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Old 9th April 2013, 16:00   #1
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Default SIAM releases White Paper on India's Free Trade Agreements

SIAM has released a White Paper on India’s Free Trade Agreements, with special focus on the on-going negotiations with the EU. It makes for some interesting reading on the on-going FTA negotiations between India and the EU which could have wide ranging repercussions for the Indian auto industry. The EU has been insisting that automotive CBU's be included in the FTA as this will significantly lower the Import Duty as compared to the prevailing MFN rates.

SIAM’s assessment lists the following negative impacts of India-EU FTA:
  • It will curtail investments in automotive manufacturing in India and therefore employment
  • It will severely distort domestic competition
  • It will hurt domestic value addition and technology development and therefore the entire auto-component sector
  • It will increase imports of fully built cars and as a consequence increase trade deficit and with lower investment, could significantly expand current account deficit
Comparison (Source SIAM White Paper)

Name:  SIAM.JPG
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The Whitepaper states that the EU is asking for a 50 % reduction in the import tariff to 30 % (currently at 60 %) and an increase in the quota of cars that can be exported at an import tariff of 10-15 % (with large cars being defined as having an engine capacity greater than 1500 cc). The cars that would be imported will be luxury cars for the most part.

Indian's auto policy allows 100 % FDI and has attracted large investments from global automakers and more than 20 companies now compete in the Indian auto market. Most of the EU investments in India's auto sector have been directed at the domestic market and is not export oriented. This is in sharp contrast to manufacturers such as Maruti Suzuki, Hyundai, Ford etc who export to over 100 countries.

Taxes on cars in India (Source SIAM White Paper)

SIAM releases White Paper on India's Free Trade Agreements-taxes-cars.jpg
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Old 9th April 2013, 19:14   #2
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Default Re: SIAM releases White Paper on India's Free Trade Agreements

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Originally Posted by Redline6800 View Post
Most of the EU investments in India's auto sector have been directed at the domestic market and is not export oriented. This is in sharp contrast to manufacturers such as Maruti Suzuki, Hyundai, Ford etc who export to over 100 countries. Taxes on cars in India (Source SIAM White Paper)
If you view exports as percentage of the cars manufactured in India, Maruti does not have a great track record. Hyundai India and Ford India have a much better track record. They have been exporting a substantial portion of their Indian production abroad.

Also, the cars exported by Maruti have a much higher import content (with parts coming from Japan and assembled here) than cars they sell in India and so the actual net export in value terms is that much lesser. You also need to set off the export earnings of Maruti against dividend and royalty payments (calculated on the basis of Indian production) that the company repatriates abroad. Maruti doesn't have a great track record at all.

By the way, who is the parent of Ford India? Is it a US company or European company?
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Old 10th April 2013, 10:44   #3
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Default Re: SIAM releases White Paper on India's Free Trade Agreements

IMHO it would be a winning situation for the customers, with more choice. Cars like Yeti would become affordable, the Euro norms of safety and also premium feel could be well within a reach of first time car buyers. Technological competence would ensure the Indian Manufacturers improve their products.
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Old 10th April 2013, 11:05   #4
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Default Re: SIAM releases White Paper on India's Free Trade Agreements

Naturally, SIAM has a vested interest in not opening up the economy! Like the (in)famous Bombay Club of the past.
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Old 10th April 2013, 11:52   #5
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Default Re: SIAM releases White Paper on India's Free Trade Agreements

Think it will be unfair to only lower the duty for EU origin cars. Japanese companies were one of the first to come and set up shop in India. If they would have to reduce then it should not be for selective manufacturers. Going by GTO's report, 57% of cars sold in India are Jap and by lowering the taxes, General public will also be greatly benefited.

Out of curiosity how is it that Japs are able to price their cars competitively when compared to EU?
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Old 10th April 2013, 13:13   #6
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Default Re: SIAM releases White Paper on India's Free Trade Agreements

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Originally Posted by ku69rd View Post
Think it will be unfair to only lower the duty for EU origin cars. Japanese companies were one of the first to come and set up shop in India. If they would have to reduce then it should not be for selective manufacturers. Going by GTO's report, 57% of cars sold in India are Jap and by lowering the taxes, General public will also be greatly benefited.

Out of curiosity how is it that Japs are able to price their cars competitively when compared to EU?
I think Honda, Toyota and Suzuki(Maruti) are almost completely localised here, Well at least Suzuki is. Car manufacture and parts. To the OP, Where can I learn more about this EU scrappage scheme mentioned in your post?

