Higher import duty on auto components likely to increase burden of industry

A hike in import duty for auto components is likely to increase the burden for the ailing auto industry, which is looking to reverse a one and half year-long slowdown in sales.

Automobile industry executives said they were baffled at the government decision to hike the import duty on catalytic converters and various parts and metals that go into making these.

Industry sales have sagged for about 18 months and prices were anyway rising with the compulsory nationwide switch to the stiffer BS-VI emission standards by April 1. 

The move on converters will make these costlier still.

The duties on converters have been raised by 5-7.5 per cent. The government has levied a similar hike on duty for ceramics, stainless steel, and other metals used to build the converters.

“I don’t even understand why. These materials are not much available in India. It will lead to a cost increase of the product for end-customer,” Kenichi Ayukawa, managing director (MD) at India’s largest carmaker, Maruti Suzuki, told Business Standard.

A catalytic converter converts the toxic emissions from vehicles into a less toxic form.

The price increase due to conversion from BS-IV to BS-VI was already worrying industry executives. They are feeling it would further delay a revival in demand. 

According to industry body Siam, the price of vehicles will see an average increase of 10 per cent due to the transition.

“We’re going into BS-VI right now, and BS-VI has a much larger content of many of the parts on which duty was raised, which will increase the BS-VI cost further, when we’re already concerned about the cost of BS-VI vehicles,” Pawan Goenka, MD at Mahindra & Mahindra had said.

Tata Motors Chief Executive Guenter Butschek spoke likewise. “Any increase in the price of raw materials will have an impact on the overall price. The industry is going to face the need of a price adjustment,” he said. “To improve fuel efficiency, we need those materials. Unfortunately, those are not produced in India and we are dependent on import,” said Ayukawa.

Such tariff hikes go against the call in the recent Economic Survey by Chief Economic Advisor K Subramanian. He'd cited the case of Maruti Suzuki and said automobile 

firms graduate up the production value chain by first starting with low-technology operations such as assembly and then graduate to manufacturing of own components. 

“In the process, import of components increase in the short run. Following a policy of import substitution right from the outset does not enable the process of graduation up the production value chain,” the Survey had said.

Rough Ride
 

• The govt has raised import duty on catalytic converters, and various parts and metals which go into their making, in the range of 5 per cent to 7.5 per cent
• Siam says the price of vehicles will see an average increase of 10%
• Price increase due to conversion from BS-IV to BS-VI will delay demand revival