Not only Mercedes-Benz, Audi and BMW, even top-end Hondas and Toyotas too could become cheaper by up to R5-8 lakh. The government is planning to offer sharp customs duty cuts on luxury cars, currently a part of the India-EU free trade negotiations, to Japan and South Korea as well.
According to government sources, South Korea and Japan, with both of whom India has trade treaties, are likely to be offered a review of their respective deals which currently do not include car imports. Hyundai is the only Korean car maker in India, though the list of Japanese firms is longer, including Suzuki, Honda, Toyota, Mitsubishi and Nissan.
Since 2009, India and EU are in talks to finalise a long-pending free trade agreement. A deal is believed to be close.
EU had reportedly asked for a complete waiver of customs duties (60-75% at the top level) on car imports, with India not offering any concession on small cars, but giving the option to halve duties to 30% for luxury cars and allowing an even lower 10% duty for a certain 'quota' in return for easier market access in sectors such as textiles, farm products, generic drugs, IT services and more work visas.
The proposal, however, was vehemently opposed by the Asian car-makers on grounds that it would make them uncompetitive vis-a vis the European car-makers in India. We'd be glad if this is done as we had expressed our concerns many times over. We want a level playing field, said Jnaneswar Sen, senior vice-president for marketing & sales at Honda Car India.
In fact, the Society of Indian Automobile Manufacturers has written to the Prime Minister and commerce minister explaining how lower duties may deter future investments.
All other nations will get disadvantaged. EU, which faces a slowdown at home and is already the biggest car exporter to India, will see huge benefits, Sugato Sen, senior director at Siam said.
Interestingly, trade experts feel this is the right opportunity for India to also push for further access to certain sectors with both Korea and Japan. As far as Korea is concerned, we could ask them for opening up of some lines in textiles such as ready-made garments for us, Manob Majumdar, an expert with Ficci said.
The primary reason why India is willing to relent on luxury cars is it doesn't have much to lose. India is fast becoming a small car hub and we believe it is here that our trade advantage lies. Hence, we are pushing for opening up for European markets for our small cars. As far as luxury cars are concerned, we don't see the country developing cutting-edge technology or manufacturing in near to mid future. There isn't much industry to protect or even push for in that, a senior official said.
India is now global production hub for small cars for companies such as Renault-Nissan, Hyundai, Honda and Maruti Suzuki. A domestic market of about 1.6 million units a year gives them both economies of scale and access to a very competitive supplier base. In comparison, the current large and luxury car market size is only about 30,000 units.
According to Maruti Suzuki chairman RC Bhargava, Japanese exports have anyway become uncompetitive due to the sharp appreciation of the Yen. If import duties are reduced for large cars, the premium and luxury segments will expand a bit more, but on us there will be little impact. India will remain the most competitive for producing small cars.