Policy

‘FTAs are important for higher localisation in the auto sector’

Nandana James Mumbai | Updated on March 23, 2021

More free trade pacts are needed with export markets for components and finished cars, say top industry officials

Free trade agreements (FTAs) with countries are important to promote higher localisation in the automobiles as well as to ensure that the Indian automobile sector achieves its full potential , say top industry officials.

“To have higher local content, the government will have to devise policies other than increasing customs duties. They will have to, for certain sectors, give certain support and that is what we as the automotive fraternity through SIAM are working together with the government on. So, you have to give some incentives to companies to come to set up shop here, and those have to be a little more than what is being currently offered. Also, if someone sets up something here, it won't be just for the Indian market, because then you wouldn't have the scale required. You will have to export. For many countries we do not have FTAs,” Gurpratap Boparai, MD, Škoda Auto Volkswagen India Pvt Ltd, told BusinessLine in an interview .

“And since we do impose duty on parts coming from there, they have similar measures against parts coming from here and that that really doesn't help the economics of it. So, other than incentives, we need more FTAs with our export markets for components as well as for finished cars,” Boparai further stated.

There are views that the auto sector in the country has not lived up to its potential of becoming global. When asked about his views on this Pawan Goenka, MD and CEO of Mahindra & Mahindra, said: “While India is a shining example of a successful industry and from the time I came (to India) in 1993 until now, the industry has come from being number 16 in the world to number five. Just in 25 years, this is an achievement, but we are nowhere near our potential...While we should never say that we are going to make everything within the country, I think we are importing more than we need to and therefore we should focus on more value addition in India and today, the industry is importing about 25 billion dollars' worth every year. 25 should never become zero - that is the wrong thing to do - but 25 can easily become 15.”

“When it comes to products...India suffers very badly...because we do not have the right FTAs with the countries where we export our product. And except for one or two , almost everywhere, the import duty imposed on our product is higher than many other auto export companies. Europe, for example we have to pay ten per cent duty, whereas Korea pays zero. So, it is impossible to compete when you have that kind of duty difference...all the low-cost advantages that we have because of our lower cost of labour goes away in higher duty,” Goenka further stated.

Luxury car companies operating in India in particular have raised concerns about the heavy taxation and duty structure they are burdened with, which make it difficult for them to achieve scale. In the last recent Budget, the government raised the custom duty on certain parts in a bid to further the Atmanirbhar Bharat or self-reliant India scheme that the government has chalked out, which seeks to promote higher localisation.

Published on March 23, 2021

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