sharp rise in road traffic fatalities lately. The increase of road accidents is closely linked with the rapid growth of population, economic development, industrialization and motorization experienced by the country. The automobile sector in India has been attracting huge FDI lately and automobile sector has been growing rapidly due to large proportion of youth opting for ownership of automobiles including cars and two-wheelers due to impressive increase in per capita income during the last two decades. This has lead to increased accidents on roads in India. After highlighting the inflow of FDI into automobile sector and its growth and expansion, we have shown an alarming increase in road accidents. Then a regression analysis is conducted with road accidents in India by treating it as endogenous variable and FDI, number of vehicles and per capita income as exogenous variables. The analysis is done with time series data for all the variables after conducting the necessary statistical tests. The results show a positive relation, which supports the claim of this paper that FDI is one of the reasons for increased road accidents in India.

KEY WORDS: Road accidents, FDI, India, Vehicles.

1. INTRODUCTION:

Attracting foreign direct investment, (FDI), has become an integral part of the new economic development strategy of India during the post-reform period. Foreign direct investment has raised the pace of economic growth of India to a higher plateau since the 1990s. For the past two decades there has been a surge in the economic prosperity of India due to an impressive inflow of FDI. The amount of foreign direct investment reached USD 1.95 billion in March 2009. The major sectors which have attracted FDI into India include services, telecommunication, housing and real estate, power and automobile industry. Table 1 shows the sectoral inflows of FDI into India in the first decade of the 21st Century.

Table 1: Ranking of Sector-wise FDI Inflows into India (From April 2000 to December 2009)

Source: Fact sheets on FDI, Department of Industrial Policy and Promotion

It may be observed from Table 1 above that the automobile sector ranked 7th in the total inflow of FDI into the Indian economy.

Chart 1: Sectors Attracting Highest FDI Inflows From 1991 to 2005

Source: www.dipp.nic.in/fdi_statistics/India_top_sectors.pdf

From Chart 1 we can see that the transport industry has been receiving huge FDI inflows after electrical equipments sector. As the Indian economy has been rapidly expanding, it has been experiencing rapid growth of automobile industry which has been producing and selling ever more number of automobiles in the country. Presently, India is the world's largest manufacturer of tractors, second-largest manufacturer of two-wheelers, and fifth-largest manufacturer of

commercial vehicles. The production of motor vehicles in India has risen from two million in 1991 to 9.7 million in 2006, nearly seven per cent of global automobiles production and 2.4 per cent of four wheelers production, ( Suman, 2007). Table 2 below shows the trend growth of registered automobiles in India.

Table 2: Total Number of Registered Vehicles in India: 1951 to2004

As the Indian economy was booming in the first decade of the 21st Century, sales of passenger vehicles and commercial vehicles in India skyrocketed till 2008. This was facilitated by easy availability of bank loans for buying automobiles. Two decades ago there were only about 12 brands of passenger cars. Today the number of brands has increased to as many as 80. The automobile industry in India happens to be the ninth largest in the world. Following Japan, South Korea and Thailand, in 2009, India emerged as the fourth largest exporter of automobiles. India has an annual production of approximately about 2.3 million units. Confederation of Indian Industry has reported that Indian automobile industry embarked on a new journey since 1991 with delicensing of the sector and subsequent opening up for 100 per cent FDI through automatic

route. Almost all the global majors have set up their production facilities in India taking the next level of production of vehicles from 2 million in 1991 to 100 + million in 2009. The following data gives a picture about Automobiles Industry in India:

Largest Three Wheeler Market in the World 2nd Largest Two Wheeler Market in the World 4th Largest Passenger Car Market in Asia & 10th Largest in the world 4th Largest Tractor Market in the World 5th Largest Commercial Vehicle Market in the World 5th Largest Bus & Truck Market in the World

Though FDI inflow has boosted the economic growth of India, on the downside of it, there are a number of negative effects on the host country which cannot be ignored. The huge inflow of FDI into automobile industry has created adverse environmental effects particularly in urban areas. Ever increasing automobile sales has increased the total number of vehicles on the road to such an extent that it exceeds the carrying capacity of the roads of the country. On top of this, increased number of motor vehicles has been causing traffic jams, grid locks etc., in most of the cities. What is worst are the negative environmental effects produced by increased density of motor vehicles in the urban areas? The increased number of vehicles plying on the roads in the major cities of India cause noise pollution, air pollution and increase pot holes on roads by damaging the roads, cause inconvenience for the pedestrians who lack safe foot paths. Cities have become clouds of toxic chemicals from the unrestrained use of vehicles burning fossil fuels.

