In a move seen as a protectionist measure, the government on Friday said that import duty on cars and completely- and semi-knocked down assemblies (CKD and SKD) could be raised as it also advised foreign makers to reduce the amount of royalty payments that they charge on their subsidiaries.
Commerce and industry Minister Piyush Goyal told a conference of auto industry professionals that manufacturing in India needs to be strengthened further for which the government would look at a number of measures, including boosting exports and even taking a relook at a free trade agreement with the European Union.
A hike in the CKD and SKD duty has the potential to hit the business of luxury and premium makers such as Mercedes-Benz, BMW, Audi, Skoda, Volkswagen, and even Honda and Toyota (through Lexus). Prices of the vehicles will go up, while the companies say (in private) that fresh investments may be hit as demand will go further down.
And while Goyal sought a booster to manufacturing from foreign players, heavy industries minister Prakash Javadekar pitched for a reduction in the GST rate on automobiles, saying he would discuss the issue with the Prime Minister and finance minister.
Javadekar also said that a proposal for an auto scrappage policy – that would encourage customers to ward off older vehicles for new ones — was ready and an announcement can be expected “very soon”. On its part, the industry said that it is looking at cutting down dependence on component imports from China – a theme dominant through the government’s Atmanirbhar Bharat call which has only strengthened following the border tensions with the neighbouring country.
Goyal, however, was clear that more overseas companies need to be asked to manufacture deeply here. With this in mind, he said the government is open to the idea of a stronger India-based manufacturing plan for carmakers that are currently importing vehicles or kits. A way to discourage them could be by increasing the duty, which he said is “not a bad idea”. “We may look at something like a phased manufacturing plan. I will be open to suggestions.”
Pawan Goenka, MD of Mahindra & Mahindra, said that the auto and parts makers have agreed to set a target reduce the total value of imported components by half in the next four to five years. The focus will be to reduce imports of electronic auto components, which are sourced mainly from China and other Asian countries, as well as steel, Goenka said, adding these two together account for around $5 billion of total auto parts imports.
Total auto component imports stand at $13.7 billion annually. On royalties, Goyal said “millions of dollars” were moving out of the country as part of this fee. The Minister said that reduction in royalty would companies cut down on cash outflow, while bringing down vehicle prices and help in boosting domestic sales.