A cheaper Beetle? EU wants India to axe car import taxes

New Delhi: If the government does go ahead with concessions for car imports in the proposed Free Trade Agreement (FTA) with the European Union, domestic vehicle makers have a lot to worry about.

Director General of the Society of Indian Automobile Manufacturers (SIAM) Vishnu Mathur said on Thursday that theEU had proposed a drastic reduction of customs duty from 60 percent to 10 percent for a certain number of completely built up (CBU) cars imported from Europe. In other cases, it wanted a reduction from 75 percent to 10 percent.

[caption id=“attachment_305428” align=“alignleft” width=“380” caption=“he Volkswagen Beetle, that cute little people’s car, could cost just about Rs 15 lakh in India AFP”]  [/caption]

A cut of this magnitude would mean a 7 Series BMW would be cheaper by almost Rs 25 lakh and now set you back by only half a crore. The Volkswagen Beetle, that cute little people’s car, could cost just about Rs 15 lakh in India. However, luxury brands from Japan and Korea would not be much cheaper - since they would not be covered by the FTA.

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Since this would impact too many domestic and non-European manufacturers, clearly the EU has a fight on its hands.

If the suggestion of the EU is accepted, domestic car makerswilllose the level playing field advantage, says Mathur. Besides, another EU demand is that for the remaining car imports (whichare not done under the first concession), duties should behalved, from 60 percent to 30 percent. Also, the EU has asked for a specific date by which India will bring downcar import duties to zero.

European manufacturers at present command less than 7 percent of the Indian passenger car market which is just over 2 million units a year. In case the customs duty reduction proposals are accepted by the Indian government, this share would rise dramatically, thanks to much cheaper CBU imports.

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Also, this would happen at a time when exports of cars to Europe from India are dwindling because of the lack of potential in these markets. And investments by European car makers - such as PSA Peugeot - in India are being frozen. Mathur says unless something is done to urgently address this situation, the automobile industry will not be able to realise its full potential as per the Auto Mission Plan (AMP) 2016.

The plan had envisaged investment of about Rs 1,50,000 crore in the industry over a decade till 2016. “But till now, only about Rs 70,000- 80,000 crore has come in. Unless domestic manufacturing remains lucrative for companies, potential for further investments is declining”.

Mathur said it is premature for the government to gradually move the industry towards zero protection against car imports. “Of the 18 vehicle manufacturers in India, only two sell over two lakh vehicles a month and another three sell 3 lakh vehicles a month. But all the others still manage to sell only small numbers, unable to therefore achieve economies of scale. They need protection, a level playing field”.

Is the government listening?