Reduction in import duties to hinder domestic growth: Tata Motors.

Category: International Trade Sub-category: Customs
Document type: news

16-Feb-2012 | 14:25 IST | Edited by: Sharmila Maitra

Passenger car manufacturers in the country are worried over the government's stand on import duties under the proposed free trade agreement (FTA) with the European Union (EU). While it is not clear yet if the agreement will be sealed at the upcoming summit with the EU in New Delhi on February, reports of Prime Minister Manmohan Singh calling for a meeting with two of his Cabinet colleague in February to discuss the issue has caused concern among car manufacturers.

A tax collected on imports and some exports by the customs authorities of a country. This tax is used to raise state revenue. It is based on the value of goods called ad valorem duty or the weight, dimensions, or other criteria of the item such as its size. Also referred to as customs duty, tariff, import tax and import tariff.

The EU is pushing for a big reduction in duty on import of fully-built passenger cars into India. The present rate of duty on completely built units (CBU) of new cars is 60 per cent and the EU is understood to be demanding that it be reduced to 30 per cent.

Toyota, Maruti, Suzuki, General Motors, Hyundai and Honda have previously voiced their discretion regarding such a proposal coming into being. However, Tata Motors too has now gone vocal about proposed import duty cut on cars from Europe despite the fact, the Tata Group would stand to benefit if import duties are reduced as Jaguar Land Rover is UK based. Tata Motors see the reduction in import duties under the Indo-EU free trade agreement (India EU FTA) as a hindrance to Indian auto industry growth, and this will distort the level-playing field. This, however is the first time Tata Motors has said something to this extent. The Tata Motors are of the opinion that high import duties on cars and components are unrealistic and will serve an artificial barrier of protection for local companies. A Tata spokesperson has said that the duty reduction should happen in general and not as part of an FTA with a particular country. Also there should be a timeline for it so that the industry can plan accordingly. Society of Indian Automobile Manufacturers (SIAM) too has opposed this reduction in car import duties. They impend that the policy of tariff along with free market is running well and a policy like this will not only adversely affect the investment and employment of domestic economy but also will encourage imports at the cost of domestic value addition. They sited the example of Australia, where after the liberalization policy on cars, the assembly operations in the country had gone down drastically.

Whereas the domestic automobile industry is almost on the verge of decline there are some car manufactures such as BMW, Mercedes Benz and Volkswagen who will be the major beneficiaries of Free Trade agreement as their price elasticity is minimal.

However, the Tata authorities have said that they have always followed all the policies of the government. They have started with assembling of JLR models in India. In future also, they will follow government policy.