More candy for automakers

Now would they mind doing right by the consumer?

After hectic lobbying, India’s automobile sector — especially the two-wheeler segment and, to a lesser extent, passenger cars — has secured more protection from imports. The dismantling of quantitative restrictions (QRs) on imports left the field open to competition from Chinese two-wheelers on both price and quality. They had sought a duty of 105 per cent, but these had remained unchanged at 35 per cent in the budget. Addressing fears of cheaper imports, the duty on two-wheelers has now been hiked to 60 per cent by the finance minister. This translates into an effective rate of protection of 120 per cent, which should enable Indian majors to hold their ground against the challenge from the dragon. At the earlier duty rate, Chinese two-wheelers were cheaper by 40 per cent than local models. With the new 60 per cent duty, the price differential still favours Chinese vehicles but it narrows down to 20 to 25 per cent — a prospect that still worries local manufacturers as customer preferences are highly price-sensitive. The moral of the story is not to seek more protection but to cut costs, improve fuel efficiencies and upgrade design. Flogging reverse-engineered models simply will not do. The customer now has more choice and Indian manufacturers must roll out better models to survive the competition. Their foreign collaborators such as Honda and Yamaha from Japan are also taking no chances as they plan to hit the market from independent, wholly owned operations in the country.

Makers of passenger cars also have much to thank Yashwant Sinha for — as the 60 per cent duty also applies to car imports. They were doubtless the biggest beneficiaries of the budget as barriers on second-hand car imports were raised to 105 per cent. With the threat of cheaper and older cars out of the way, they drew up plans to import completely built units (CBUs) to swiftly launch newer models. That prospect sounded attractive at a 35 per cent duty but their plans might have to be reworked at 60 per cent. This move encourages more localisation and value addition, which is good news for the domestic auto-component industry. This ought to imply lower prices as well. With more protection, carmakers should cut costs and upgrade quality rather than gouge the price-sensitive Indian customer.