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NEW DELHI: In a move seen as a protectionist measure, the government said on Friday that import tariffs on fully or semi-downed cars and assemblies (CKD and SKD) could be increased as it also advised foreign manufacturers to reduce the amount of royalty payments they collect from their subsidiaries.
Minister of Commerce and Industry Piyush Goyal told a conference of auto industry professionals that manufacturing in India needs to be further strengthened, so the government would consider a number of measures, including boosting exports and even reviewing a free trade agreement with the Union European.
An increase in the right of CKD and SKD has the potential to affect the business of luxury and premium manufacturers such as Mercedes Benz, BMW, Audi, Skoda, Volkswagen and even Honda and Toyota (via Lexus). Vehicle prices will rise, while companies say (privately) that new investments may suffer as demand falls further.
And while Goyal was looking for a boost to the manufacture of foreign actors, the Minister of Heavy Industries Prakash Javadekar he called for a reduction in the GST rate on cars, saying he would discuss the issue with the Prime Minister and the Minister of Finance.
Javadekar also said that a proposal for a car scrapping policy, which would encourage customers to avoid older vehicles for new ones, was ready and an announcement can be expected “very soon.”
For its part, the industry said it is seeking to reduce dependence on component imports from China, a dominant theme through the government’s call for Atmanirbhar Bharat, which has only been strengthened after border tensions with the neighboring country.
Goyal, however, was clear that it is necessary to ask more foreign companies to manufacture deeply here. With this in mind, he said the government is open to the idea of a more robust India-based manufacturing plan for automakers who are currently importing vehicles or kits. One way to discourage them could be by raising the tariff, which he said is “not a bad idea.”
“We can consider something like a phased manufacturing plan. I will be open to suggestions.”
Pawan Goenka, CEO of Mahindra & Mahindra, said auto and parts manufacturers have agreed to set a target to cut the total value of imported components in half over the next four to five years.
The focus will be to reduce imports of auto electronic components, which are sourced mainly from China and other Asian countries, as well as steel, Goenka said, adding that these two together account for about $ 5 billion of total auto parts imports. Total imports of auto components amount to $ 13.7 billion annually.
On royalties, Goyal said that “millions of dollars” were moving out of the country as part of this fee. The minister said the reduction in royalties would cause companies to reduce cash outflow, while lowering vehicle prices and helping to boost domestic sales.
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