The Society of Indian Automobile Manufacturers, in a 113-page document containing recommendations for developing Indian Automotive Policy, has said the government must put in place a five-tier custom duty structure to help the industry meet the challenge of free motor vehicle imports in the WTO regime. The association also advocated introduction of VAT to rationalise cascading tax structure, greater industry-government partnership in R&D, incentivise scrappage/phasing out of old commercial vehicles and making labour laws more flexible. The industry's vision statement for the next decade envisions making India a manufacturing hub for small car and enhancing the industry's capability to export. The association called for 100 per cent duty on imported second-hand or used vehicles, 70 per cent on new completely built units, 40 per cent on completely knocked or semi knocked kits, 20 per cent on intermediaries and components and 10 per cent on raw materials and capital goods.

SIAM is of the view that multiplicity of taxes hinder tiering of the industry and increases the cost of vehicles to the consumer.

The association has said that until the WTO commitments are undertaken by 2002-03, the MoU policy currently pursued by the government should apply to all players. It said that the present localisation policy should continue until 2003. In the interim, the policy should focus on incentivising value addition within the country to enable firms to achieve scale of economies. Siam vice president and chairman of the Task Force on Auto Policy, R Seshasayee told reporters the objective of the study was to realise the potential of the auto industry as a growth driver of the Indian economy. He said that the auto industry's present contribution to Gross National Product is around 4.5 per cent. "With a well orchestrated automobile policy, we believe the contribution of the sector can be increased to 10 per cent by 2010," he said. The Rs 42,000 crore auto industry has the potential to be Rs 200,000 crore in a decade's time, he said. Seshasayee said that most of the recommendations would be pushed through in the comingbudget session.

The association also mooted the idea of setting up social security and insurance funds for workers laid off due to modernisation, automation and demand recession.

The way for the industry to grow is to direct efforts to increase the size of the domestic market, he said. To bring about reduction in price of their products, the industry recommends a series of tax rationalisation efforts.

Highlighting the impact of tax rationalisation on passenger car segment, the paper said that the reduction in excise duty from 40 per cent to 25 percent would result in a drop in car prices by 6 to 7 per cent. If industry is able to match these price cuts, the overall real prices could come down by 12 to 14 per cent, boosting the demand by 24 per cent to 28 per cent over the next 12 years, the paper said.