Now, I used to be Pro Import duty cut not long ago but having learned it's impact a while back I've changed my tune. I'm neither for a raise in import duties nor a sharp cut, I would prefer a diminishing reduction over a period of say 5 years. This should allow local manufacturers to catch up/compete and over time allow the Indian consumer better quality automotive products.
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Old 10th April 2013, 13:35   #7
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Default Re: SIAM releases White Paper on India's Free Trade Agreements

This news is going to impact luxury cars in the short term because customers will now wait and watch to see which way the duty goes. Every union budget there has been expectation of the duties going down but they have gone up instead! With this news I would wait for quite awhile to understand what will come out of this
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Old 10th April 2013, 15:29   #8
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Default Re: SIAM releases White Paper on India's Free Trade Agreements

There are two aspects to this FTA with EU.
1) From the (Indian) customers' perspective: More models in offering (we may get the VW Golf sooner). And more affordable European cars without compromising on quality. Luxury cars (CBUs) will become cheaper. Overall, good news for consumers.

2) From the Indian economy's (read Tata, Mahindra, MUL, Sona, Rane) perspective: Tougher competition for domestic OEMs and suppliers, and of course, lesser revenue for the government in terms of import duties.

If you compare the two, relaxing import duties is not such a bad proposition after all and will / may encourage consumer spending in the automotive sector. "Freer" trade will only increase choice, quality and affordabilty. The flip-side, well, Mahindra may have to slog out a tad harder in terms of quality they offer, Tata fix up the aftersales service department...

And as far as the issue about job-generation goes (some people may argue on that), I personally feel that job creation via trade-protections is a short-term fix.

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Originally Posted by ku69rd View Post

Out of curiosity how is it that Japs are able to price their cars competitively when compared to EU?
The Japanese are price competitive only on those cars which are manufactured in India - mostly hatchbacks and compacts. CBUs such as the Kizashi and Grand Vitara are price prohibitive. The Europeans, however, play in the luxury segment, where price is not "really" a big differentiator. And overall, the localization of the European OEMs are lesser than the Japanese, therefore, even the (very few) European hatchbacks and compacts that we have are more expensive than their Japanese and Korean counterparts.
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Old 11th April 2013, 05:09   #9
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Default Re: SIAM releases White Paper on India's Free Trade Agreements

This is an interesting development, with SIAM showing signs of panic at the ongoing India-EU FTA negotiations. Both pro and anti import reduction of import duty sides are slightly askew with their arguments.

Its wrong to say "build them here" as an argument for extremely high import taxes on foreign cars. The general argument goes that if a manufacturer is truly serious about India, they should set up a plant and begin manufacturing their cars over here thereby guaranteeing a between a few hundred to a few thousand jobs primary jobs and several more secondary jobs (OEM suppliers, dealerships etc). Remember we're not talking about 0% duty here, and a minimum of 30%. What this means is that for me as a consumer, if European car despite its 30% tax offers me more in terms of fit, finish, safety and badge value, over an Indian product that is a product of a heavily shielded industry and clumsily put together, I would be better off buying the European import and spending the money I have saved somewhere else.

To me a 30% tax sounds extremely fair, because it significantly protects the Indian industry and provides consumers with more alternatives, and yet keeps automakers on their toes to produce good products in order to justify why the imported cars are not worth the additional 30% you spend on them.

N. Gregory Mankiw (Professor of Economics at Harvard) had written a fantastic piece on free markets when he spoke about why the US should outsource jobs to India and save on costs (Link: http://gregmankiw.blogspot.ca/2006/0...ing-redux.html). The similar arguments can be applied to why India should import foreign cars by making markets freer (read: less tax). The Indian automarket has been shielded long enough and its a fact that the EU have a comparative advantage at producing better built vehicles than India.

I'm quoting what Adam Smith said in his 1776 classic "The Wealth of Nations" - “It is maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy...What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage.”

Last edited by Motored Mindset : 11th April 2013 at 05:22.
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Old 12th April 2013, 14:54   #10
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Default Re: SIAM releases White Paper on India's Free Trade Agreements

I would say, opening the market only to the EU players is not fair, where as it should be for all the players. At the same time, since this is coming in the form of a FTA, it would be mutually beneficial (I hope so). By opening up the market, if we expect the local guys to improve their fit & finish, I fear not to happen that way, but for sure for the FDI investments to freeze. This is a game we have to wait and watch.

Like the same way, the diesel should be de-regularised all through and the genuine eligible parties like public transport/ goods carriage/ agriculture sector should be paid subsidy to cover up the extra cost (how is a matter of totally different debate & I am no expert in that field and neither in economics; this is just my opnion or feeling). Currently when the diesel prices are controlled, the major benificiary is not actually the needy.
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Old 12th April 2013, 15:14   #11
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Default Re: SIAM releases White Paper on India's Free Trade Agreements

The EU is trying to pry open the market because of the slowdown there, SIAM is right to object to making deals that favour European manufacturers with excess capacity. India has enough on offer to set up a plant here, how does increasing imports of finished goods benefit us in any way?

We need to develop a large manufacturing base, FTAS are definitely not the answer. Getting cheap Bimmers is hardly a priority given the currrent state of the country's finances. The Chinese force foreign firms into tie ups and none of these whiners have any trouble operating within that restrictive and risky, in terms of IP protection, environment.
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