Emerging markets for Dummies: Why India won’t be the next China anytime soon

Government Car India - Picture courtesy Bertel Schmitt

I met Michael Dunne, emerging market consultant extraordinaire, during the Datsun launch in Chennai India two months ago. At that time, Dunne was still a free agent, and working on a car shopping site in Indonesia. Now, he is head of GM’s Indonesia operations.  We discussed the three essential data points that help automakers  identify a growth market. Then I asked Michael whether the car market in India would grow as fast as that in China, and Michael said: “Probably not.”

Here is why.

Car India - Picture courtesy Bertel Schmitt

As we learned in the first installment of Emerging markets for Dummies, you need to mix three ingredients for a growth market that is about to explode:

  • A lot of people
  • Few people with cars
  • Per capita Gross National Product approaching $3,000

India sure has a large population, 1.24 billion, right up there with China’s 1.35 billion. India’s car density is much lower than China’s already low ownership rate. There are only 15 cars per thousand people in India, in China, there are 60. (If you google the number, you will find a bunch of slightly different numbers, I take mine from Carlos Ghosn, if he doesn’t know, who does?) Both India and China will have many decades to grow until their car markets reach saturation (at around 500 cars per thousand, according to accepted rules of the thumb in the industry.

That should make India the “next China,” right? There is one important ingredient missing in India, and that is money. According to Worldbank data, the per capita GNP in India stood at $1,489 last year, whereas in China, it had zoomed to $6,091. In the first installment of Emerging markets for Dummies, we established that a per capita GNP of $1,000 is good enough for a car market that is waking up. For strong growth, the number must go through $3,000.

India is far away from that magic number. Actually, India’s GNP dropped last year, and not coincidentally, so did auto sales. Dunne did not believe that India will approach the magic $3,000 level anytime soon. “China received massive foreign investments in the last decade,” Dunne said, “when all the hot money poured into China.” India is not that lucky.


Let’s have a look at the chart. Auto sales in China grew right with the GNP. When the GNP  crossed $3,000 in 2008, auto sales began to zoom, and two years later, they doubled to over 18 million per year. In the last two years, growth slowed, brought on by people worrying about the economy, and by car curbs in the big cities. The trend however is intact, rising GNP will bring more car sales.


Now, let’s look at India. In the 2012/2013 fiscal, Indians bought 2.7 million motor vehicles with 4 wheels or more. In the two years before, that number was better than 3 million. But then, the GNP had dropped, and it took car sales down with it.  When I came to India, it reminded me a bit of China 10 years ago: Lots of two and three wheelers, comparatively few cars. And if you check the chart, you will see that per capita GNP and cars sales in India are in roughly the same ballpark as in China 10 years ago.

The India chart looks relatively healthy, only because the scale is different than that of the China chart. Let’s combine India with China (a scary thought.)


And now you see why India is a long way from becoming the “next China.”  It will be there, eventually, but not anytime soon. However, now is the time to invest into the IndiaN car market, just like the 90s were the best time to bet on the Chinese market – even if people said you were crazy. You just need an important Asian ingredient: Patience.