The Hindu Business Line : The auto mission

The Draft Automotive Mission Plan 2006-2016, released by the Ministry of Heavy Industries and Public Enterprises last week has a focussed mission statement — of making the country a "destination of choice" in Asia for the design and manufacture of automobiles and components. In the process, the report sees the industry doubling its contribution to the Gross Domestic Product to 10 per cent by 2016. Of course, incremental investment of $35-40 billion will be necessary over the next 10 years to achieve this and most of it will have to be from capacity expansion by existing players.

The report makes all the right noises on factors inhibiting the industry's growth and which need to be addressed by the government. These range from the clichéd statements on the need to maintain a high tariff wall to protect the industry from imports and "systemic deficiencies" making manufacturing less cost competitive in India, to the need for investment support in the form of tax holidays and other fiscal incentives. To be sure, the protectionist cry is not new in the industry; in the early 1990s Mr Rahul Bajaj, Chairman of Bajaj Auto, was one of the first to lobby for tariff walls and protection from multinational corporations. Ironically, despite the falling tariffs and removal of several protectionist layers, Bajaj Auto is one of the most successful companies today and is snapping at the heels of the industry leader, Hero Honda, a company with multinational association. Indeed, the auto component industry is an example of how domestic companies can adapt to an open economy and not just survive but also grow. Sundram Fasteners, Bharat Forge, Amtek Auto and several others have re-engineered themselves and today represent the progressive face of the industry. Given this backdrop, the section of the report that deals with tariff protection is jarring and does not go well with the rest of the policy document. That said, there is no gainsaying the fact that extreme care has to be exercised while negotiating Free Trade Agreements especially vis-à-vis the rules of origin. The auto industry has been pressing for this and justifiably too.

The report has a couple of other interesting points. One is the acknowledgement that competitiveness cannot be ensured merely by cheap labour, favourable exchange rates, low interest rates and concessional duties. Second is the promise that the government will consider fiscal incentives/concessions for `low-cost' products aimed at the mass market such as "small goods carriers, small safe car and low-cost two-wheelers." Is the ground being laid for either a zero or concessional duty for the "Rs 1 lakh" car due from the Tatas in 2008?

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