Noise pollution which is a major source of stress for humans, leads not only to stress-related diseases but also to sleepless nights, aggression and irritability.

Air pollution caused by vehicular emissions lead to serious health diseases of humans. The health effects caused by air pollutants may range from subtle biochemical and physiological changes to difficulty in breathing, wheezing, coughing and aggravation of existing respiratory and cardiac conditions. These effects can result in increased medication use, increased doctor or emergency room visits, more hospital admissions and even premature death. Motor vehicles produce high levels of carbon monoxides (CO) and a major source of hydrocarbons (HC) and nitrogen oxides (NOx). Carbon monoxide (CO), an odorless, colorless gas that can cause sudden illness and death, is found in combustion fumes produced by cars and trucks. Carbon monoxide emission is on a rise in India due to increased number of trucks plying on the roads carrying raw materials and finished goods to and from the factories and industries which are on a rise due to FDI inflows into the country. The contribution of India to global carbon dioxide emissions is around 4 per cent, though it has 17 per cent of world population.. Apart from noise and air pollution, road accidents, leading to fatalities has become a serious concern in India. Consequent on the growth and expansion of automobile industry, Indian roads are experiencing an increasing number of new cars, bikes, buses, and trucks plying on them. This increase in the number of vehicles plying on the roads has increased the density of road traffic which in turn has increased road accidents and fatalities lately. Besides, the length of national highways and state highways has increased phenomenally after economic reforms which have encouraged reckless driving resulting in road accidents.

Many Indian automobile manufacturers have spread their operations globally as well; asking for more investments in the Indian automobile sector by the MNCs. India is also becoming the ultimate outsourcing destination for global automobile companies like Ford, Mitsubishi, Toyota, Hyundai etc. The entry of foreign brands into Indian automobile sector has become a great hightech showpiece. As new technology floods into vehicles, consumers are starting to become indifferent to safety features in their cars and bikes. Attractive new features in new brands have become distractions to drivers thus leading to accidents. It is estimated that road accidents cause an estimated loss of 1 per cent of the country's gross domestic product. According to the World Bank, developing countries lose approximately $100 billion every year due to road crashes, which is twice the amount of all development aid provided by donors to developing countries. Table 3 below shows the number of road accidents and fatalities in India from 1994 to 2004. Table 3: Number of Road Accidents in India from 1994 to 2004

Graph 1: Road Accidents and Number of Vehicles in India from 1994 to 2004

The Graph 1 shows that from 1994 to 2004, the number of road accidents and the number of vehicles owned show an increasing trend, indicating that with the rise in vehicle ownership, there is an increased flow of vehicles on roads which is one of the possibilities for the rise in road accidents. In India, over 80,000 persons die in the traffic crashes annually, over 1.2 million are injured seriously and about 300000 disabled permanently. India overtook China to top the world in road fatalities in 2006. In India, road fatalities skyrocketed to 118,000 in 2008. A lethal brew of poor road planning, inadequate law enforcement, a surge in the number of trucks and cars plying and a flood of untrained drivers have made India the worlds road death capital. (Timmons and Kumar, June 2010).

