Big duty cuts in India on parts and cars key demand of European players

Continent's manufacturers say they can't compete with manufacturers from FTA countries; also seek elimination of non-tariff barriers, long-term EV policy

The European Business Group (EBG) Federation, which has the continent's top passenger car and auto component makers as its members, has asked for a sharp reduction in import duty on premium and luxury completely built units (CBU) passenger cars over 1,500 cc, to 50 per cent. Currently the duty on the CBUs of these new cars is in the 60-100 per cent range.

The advocacy group, a joint initiative of the European Commision and European business community in India, has suggested that two duties be merged into a single rate of 50 per cent.

Currently 100 per cent customs duty is levied on models with a free-on-board (FOB) value of over $40,000, or petrol engine capacity beyond three litres or 2.5 litres or more for diesel engines. For CBUs of cars with FOB value below $40,000 and petrol and diesel engine under 3,000 cc and 2,500 cc, respectively, it is 60 per cent.  
 

Explaining the rationale for the reduction, EBG says most European car makers export parts and CKDs kits to India to assemble locally and maximise domestic value addition. However higher import duty in India on components sourced from Europe than on those from free trade agreement (FTA) countries such as Japan, ASEAN and South Korea places European manufacturers at significant competitive disadvantage

EBG says since the premium market in India is small, European vehicle makers are constrained by economies of scale and quality, and are unable to develop the supplier ecosystem to expand localisation beyond a point.

This problem, of course, could be resolved of the proposed FTA being discussed by EU and India is signed. EBG insists on the inclusion of the automotive sector in the proposed EU-India FTA, and says that it stands for pragmatic compromise of tariff cuts, and relaxations in non-tariff curns and elimination in a timely manner.

Secondly, it has argued that elimination on non-tariff barriers should be given equal priority as they create a significant deterrent for European manufacturers to invest. Thirdly it has argued that differentiation between premium and volume products is a possible pathway that can address India’s concerns about the adverse impact on its own automotive industry.

The European auto sector has already invested about Rs 30,000 crore in the country and companies such as the Volkswagen group have committed to invest $2 billion.

On giving a push to electric vehicles, EBG has recommended a seven-year EV policy framework to provide confidence to long-term investment, and continuance of the 5 per cent GST for a longer period. It also seeks an extension of the indigenisation target and possibly impose the phased manufacturing programme (PMP) after a certain EV volume is achieved. In many ways, some of the demands on localisation are in sync with the SMEV, the association of electric two- and three-wheelers which is also pushing for the same.  

For the domestic market, EBG has asked for a phased reduction of the additional cess imposed on premium cars from 2017, which was meant to be for five years. The group has suggested capping it initially at 12 per cent, followed by a phased reduction to zero in three years. The objective its says is to transition to a single GST rate for the automotive sector.

Currently premium vehicles in India attract the highest GST slap of 28 per cent and additional cess of 20-22 per cent, taking the total SUV tax to 48-50 per cent.

What the European auto industry wants

• Reduction in duty on costly European components in order to allow manufacturers in the continent to compete with players from FTA countries such as ASEAN, Japan and Korea.
• Says Localisation beyond a point not possible because of low volumes in this segment, inclusion of automotive sector in EU-India FTA agenda will partially resolve this issue
• Elimination of non-tariff barriers
• A seven-year EV policy to encourage investment  
• Extension of localisation targets for EVs, pegging PMP targets to volumes
• Phased reduction and elimination of cess on premium cars in three years
• One GST rate for the automotive industry