[DukeNukem]

As the media goes abuzz with a potentially drastic cut in import duties for cars manufactured in the European Union (EU), Team-BHP breaks down this development.

What's going on?

The Free Trade Agreement (FTA) between India and EU has been on the table since 2007. However, there was no major progress until now. Recent media reports suggest that the pressure from EU is increasing and it is likely that the agreement will be completed by this year end.

With respect to the auto market, the FTA would allow a 'calibrated' import duty reduction on cars manufactured in the EU. First, a tariff of 10% will be applicable to a fixed quota of 2.5 lakh cars imported from EU over five years. That's 40,000 cars per year, with the annual quota increasing by 5,000 each year.

Secondly, the general import duty on Europeans cars could be brought down to 30% (from the current 60-75%), besides the aforementioned quota of cars.

In the current budget, import duty was increased to 75% on fully imported vehicles priced over USD 40,000 and with engine displacement above 3L (petrol) / 2.5L (diesel).

Reactions

The Indian auto industry has expectedly reacted with inhibition. Earlier this year, when the points of the FTA negotiations became clearer, Tata Motors expressed their concerns about how reducing import duties could hamper domestic auto industry growth and investment.

The industry body SIAM (Society of Indian Automobile Manufacturers) also opposed the move. According to SIAM, such a move could reverse the current policy that encourages foreign carmakers to invest in India, while also increasing imports and discouraging domestic manufacturing. All this would add up to jeopardise the Automotive Mission Plan 2006-16 targets.

The Automotive Mission Plan was formulated by the government and the auto industry with the aim of turning India into a global automotive hub by 2016. It hopes to achieve this by taking the auto industry's output to $145 billion, thereby contributing 10% of the GDP and providing employment for 25 million people.

In addition, Japanese and Korean carmakers whose domestic and export manufacturing bases are in India, also joined SIAM in protesting the duty reduction under the FTA.

Trade relations

The EU is India's largest trading partner; bilateral trade in 2009-10 aggregated to $75 billion.

According to the figures released by SIAM earlier this year, while trade exchanges between India and the EU were similar, there was a huge contrast in their growth trends.

EU exported automotive products worth USD 3.4 billion to India, while India’s reverse automotive export was valued at USD 3.5 billion. However, EU’s exports to India grew by 51% last year, including 109% growth in car imports. In contrast, there was only 11% growth in exports by India to the EU.

[shankar.balan]

This will be lovely.
If this comes true then many Indians may be able to realize the dream of an European vehicle.
It would be nice not to have to pay huge premia for the same vehicle and variants over and above what one would pay for it if one were in Europe!
Good to see this will affect conoisseur products such as Wines and Whiskies.
Wonder whether there will be a filtered effect on other fine things like Watches and Sunglasses?
While it will pose a threat for our Indian manufacturers, I think they have had a long time in which to mend their ways. They simply need to speed up their investments and efforts in the search for excellence.
I appreciate SIAM's point that Euro manufacturers might prefer to import rather than invest in production, at least initially. But I think from a long term perspective most of the Euro manufacturers will prefer to invest in production hubs here.
We just need to remain investor friendly and we must somehow achieve a stable political front!

[vikramv1]

Is this a done deal yet? When does the FTA deal come into force?

[shivshanker]

You may have to pay just 10% duty on Porsche and BMW; India in talks with EU to slash import duty.

The above news caught my attention while glancing the online edition of Economic Times today.

At first i was impressed that the our Govt. is coming out of the closet. But if I re read the article, I feel that we are not doing justice to the local Indian population.

Rather than making helping the masses and provide jobs to the common Indian public, cannot understand as to why is our Govt. so keen on pleasing the EU.

The net result would also mean a loss of 50% Import Duty on 2.5 Lakh cars over the next few 5 Years.

I am for keeping the import duty high on all EU cars so that these car manufacturers seriously consider setting up production base in India.

Do any other Bhpians share my views.?

[narayan]

Originally Posted by shankar.balan

I appreciate SIAM's point that Euro manufacturers might prefer to import rather than invest in production, at least initially. But I think from a long term perspective most of the Euro manufacturers will prefer to invest in production hubs here.
We just need to remain investor friendly and we must somehow achieve a stable political front!

thats correct- European manufacturers will have to invest in India if they want to move away from high cost hubs in Europe. Further the epicentre of demand is also moving to Asia and hence logistically and labour cost wise it makes sense to manufacture in India or China.

Of course there would be some short term heart burn for SIAM when models priced similar to ones from MSIL, HYUNDAI M&M etc are imported and sold but the 10% duty and higher cost of manufacture in Europe should ensure these cars are pricier than their Indian competition which anyway should hopefully up the quality ante for the locally manufactured cars as well

all in all - good for the car buyer- hope fully the infrastructure also catches up.

[CARDEEP]

^^^ Doesn't that step forces the Indian Car manufacturers to work hard on making good cars rather than making merry with sub-standard products?