2. LITERATURE SURVEY: The studies relating to the analysis of road fatalities in India have explained that poor quality of roads, traffic violations, drivers fault, passengers fault, bad weather, mechanical defect in the

vehicles are the major causes for road fatalities. (Mishra, 2003). Very limited research has been attempted to investigate the influence of growth and expansion of automobile industry in a

country on road fatalities. This paper has attempted to fill this gap. In the past two decades, India has witnessed rapid urbanization, motorization, industrialization and migration of people

spurred by rapid socioeconomic development. With mechanization and revolution in technology, traditional ways of living and working are being altered (Gururaj, 2005).The growth in the number of motor vehicles that accompanies economic growth usually adds to an increase in road traffic accidents (Kopits, and Cropper, April 2003). India is witnessing phenomenal growth of the vehicular traffic due to population growth and far reaching socio-economic transformation not only in urban India but also rural Bharat. (Valli, August 5, 2004). The inevitable consequence of such sharp increase in the number of vehicles is increase in the number of accidents. The Indian government permits 100% FDI on the automatic route in mass rapid transport system in all metros including associated real estate development. Though transportation does not have an intrinsic purpose in itself and is rather intended to enable other economic activities such as production, consumption, leisure, and dissemination of knowledge to take place, (Yevdokimov, 2007), in India ineffectively regulated transportation system is posing a threat to the society and a invisible burden on the economy of the country due to its negative impact. So in this paper, we have tried to relate the FDI inflows to the number road accidents as an inevitable side effect of sharp increase in the number motor vehicles produced and allowed to ply on roads. Road accidents are caused by many factors such as drunken drivers, poor traffic management, bad roads, total lack of observance of traffic rules, lax legal deterrents, corrupt traffic police, jaywalking pedestrians and a deadly mix of slow and fast-moving traffic etc.

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However, this study is limited to an investigation of the possible influence of FDI inflows as one of the causes of road accidents in India.

3. STATISTICAL ANALYSIS: The hypothesis of this paper is that road accidents in India are rising with the increase in economic growth caused by FDI inflows into the country and increase in the total number of vehicles due to increase in per capita income of the people. Time series data is considered with eleven observations. A linear relationship between the road accidents, FDI inflows and number of vehicles on the road and per capita income can be represented in the form of the following regression equation with residual . Rd = + 1 FDI + 2 TV+ 3 PI + Where: Road Fatalities (Rd) = , (FDI), FDI inflows into India, (TV), total number of vehicles and (PI), per capita income. We have used the data for all these variables for period of eleven years from 1994 to 2004. After running regression, we have obtained the following regression results:

Road fatalities = 290.059 + 0.010598251FDI + 0.1408592 TV -0.002462046

The results show a strong correlation between road fatalities and total number of vehicles registered, (meaning purchased), each year, and a moderately high correlation between road accidents and FDI inflows, and finally between road fatalities and per capita income. The results do not violate any of the assumptions of linear regression for the time series data. The F-

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statistics and p-value of F-statistics show that the model is significant and the road accidents are influenced strongly by both FDI inflows and the number of vehicles, but beta value is negative for per capita income, indicating that increase in per capita income does not affect the number of accidents on the roads. The beta values for FDI inflows into the country and total number of vehicles are positive though the degree to which they exert influence on road fatalities is low. But since they are positive one cannot ignore the fact that these two variables, i.e. FDI inflows and total number of vehicles do influence the occurrence of road accidents. In other words, this analysis shows that the total number of vehicles does increase the number of road accidents. The economic boom in the country has lead to the increased purchase and ownership of vehicles which consequently has led to serious impact on the safety of vehicle owners and drivers.

4. CONCLUSIONS: The forgoing empirical exercise shows that road accidents are influenced positively by FDI inflows and total number of vehicles owned by the people. Considering the various factors causing road accidents; this result is quite significant. Road accidents in India have been on a continuous rising trend which entails economic cost to the country and social cost to the victims and their families. The government policies on Indian automobile industry have been framed in order to encourage the expansion of the automobiles sector in India. The policies adopted by the Indian government for the growth and development of the automobile sector have led to a large number of foreign producers investing in automobile production in India. Though exports of automobiles produced in India have also increased, domestic sales have increased phenomenally for two wheelers and other automobiles. Along with such expansion of automobile production, the government of India has not put in place an effective transport regulation system in the

