Thanks to a likely provision under the proposed India-European Union trade and investment agreement, a clutch of European manufactures of small cars eyeing the Indian market for relatively inexpensive cars could get easier access to the country under a concessional duty regime subject to company-specific quantitative curbs (tariff rate quota). According to sources, luxury cars from the 27-country bloc would also get the benefit of token duty cuts and be allowed steeper tariff reductions in a phased manner.
Currently, completely built units (CBUs) of cars attract an import duty of 60% at Indian customs stations. As against this, a concessional duty of 10-15% might be allowed in the case of European small cars. The quantitative curbs for this would be imposed as a percentage of European exports (company-specific) to India. In 2010-11, European countries exported $3.4 billion worth of CBUs and semi-knocked down kits combined to India. For luxury cars from Europe,to start with, the import duty would be 50-55% as against 60% for others.
These moves could lead to further diversification of the Indian car market, which already has a robust portfolio. Not only those European carmakers who don?t have manufacturing units in India (like Peugeot or Ferrari) but those that manufacture some of their cars in India (like Volkswagen, Renault and Skoda) would also benefit if the special regime is accorded to the EU under the proposed pact.
Significantly, no such concessions are given to auto majors from Japan, South Korea and Asean countries under similar existing pacts.
While both sides have come to an agreement on a host of issues, the duty structure on CBUs has become a sticky issue for India due its repercussions on the domestic industry. The EU has kicked off talks on auto import tariffs just when other issues looked settled. It is expected that headway on this contentious issue could be made when commerce minister Anand Sharma meets his EU counterpart Karel De Gucht this week. Finer points would be discussed in the meetings in Brussels.
?India wants to play a balancing game. EU carmakers is eyeing a tariff cut on automobiles, especially to penetrate the vast small car market here. The strategy on imposing QRs (quantitative restrictions) would restrict the entry of such cars into India and prevent large-scale loss of jobs,? said a government official privy to the agenda for negotiations with EU.
The specifics of the QRs could be worked out while finalising the trade agreement but it could mean restricted import of small cars under concessional duty and full duty after the quota is exhausted. What will constitute a small car will also be discussed between the two sides.
A senior commerce ministry official told FE, ?In the auto sector, India has offered an excellent package, far better than offered to any other partner, which was agreed to by both sides. However, this issue has again been opened up by EU and further concessions are being sought, especially by the German auto industry. These include an indefinite tariff rate quota on imports of cars from Europe and an eventual zero duty on all cars. The EU?s demands also include greater opening up of the Indian market to suit the EU?s technical regulations, which is not acceptable to the Indian side. India will also have to keep the interest of its fledgling auto industry in mind, when concessions are being given to EU.?
India kept duty on automobiles higher to protect the domestic industry that has the potential to generate jobs in large numbers. It is understood that the EU has brought up the issue of automobiles in the negotiations on the trade agreement at the behest of car major such as BMW, Mercedes and Audi, among others, which expect to benefit from such an exercise.
The Society of Indian Automobile Manufacturers (Siam), which has been opposing any lowering of duty has also warned against such a move. “The negative fallout will seriously compromise our investment, manufacturing value-addition and employment at no obvious gain in trade or economic expansion,” Siam said in a white paper on the matter.
The trade agreement with the EU, which is being closely monitored by Prime Minister Manmohan Singh, is on top of the agenda for the UPA, which feels that this agreement will also open up a lot of opportunities for other sectors such as textiles and information technology for India. The EU has already agreed to allow duty-free access to Indian textiles exports, which will help the industry to compete with neighbouring countries such as Bangladesh and Pakistan. But the EU has not given easy access to Indian IT firms, nor is it agreeing to relax the visa regime for professionals.
On top gear
* Some European manufactures of small cars could get easier India access under a concessional duty regime
* Completely built units of cars attract an import duty of 60%. A concessional duty of 10-15% might be allowed
* In FY11, European countries exported $3.4 bn worth of CBUs & semi-knocked down kits combined to India
* Luxury cars would also get benefit of token duty cuts & will be allowed steeper tariff cuts in a phased manner
* For luxury cars from Europe the import duty would be 50-55% as against 60% for others
