India is on the verge of signing a Free Trade Agreement (FTA) with the European Union (EU), but a concerned auto component industry has started raising its voice against such agreements because they have adversely affected domestic manufacturers, dominated by small and medium enterprises (SMEs).
According to the Automotive Component Manufacturers Association (Acma), the nodal agency for the Indian auto component industry, representing over 600 companies, most of the existing trade agreements have resulted in inverted tariff structures.
“The issue is that the FTAs should not result in inverted tariff structures. Most FTAs that we have signed are with countries that have relatively lower tariffs than India. As a result, they give advantages to these countries rather than to us,” Acma Executive Director Vinnie Mehta said.
“There are trade agreements with Japan, Singapore, Malaysia and South Korea. The government should look at FTAs with nations that have relatively higher tariffs than India, so that we get better market access opportunity,” he added.
Moreover, there are instances where components attract nil duty, though there have been tariffs on the raw materials. “For example, our agreement with Thailand is called Preferential Trade Agreement. Certain aluminium components can be imported with nil duty, but if Indian manufacturers want to import aluminium to manufacture the same product, they have to pay duty. It is affecting the manufacturing units,” Mehta said.
Acma has raised the matter with the government as another pact with the EU is on the horizon. “The EU-India trade agreement is at the drafting stage. The effect can be realised only after the agreement has been signed. The government has been made aware of the industry concern. We hope the government will address the issue,” he said.
India and the 27-member EU have been negotiating the agreement for the last couple of years and were expected to sign the deal by June this year. The concern of the domestic automobile industry is one of the issues that have held up the deal.
The industry does not want duties on the import of automobiles, including components, from the EU to be eliminated or reduced under the agreement, to encourage domestic manufacturing.
Currently, the import duty on a fully-imported car is around 60 per cent, while it ranges from 7.5 per cent to 10 per cent in the case of components.
Heavy Industry Minister Praful Patel recently convened a meeting of the Society of Indian Automobile Manufacturers (SIAM) and Acma to discuss the issue and has reportedly extended his support to the views of the industry lobbies.
According to Srivats Ram, managing director of Wheels India Ltd, a manufacturer of steel wheels for passenger cars, utility vehicles, trucks, buses, agricultural tractors and construction equipment, serving domestic and international customers, the FTA may affect core manufacturing activity.
“We should have FTAs with countries like Brazil and South Africa that have higher duty rates than India. As far as the EU is concerned, I think we need to ensure that core manufacturing remains in the country, because core manufacturing generates jobs,” Ram said.
