This could become the second instance, after the eviction of GMR Infrastructure from Maldives, where Indian companies suffer high handedness of India's tiny neighbours with the government remaining a silent spectator.
Last month, Sri Lanka suddenly increased duties on SUV's and commercial vehicles after more than doubling them for cars earlier in the year. If the island nation remains unchecked, this could spell the death of Indian automobile exports to Sri Lanka.
Not only were duties increased exorbitantly for Indian imports, the Sri Lankan government has apparently simultaneously reduced duties for vehicles coming from other Asian markets such as Japan.
Unable to take the duty blow, exports of cars from India have already reduced by 90 percent where those of two-wheelers are down 60-70 percent. Sri Lanka is one of the largest export markets for Indian cars, two-wheelers, trucks and buses.
One in eight vehicles manufactured in India and exported found their way to this market last fiscal, with Sri Lankan exports netting $800 million to Indian automobile manufacturers.
A senior official of the Society of Indian Automobile Manufacturers (SIAM) said today that Sri Lanka has doubled duties on almost all vehicles categories.
A story in Sri Lankan daily The Sunday Times speaks of prohibitive duties edging out Indian vehicles "while exemptions to those coming from Japan will give them an added advantage in the market".
This story also speaks of the Sri Lankan government clearing a Chinese investor's application to set up a car assembly operation at two locations in the country for $20 million.
The SIAM official quoted above said if these reports are true, this could prove to be a double whammy for Indian automobile industry since as per an earlier SAFTA agreement (South Asian Free Trade Agreement) India has provided zero-duty access to products from SAFTA countries (including Sri Lanka) but does not enjoy the same privilege in these countries.
"This effectively means the Chinese company setting up a plant in Sri Lanka can export automobiles to India at zero import duty. If that happens, we will be hit from all sides," said this SIAM official.
The Sunday Times story quoted an anonymous customs official saying "a technicality placed imports of cars from Japan at an advantage. While 80 percent of the cars imported into Sri Lanka are from India and under 1000cc engine capacity, no such vehicles are brought from Japan".
Another story in Sri Lankan newspaper Business Times points out that the government there has "controversially reduced duties on racing cars while increase excise duty on small cars with engine capacity of less than 1000cc.
The Sunday Times story also quoted a car importer as saying the Maruti Alto would become more expensive by at least Rs 250,000 after the excise increases.
Other importers said the price of Indian trucks would increase by more than Rs 10 lakh. Till end-October, more than 5,000 cars were lying with dealers in Sri Lanka, waiting to be re-exported back to India because of exorbitant duties. The SIAM official said his association was in dialogue with the commerce ministry to sort out this excise issue.
But just like in the case of Maldives seizing their airport from GMR's control, perhaps in this case too India may finally remain a silent spectator.
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Updated Date: Dec 20, 2014 14:37:15 IST