The Free Trade Agreement (FTA) between India and the European Union (EU), scheduled to be inked next week, has raised the hackles of India’s automakers.
The agreement seeks to lower import duty on European cars to 30% and then progressively bring it down to zero. Since manufacturers from other countries will continue to pay duties (about 60% for CKD [or completely knocked down imports] and over 100% for CBU [or completely built units] imports), they have strongly opposed any such move.
European carmakers such as Jaguar Land Rover, Mercedes-Benz, BMW and Volkswagen are likely to benefit from the proposed duty since they would be able to edge out Japanese, Korean and Indian car makers — especially in high-end segments.
Tata Motors, India’s second largest car maker, said such “short-term” policy shift will hinder growth of the domestic industry, besides hurting future investments. “It will hinder the growth of the industry. It will also take away any level playing field and such short-term policy shift is not advisable,” Tata Motorsmanaging director (India operations) PM Telang said.
Under the proposed FTA, Europe wants India to slash import duties on passenger cars. In return, it is seeking greater market access in service sector among other things across EU markets. Telang said if import duty is to be reduced, it should be done for all countries, not just the EU.
Officials of another major automobile maker pointed out that existing investments by car makers would be in serious trouble if cheaper EU cars were to flood the country.
“If EU imports become attractive, what will happen to the investments already made?For any automobile manufacturing facility, approximately `2,000 crore has been invested.”
Telang pointed to Australia, where, after the liberalisation policy on cars, domestic assembly operations had gone down drastically.
His comments come even as Tata Motors itself stands to benefit from any import duty reduction since it imports cars from the Jaguar and Land Rover range to India.