This plan to protect the domestic auto-ancillary industry has been proposed in an internal note prepared by the industry ministry. If the proposal is finally implemented, it would provide a big relief to the domestic auto component manufacturers, who feel their existence will be threatened when QRs are removed in 2001.

The government also proposes to incentivise localisation and research and development of auto components to give a boost to domestic industry.

Significantly, the note says that when the quantitative restrictions are removed "it may be difficult to sustain regulations regarding local content, export obligations and import licensing". "It has been felt that there is need for an enduring automobile policy by the government which encourages investments in the country, enlarges domestic demand and provides the base both for indigenous manufacturers and for exports adopting a holisticscenario of the industry", government sources added. The automobile policy is expected to give a holistic view of the industry as it has been felt that issues pertaining to the sector have been addressed in bits and pieces at different times and by different ministries or departments after liberalisation.

There are a host of issues which are being sorted out such as the differences between the government and automobile manufacturers over the continuation of the system of memorandum of understanding(MoU).

The government feels that the existing MoU should be honoured even when quantitative restrictions are lifted in the auto sector. In other words, the automobile manufacturers, who have entered into MoUs with the government in the past, will have to honour all the commitments in terms of exports, localisation level and minimum capital invested in the venture, say government officials.

Car companies have communicated to the government that post-WTO, the MoU system as also other stipulations should go. The directorate-general of foreign trade had earlier clarified that auto companies would not have to sign MoUs once the QRs are lifted next year. A clear picture in this regard will emerge in the next few weeks when the automobile policy is announced.

The process of liberalisation was initiated in 1991. In the note, the government has noted that in 1993, the passenger car segment was delicensed and very few government regulations or direct controls were imposed to restrict entry. Import duty became the main levers in controlling the transition to a more open industry.

Initially, the government imposed conditions for every new entrant on a case by case basis, and later through the company-specific route of memorandum of understanding, which was introduced in June 1995 by the ministry of commerce.