Audi and Skoda Auto are the two car manufacturers that are most likely to gain from the government's latest deal with European Union. Under this new agreement, government has permitted the import of a given number of cars at lesser import duty under the projected bilateral trade agreement.
According to government officials, intermediaries under the leadership of commerce secretary Rahul Khullar will discuss to ease out on import duties of cars falling under the Tariff Rate Quota (TRQs) in trading terms. Information about the import data of the last financial year suggests that customers will go for Skoda models like Octavia, Laura and Superb that will be built in Europe and imported in India when deductions on import duties come into effect. Audi’s A4, A6, Q7 and A8 and BMW’s 7-series are also likely to get discounts on import duties.
The government has decided to fix the tariff for import of automobiles at 100 per cent, whereas the notified rate for new cars will be 60 per cent. Intermediaries will be taking up 60 per cent to start the negotiations, since only then will a 20 per cent to 30 per cent of tariff be set.
However, the car industry feels that the decision taken by the prime minister and the Trade and Economic Relations Council will affect the progress of local manufacturers and decrease jobs domestically. A worried industry source said, “We will be left with manufacturing small cars only, while the technologically superior vehicles would be imported. Even the auto ancillaries will be left to do basic tasks.”
Society of Indian Automobile Manufacturers (SIAM), reports that last year more than 10,000 Completely Built Units (CBU) were imported mostly from Europe. About 60 per cent of import duty will be levied on these models. The number of imported Completely Knocked Down (CKD) units was around 21,000, and these will carry a 10 per cent customs duty only if the car’s transmission system and engine is fitted in India.
One of the major problems of this decision is that lesser tariffs will easily allow big automobile manufacturers to import the CBUs. Furthermore, the number of cars falling under TRQs is going to be important as most industry sources feel that EU will not agree to a TRQ of 12,000 or 15,000. They expect that the Union will try to include the CKD units in this deal as well. Another problem that could arise is that countries like Italy and France, which are huge markets for manufacturing smaller cars, may also demand discounts on tariffs.
After European Union, South Korea and Japan are going to be provided with comparable deductions under Free Trade Agreements (FTAs) signed earlier. Only time will tell if these decisions will fall in the favour of the Indian car industry or not.
