The hectic negotiations over the much-hyped Indian free trade pact with the European Union seems to be drawing to a close. But though the agreement should have been finalised within this month, strident opposition by the ministries of heavy industry and environment is sure to delay its finalisation and the issue may drag on till the end of the calendar year.
Among the contentious issues raked up by the trade pact is the possible drop in import duties on big luxury vehicles. The rationale used by a section of the automotive industry opposed to the move is that it would deter global original equipment manufacturers (OEMs) from setting up manufacturing units in India?a logic that does not seem very convincing since luxury vehicles and the usual passenger vehicles do not fall in the same category. Irrespective of the duty structure, it is highly unlikely that any manufacturer of high-end luxury vehicles would set up a manufacturing base in India just to sell a few cars in a year!
The other logic given by the proponents of retaining the high duty structure is equally fallacious. They say that if the import duty is reduced, luxury vehicles would become cheaper by 40-50%, thereby creating pricing issues for other OEMs as well. They have relentlessly argued that other cars (in the lower price segments) would also have to adjust their prices owing to the infringement of luxury cars into their well-defined coteries. Once again, they fail to understand the difference between the target audience for regular vehicles and for the super-luxury ones.
The comments of Tata group chairman Ratan Tata supporting reduction in the duty of cars come as welcome relief since group company Tata Motors is the country?s third largest passenger car manufacturer. However, detractors are sure to raise the bogey of self-interest here because any such move will enable cheaper
imports of Tatas? Jaguar Land Rover brand into the country.
The fact is that self-interest and lobby groups have for long stalled any effort by the government to open up the country to newer vehicles, fearing that European OEMs would flood the domestic market with their products. Consider the facts: every major European brand already has a presence in India with designated factory outlets?Mercedes-Benz has set up a facility at Pune, BMW opened its first plant at Chennai, Audi shares its manufacturing plant with its parent brand Volkswagen at Chakan, Renault has a R4,500-crore facility at Chennai along with its
alliance partner Nissan. Going by speculative reports, even French carmaker Peugeot Citroen is scouting for land in India.
With every major European OEM already invested in India, the argument that lower import duties would reduce FDI inflows is simply untenable. It is also worth highlighting that none of the Indian car makers?Maruti Suzuki, Tata Motors and M&M?are building high-end cars. Their focus is clearly defined and they are lining up heavy investments either in small cars or SUVs. In this context, a connoisseur of luxury vehicles would still settle for a Cadillac or a Hummer. And if these become 30-40% cheaper, then this might just open up a new
market for such fancy cars.
Equally baffling in the debate is the stand the environment ministry is
understood to have adopted. Rather than merely opposing the inevitable, it would be far more prudent for the environment guys to demand strict adherence to environment norms by the
imported cars once the customs duty is lowered or removed.
The boom in auto sales since the slowdown of 2008 has proved that
consumers are willing to loosen their wallets to ease their transportation ordeals. It is thanks to these consumers that the auto industry has reported a massive jump in turnover. Blindly opposing any cut in import duty is doing a huge disservice to Indian OEMs like Bajaj Auto, Tata Motors, M&M and Maruti Suzuki who are constantly rubbing shoulders with domestic players in foreign markets, proving time and again that Indian technology and quality of products are par excellence.
ronojoy.banerjee@expressindia.com
