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Friday, Mar 08, 2002

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100 pc FDI in auto sector under automatic route -- No minimum investment norms

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NEW DELHI, March 7

THE Government on Thursday permitted 100 per cent foreign direct investment (FDI) in the automobile and component sectors under the automatic route, as part of its much-delayed and watered down Automobile Policy.

Until now, 100 per cent FDI in this sector was allowed only on a case-by-case basis, while automatic approval in the sector was granted only for FDI with a maximum equity participation of 51 per cent.

The new automobile policy, announced by the Minister for Department of Heavy Industries and Public Enterprises, Mr Manohar Joshi, does not prescribe any minimum investment norms.

Earlier drafts of the policy were planning to impose a minimum investment criterion of $100 million for projects to make four-wheelers and $25 million for projects to make 2-3 wheelers.

Analysts are of the opinion that the lack of investment norms may open the door for small Chinese firms to set up shop in India and virtually trade their products rather than resort to local manufacturing.

Mr Joshi said the Government thought there was no need to impose minimum investment norms in the highly competitive automotive industry in India.

"Instead, we are going to consider fiscal incentives for the sector and change the excise and customs duty levels over a long period of time to encourage domestic production and prevent India from becoming a dumping ground," Mr Joshi said addressing a press conference.

As part of the policy, the Government has promised to give adequate accommodation to indigenous industry in respect of items such as buses, trucks, tractors, completely built units and auto components, which have bound rates under the World Trade Organisation guidelines.

In respect of items such as cars, utility vehicles, motorcycles, mopeds, scooters and auto rickshaws (which do not have a bound rate), "the import tariff will be so designed as to give maximum fillip to manufacturing in the country without extending undue protection to the domestic industry."

The policy intends to further improve research and development by vehicle manufacturers by "considering" a rebate on the applicable excise duty for every one per cent of the gross turnover of the company spent on research activities.

Mr Joshi said that he would take up with the Finance Minister proposals to immediately offer fiscal incentives as part of the current Budget. "But it is up to the Finance Ministry to accept that," he said.

Besides announcing a plan to formulate a comprehensive auto fuel policy, the Auto Policy also proposes to give tax breaks for setting up of auto design firms and expand the scope of allocations to automotive cess fund.

Mr Joshi said the policy would encourage investment and bring growth to the sector, while exports were expected to top $1 billion by 2005 and $2.7 billion by 2010.

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