The Hindu Business Line : Panel for linking excise sops for cars to local content

Chennai, Sept 28 The high-level Prime Minister’s Group on Manufacturing has recommended that excise duty concessions for the manufacture of cars should be linked to the local content, rather than the engine capacity, as is the policy today.

(The group is a high-level committee, headed by Dr V. Krishnamurthy, Chairman, National Manufacturing Competitiveness Council and with the Secretaries of the Ministries of Finance, Revenue, Commerce, Textiles and Industrial Policy and Promotion as its members.)

“Instead of linking the concessions to the size of the cars, it could profitably be linked to the local content, which would ensure growth of domestic manufacturing,” the report says.

In addition, the report, which was presented to the Prime Minister last week, calls for export duties on raw materials and inputs as “a tool for promoting domestic value addition.”

The report asks why, when the automobiles industry enjoys a 60 per cent import duty protection (“the effective rate of protection being much higher”) the auto components industry is given only 10 per cent or less protection.

“While the higher rate of protection to automobiles has ensured that the automobile manufacturers find it more attractive to set up plants in India to tap the domestic market, the auto components industry, with low protection, is subjected to much more severe international competition,” says Dr Krishnamurthy, the principal author of the report.

parts imports

The auto components industry was termed ‘sunrise industry’ till a couple of years ago, but is today facing a severe crunch due to substantial rise in interest rates and an appreciating rupee till recently, he says.

Since most of the cars manufacturers are global OEMs often with ability to buy components from their own suppliers abroad, more domestically manufactured cars and other automobiles are using imported components.

“This trend is affecting not only the growth of the components industry, but is also resulting in loss of substantial number of jobs,” the report says. This is only one of the examples of how the customs duty configuration could end up with “unintended adverse effects” on the growth of manufacturing, it adds.

Normally, whenever duties are reduced due to any reason, the impact is softened through exchange rate adjustment. This did not happen during this period, resulting in “excessive loss of competitiveness”, it says.

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