India's auto exports to touch $35-42 b by 2016 .

New Delhi, April 28 Even as a study by Ernst & Young and the Engineering Exports Promotion Council said the country's automotive exports should touch $35-42 billion by 2016, the Commerce Secretary, Dr Rahul Khullar, has asked the sector to be competitive without taking protection behind high import tariffs.

Briefing reporters here on Wednesday after releasing the study, he asked, “Do you seriously believe that with such high import tariffs, you will build a world-class auto industry in this country?”

Dr Khullar said, “Please don't get me wrong. I am all for the auto industry. It is the birth place for lots of other technologies. I am not talking about dismantling tariff lines so that we can negotiate Free Trade Agreements (FTA) with the European Union or Japan. But today you (the auto sector) live under the illusion that these high tariffs are here to stay permanently.”

He said if the auto sector continues living behind high tariff walls for the next 10-15 years, “guaranteed there will be an industrial shake out, guaranteed the industry will move somewhere else and guaranteed we will not be gainers.”

Total import duty on completely built units is around 106 per cent, while the import duty on completely knocked-down units is 60 per cent on average and that on auto components ranges from 7.5-10 per cent. A reduction in import duties would benefit Japanese and European auto makers the most. India is currently negotiating FTAs with Japan and EU.

Dr Khullar said though the Indian industry has a competitive advantage regarding wages, it was lagging behind in technology. He said that in order to become world leaders, like the IT sector did, it was important for the auto industry to leapfrog into the future by getting into hi-tech business and establishing areas of core competence.

The Commerce Secretary said the auto industry will soon move out of Detroit and Germany as it was not possible for them to remain competitive at their present wage rates and skill sets. However, he said India will also lose out if it does not gear itself to changes including electric and hybrid cars, climate change, green consciousness and carbon emissions, as well as high fuel prices and the regulatory changes across the world.

Mr Dilip Chenoy, Director-General, Society of Indian Automobile Manufacturers, said, “We're not asking for protection of the industry. But given the fact that competing countries like Thailand have high customs of 90 per cent for automobile imports, as compared to India's 60 per cent, lowering tariffs will result in the diversion of investment by companies in those countries. With lower tariffs at home, companies will prefer importing cars and components manufactured in such countries to India. Moreover, most global automakers have existing international sourcing agreements and they will prefer sourcing from them over the Indian industry, if the import costs are very low.”

Auto component exports

Pointing out that 60 per cent of India's auto component exports were to the EU and the US, Mr Vishnu Mathur, Director-General, Automotive Components Manufacturers' Association said, “The FTAs will result in one-way market access because EU and Japan already have minuscule import duties and therefore Indian auto components exports to EU and Japan will not increase much.”

Source : Business Line