Auto buffs looking forward to zip around in imported luxury brands such as Bentley and Rolls-Royce are in for some disappointment. The commerce ministry?s move to reduce import duty on such vehicles in the proposed free trade agreement (FTA) with the European Union (EU) has met with stiff opposition from heavy industry and environment ministries and sections of the domestic auto industry. It is, therefore, unlikely that the proposal will sail through.
The move to reduce the import duty was being contemplated in lieu of the demand by the EU to reduce duties on imported liquor and spirits, which the commerce ministry was not keen on doing.
While the heavy industry ministry opposed the move saying it would adversely impact investment flows into the country, the MoEF cited environmental hazards as the concern.
At present, the import duty on fully built cars is 60%. After adding duties like sales tax and value added tax, the overall duty goes up to around 110% of the original cost.
Heavy industry minister Praful Patel has fired the first salvo. He has written to Prime Minister Manmohan Singh and commerce minister Anand Sharma stating that any duty reduction would be in contravention of the Automotive Mission Plan (AMP), a road map drawn in 2006 for the Indian automobile market over the next 10 years. Patel has reasoned that a reduction in import duty would give an unfair advantage to the European players. According to the AMP document, tariff structures in the auto sector should not be changed till 2016 as it would deter global OEMs (original equipment manufacturers) from setting up units in India.
Explaining the rationale behind the ministry?s stand, a senior ministry official told FE, ?If duties are reduced then foreign companies would merely import vehicles into India without setting up any manufacturing base.?
He said that in the present global economic environment, India had emerged as the most favoured auto destination in the world owing to the double digit growth ? next only to China. Quite in contrast, car sales in European countries have been declining steadily for the last 15 months, putting pressure on European car makers like Renault, BMW, Mercedes-Benz and Puegot Citroen to look eastward.
At present, less than 5% of the cars in India are imported. These mainly include super-luxury brands such as Bentley, Rolls-Royce and some models of Jaguar. The environment ministry has also voiced its opposition. Senior government officials told FE that if India lifted import duty on heavier vehicles then it could have disastrous impact on the environment since most would run on diesel technology, which is considered highly polluting.
?The big-bulk imported SUVs would add to their air pollution load and hence would have to meet the Euro IV standards. No import should be allowed until and unless they meet stringent environmental standards,? an environment ministry official said. Last year, environment minister Jairam Ramesh’s had termed the usage of diesel-guzzling SUVs as ?criminal?.
There are many concerned within the industry as well. A senior executive from an OEM said that since bigger vehicles would become cheaper, it would impact the pricing of cars in other segments as well.
?Cars below the luxury segment would have to adjust their prices once the bigger vehicles cut prices. This would eventually have a domino effect at the end, impacting the auto component industry the most,? he said. In fact, auto bodies have also argued that since India had not allowed concessions to Japan and South Korea in the comprehensive trade pacts signed with them earlier, why should the commerce ministry give an unfair advantage to the European OEMs?
Last month, German chancellor Angela Merkel had visited the Capital and was learnt to have made a strong pitch for a speedy conclusion of the India-EU FTA. Senior commerce ministry officials declined to comment on the development.
