Skoda and Audi are expected to be the biggest beneficiaries of the government’s move to allow the import of a specified number of cars at lower import duty under the proposed bilateral trade agreement with the European Union.
Government officials told TOI that negotiators led by commerce secretary Rahul Khullar will negotiate the concessional duty at which cars will be allowed under what is now known as tariff rate quota (TRQs) in the trading community.
Based on import data for the last financial year, buyers may end up buying Skoda Octavia, Superb and Laura made in Europe and shipped into the country if the tariff concessions materialize. In terms of the models that benefit, Audi A4 and A6 (2,383 cars were imported in 2010-11), Audi Q7 and A8 (766 cars) and BMW 7-series (556 cars) are likely to see the maximum tariff reduction.
Apart from making a major concession in allowing cheaper imports, the government seems to be going the extra mile to clinch the deal with EU. While the tariff for import of automobiles is 100 percent, the notified rate, which is applied on new cars, is 60 percent. Sources said that negotiators are using 60 percent as the starting point for negotiations. “If you start from this level, you are bound to agree for 20-30 percent tariff,” said a source.
The auto industry fears that cheaper imports will impact the development of local manufacturing and jobs domestically although the proposal has been approved by the Trade and Economic Relations Council headed by the prime minister.
“We will be left with manufacturing small cars only, while the technologically superior vehicles would be imported. Even the auto ancillaries will be left to do basic tasks,” said an industry source.
According to data available with SIAM, the industry lobby groups, over 10,000 completely built units (CBUs) were imported into the country last year, with a majority coming from Europe. These vehicles attract 60 percent import duty. In contrast, around 21,000 kits were imported in what is known as completely knocked down (CKD) state, which now face 10% customs duty if engine and transmission systems are assembled in India.
The fear is that lower tariffs will prompt major car makers to import CBUs instead of assembling it here. An official said the number of vehicles that India agrees to allow under TRQs is critical. “Obviously, EU is not going to agree for a TRQ of 12,000 or 15,000. It is going to ensure that even the CKD number is included,” said the industry source.
At the moment, the government says the facility is not going to be extended to the two Asian countries.