According to Maruti Suzuki, the reason they are against auto industry getting involved in the EU-FTA, is that it will have a negative impact on job creation in the future. MSIL’s Corporate Affair Head, Rahul Bharti told PTI that high value-add products like cars should not be included in the EU-FTA because it will have a multiplier effect on employment, economy and capability.
One of the main points which has acted as a deterrent in the signing of India-EUFTA, is that the 27 nation European Union demands the import duty on European cars and bikes to be reduced to zero percent over the next five years. But, this point has been opposed by SIAM- Society of Indian Automobiles too, from the very start.
The reason, if the Indian government allows reduction in import duty, this will directly promote European car manufacturers to import parts/cars, instead of increasing the percentage of localization. Localization not only helps manufacturers to price their cars at an affordable rate, but it also brings investment into the country, and along with it comes job opportunities.
If we take Australia’s case, from 17.5% import duty on foreign cars in 1999, they reduced the same to 10% in 2005. This resulted in sales decline for local car manufacturers, but increase from 11% to 66% for import of cars. If the Indian govt. green flags the EU-FTA with reduction in import duty on cars, sales of local car manufacturers like Maruti, Mahindra and Tata might decline. (This could also be the reason why Maruti is opposing EU-FTA in auto sector).
So, the reason our government is levying such exorbitant import duties on foreign cars, is to push foreign car makers to increase localization. And this is working, as all three German car makers, Audi, BMW and Mercedes Benz have been increasing their line-up of locally assembled cars with more percentage of localization.
But, there can be another angle to this story as well. Removing import duty will not only make better and safer cars more accessible to a larger group, but it will also push our local car makers to invest more in R&D and manufacture cars which can compete on a global level and not just in India.
We would like to know your views on the same. What do you think? Are you happy with the government charging import duty? Do you think Maruti and SIAM are correct? Please leave your responses in the comments section below.