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Auto industry worried about duty cuts in FTA with EU

Economic Times, India

Auto industry worried about duty cuts in FTA with EU

26 June 2011

PTI, NEW DELHI: Amid speculations of India giving in to EU’s demand on lowering duty on imported cars in the proposed free trade agreement (FTA), the auto industry has cautioned that if such a concession was granted, future investments in the sector in the country will be hit.

The industry pointed out that such a move would create disparity among global companies from Japan and Korea with those in Europe. It would also be a deviation from the commitments made by the government while formulating the Automotive Mission Plan (AMP) 2016 and the sector could even miss some of the targets set.

"SIAM has been maintaining that import duty range on CBUs (completely built units) should not come down. A major concern is that if we allow the CBU duty to come down then the level of investments in India may come down," Society of Indian Automobile Manufacturers President Pawan Goenka told PTI.

Expressing similar sentiments, Honda Siel Cars India Senior Vice-President (Sales and Marketing) Jnaneswar Sen said: "Lowering of duties in India-EU FTA will be contrary to what the government has so far been doing to encourage more investments in India."

An analyst, who asked not to be identified, said: "With future investments likely to be affected, one of the major aims of the AMP 2016 of creating 25 million employment may not be achieved."

The AMP 2016 had envisaged a revenue of USD 145 billion by 2016 for the Indian auto industry, accounting for 10 per cent of GDP and creating 25 million jobs.

India and the European Union have been negotiating hard over an FTA that is likely to be signed by the end of the year. While India is seeking greater access for the services sector in EU, in return, among other things, EU wants India to open up the auto sector by lowering import duty on imported cars and components.

While nothing has been finalised, it is understood that the EU wants the import duty on luxury cars with minimum engine capacity of up to 1,500 cc to be reduced to 30 per cent from the existing 60 per cent.

Auto component makers which have been hard done by previous FTA with Thailand hoped that the government should protect their interests.

"The FTA with Thailand was not very well thought out. There was very little or no involvement of the (auto and components) industry and it led to inverted duty structure," Automotive Component Manufacturers Association of India Executive Director Vinnie Mehta said.