"The Government needs to evolve a long-term auto policy to protect interest of manufacturers who are in the country with long-term commitment," Fujisaki said at a seminar on foreign direct investment (FDI) organised by Assocham.

As the automobile sector is an engine of growth for most of the developing countries, India needs to amend the stringent memorandum of understanding (MoU) policy which makes it mandatory for auto companies to achieve 70 per cent indigenisation within five years of commercial production.

At the moment, the MoU that foreign companies enter into with the directorate general of foreign trade (DGFT) stipulates a minimum of 50 million of equity, 50 per cent indigenisation within three years of commencement of commercial production and export obligation to neutralise forex outgo on account of import of components.

Fujisaki said export obligation was acting as a major hurdle for investment and government should treat FDI as investment meant for local customers.

"A number of companies keen to enter the Indian auto sector have adopted a wait and watch policy as the slow growing market is hampered by unrestricted entry of players," he added.

Fujisaki also predicted a shake-out in the domestic auto sector as a number of parent companies currently supporting domestic units financially would not do so for long.