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country. The Central government has enacted the regulatory legislation but has entrusted its implementation to the state governments. The state governments as usual have been ineffective in regulating the use of automobiles on the roads. This has led to more traffic accidents and fatalities, apart from noise and air pollution. The costs of burning more fuel due to vehicular queueing at signal points and during traffic jams are on the rise necessitating more oil imports. All these proportions. India should focus more on improving its infrastructure so that the positive economic progress is enhanced. This will be possible if smooth flow of traffic ensures safety of people and saving of their destination time. The Indian government should take necessary steps to reduce the total number of vehicles plying on the roads by increasing tax on vehicle ownership particularly on multiple vehicle ownership to discourage such ownership of vehicles. The central government should revamp the present system of regulating transport system in the country if necessary force the state governments to enforce regulations effectively. tangible and intangible costs have to be assessed before they assume monstrous

Indian government should prioritize road safety, sanction more funds for road construction and maintenance and should focus more on better road designs. Reduction of accidents on roads and fatalities promotes the countrys economy, public health and safety. . Activities such as building new roads, widening existing roads, putting in new interchanges, or constructing bridges will generate various benefits. More FDI should be routed to road construction industry, rather than for the expansion of automobile sector.

The Indian government should work towards providing the cities with subways, pedestrian bridges, paved pavements and zebra crossings all of which reduce the road fatalities.

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Since in India we have a mix of all kinds of vehicles plying on the roads in cities, sufficient thought should be given to the needs of pedestrians and cyclists. Focus should be given on better traffic management , improve road quality, impose strict traffic rules, check on corrupt traffic police, penalize jaywalking pedestrians and eradicate the deadly mix of slow and fast moving traffic and provide prompt medical help to the victims in case of any accidents. Besides, FDI inflows into automobile sector should be reduced and diverted to other sectors which benefit the country positively. Road insurance and monthly renewal of vehicle insurance like in Singapore would control the number of vehicles plying on the roads especially motor bikes which are a major concern for the Traffic police in India. Reduction of automobile manufacturing and their use reduces the dependency on the oil producing countries and oil import bill will also decline.

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Annexure
Statistical Results: The detailed results of the statistical analysis are presented in the following tables.

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References 1. Yevdokimov, Yuri V., (2000), Measuring Economic Benefits of Intermodal Transportation Transportation Law Journal, Vol. 27, No 3, 2000, pp. 439- 452. 2. Mishra, S.K., (2003).Road Safety in India. Ministry of Shipping, Road Transport and Highways, Govt. of India, New Delhi.

3. Kopits Elizabeth, and Cropper, Maureen, (2003). Traffic Fatalities and Economic Growth, the World Bank, Working Paper; 3035. Washington D.C. 4. Valli, Pramada P., (2004). Road Accident Models for Large Metropolitan Cities of India, IATSS Research, Vol.29 No.1. 5. Gururaj. G., (2005). Injuries in India- A National Perspective, in. NCMH Background Papers-Burden of Disease in India. New Delhi.

6. Timmons, Heather and Kumar, Hari, (2007). India Steadily Increases Its Lead in Road Fatalities, New York Times, reproduced in Asia Pacific, June 7, 2010. 7. Garry Hoffman (2010), Car Buyers Rank Entertainment Over Safety, AOL Autos, October 16.

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Biographical sketch:

Manjula G.T. is a Doctoral student at South West Jiao Tong University in China at the Department of Economics and Business Administration. She received her Bachelors of Engineering in Electronics Degree from Bangalore University, India in 1990. She obtained various certifications in IT. She worked as a lecturer at Polytechnic for the Electronics and IT department in India. From 1996 to 2000 she worked for NCC international Diploma, UK, at Brunei for Micronet International College as a Senior lecturer, where she volunteered to teach Accounts, as being an Engineer ,she had strong Mathematics background. She succeeded in turning the marginal grades of students to good grades, which motivated her to go into in-depth study in the area of accounts and finance and she took a fascination for it. From 2002 to 2006 she worked in China as a Senior lecturer and guest lecturer for several universities in Chengdu, Sichuan Province teaching IT, accounts and finance. She obtained her MBA degree from Webster University of America, in December 2007. From 2008 till date she has been working as a guest lecturer for several Universities in Chengdu, China.

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