This is a good step, if that means that most EU manufactured cars/ components are now priced at least 40% lesser of existing costs.

[prakash_ajp]

The locally manufactured cars are lower than the imported ones only because of the near 100% import duty. I don't know why they should be priced so high. If it can force the car companies to bring down the prices of locally manufactures/assembled cars, I am all for it.

[2cents]

100% import duty to promote local industry doesn't work on everything. In spite of decades of existence, Merc at best assembles some of their cars. The Marquees just wont shift production just because of the price differential. They will lose their premiumness by reducing prices to say, Skoda or VW levels.

On the same count, I doubt they will reduce prices even after lowered import duties. Most likely they will increase product features as default to maintain prices.

[StarrySky]

Such news has been appearing on various websites off and on. We also have threads here on the forum discussing the merits and demerits on the proposed India-EU pact. I will believe the "10% import duty" part when the pact is actually signed.

[Vandit]

It's unlikely that most premium badges will pass on the FULL benefit to the customers anyway IF and when the Govt actually reduces the import.

After all, taxes are how every Govt ensures it's returns.. & Indian Govt's love to tax its people. I'm pretty sure our love affair with taxes and non existent concept of accountability will see us actually pay taxes for the air we breathe one day. And even that will be polluted no end with the lovely Diesel fuel that we've promoted endlessly with subsidies.

<END of Rant Mode> :P

[SmartCat]

The background story is - India wants access to the European services market. Right now, there are many restrictions European companies face when it comes to outsourcing software development to India. In return, Europe is asking for import duty cut on liquor and cars. All this is a part of an effort to sign a FTA (Free Trade Agreement) between Europe and India.

But even if India signs FTA with Europe, I don't think the import duty will only be 10%. That will just kill the local manufacturing industry. My guess is that import duty will be somewhere in between 10 and 100%. I'm pretty sure there will be more safe-guards too - like only cars priced above $XXXXX will be allowed to be imported under the agreement.

[avira_tk]

Originally Posted by smartcat

The background story is - .

I am not quoting you entire post, its exactly what I wanted to say. The EU is threatening to lock out Indian products if their products are not allowed in. In the liquor trade, which is half the story, the government has pleaded helplessness and says liquor is a state subject(don't know the legal stuff). However, the EU is not buying the argument.

The duty on cars is to make sure that EU factories go on full steam while India will be stuck with screwdriver assembly. The FTA with Thailand helps the Japs, so European players want their own sugar daddy. The recent hike in import duty was to ensure that the negotiations will start from a higher base figure.

[taranonline]

Originally Posted by shivshanker

You may have to pay just 10% duty on Porsche and BMW; India in talks with EU to slash import duty.

The above news caught my attention while glancing the online edition of Economic Times today.

At first i was impressed that the our Govt. is coming out of the closet. But if I re read the article, I feel that we are not doing justice to the local Indian population.

Rather than making helping the masses and provide jobs to the common Indian public, cannot understand as to why is our Govt. so keen on pleasing the EU.

The net result would also mean a loss of 50% Import Duty on 2.5 Lakh cars over the next few 5 Years.

I am for keeping the import duty high on all EU cars so that these car manufacturers seriously consider setting up production base in India.

Do any other Bhpians share my views.?

Do you have any idea where the money charged as import duty goes? I tell you, it in pockets of politicians or NREGA or some other crap. Why we are not entitled to have nice cars? You don't want to drive a bmw, fine your wish I am all in for it.

Its about time india faces some competition, look at the quality of Tata and Mahindra vehicles - the only local car manufacturer.

[rohanjf]

It is a good idea to limit the total number of imports to 2.5 lakh cars. Probably, each European manufacturer will get a quota.

It is a good opportunity for relatively unknown brands (e.g., Alfa Romeo, Citroen) to test the Indian waters. They can bring in their expensive models to get some recognition. In 5 years, these brands can decide whether they want to continue to CBU route and increase the prices drastically (thus helping the current owners to sell their 4-5 year old cars at the price they bought them for), or go the CKD route and keep the price same (or increase marginally).

Perhaps, no company will want to include the already selling CBU models in this quota. Instead, they try launching new models (imagine a regular wheelbase A8 starting at just above A6) or new brands altogether (imagine Fiat bringing in my favourite Alfa Romeo).

[S_U_N]

Originally Posted by vikramv1

Is this a done deal yet? When does the FTA deal come into force?

The negotiations are still ongoing. Please do not count your chickens until they hatch.

The agreement should be in effect only towards end of 2012 or early 2013.
Also, the reduction in duties would be gradual each year.

However, the final impact for automobile end users is still a gray area.

We have a FTA with Japan since 2011, though as an end user of a Japanese car, I really don't see any benefit since last year.
http://www.team-bhp.com/forum/indian...cheaper-2.html