The Hindu Business Line : ACMA sees scope for fresh investments of Rs 3,000 cr

FOR the Indian components industry it is good news all over, except for concerns about availability and high prices of steel, and the effects of the free trade agreements (FTAs) that India is signing with various countries.

Last year, the industry grew 18 per cent to reach an output of about Rs 31,000 crore ($ 6.7 billion). Exports touched $1 billion (Rs 4,500 crore), a year ahead of the target for that amount.

The good trend is seen continuing into the current year, with sustained orders from vehicle manufacturers.

But there are some critical concerns. The biggest of them is that because of the FTAs Customs duties on imported components would be lower than the duties on raw materials.

This would make it cheaper for Indian vehicle producers to import components than buy from the domestic industry.

Fearing that this `inverted duty structure' would emerge as a fallout of the FTAs, the components manufacturers are asking the Government for `deemed export' status.

If the Government agrees, Customs duties on raw materials such as steel would go down in tandem with reduction in finished products.

At a new conference on Thursday, the Automotive Components Manufacturers Association (ACMA) said that a study showed that components industry would need to invest about Rs 3,000 crore over the next 6-7 years to catch up with the increase in vehicles production. Much of this investment could come from abroad. But first India should make itself an attractive investment destination, said Mr Vishnu Mathur, Executive Director, ACMA.

The second concern the industry has is that shortage of steel and the consequent high prices of the commodity.

ACMA recently met with steel manufacturers - both HR/CR coils as well as alloy steel makers.

The President of ACMA, Mr K.V. Shetty, said that while the HR/CR coil manufacturers have agreed to hold the prices for a period of time, the alloy steel producers have said that they could not do so.

On whether steel could not be imported from China, as some companies have, Mr Shetty said that some commodity products such as pig iron could be imported "but it is not a long-term solution".

Mr Mathur said that it was impossible for small and medium-sized units to import steel from anywhere.

"Besides, steel would need to be approved by the buyers of the components. Therefore, it is not easy to switch steel suppliers."

Mr Mathur also said that because Indian steel manufacturers are given incentives to export, component manufacturers abroad (say, Thailand) get Indian steel cheaper than Indian components manufacturers get.

The foreign component producers make products using cheaper Indian steel and sell to India at very low or zero import duties. "This is unfair," he said.