[srishiva]

This should be happening in the premium class of vehicles only, right? Unless these Euro companies start making mass market cars, I am not sure if this should impact local manufacturers.

[jaibir]

India runs a fairly substantial current account deficit. As a country, unless we start exporting significantly more, its very difficult to ease up imports. If you ease rules on imports without a corresponding pickup in exports, the currency goes into a bit of a tailspin (similar to the 45 to 55 move in the rupee). This would mean that everything that is linked to imports (think oil, metals, food) becomes more expensive.

Personally, I would rather pay more for cars than pay more for everything else!

[jinojohnt]

IMHO, protectionism should be applied ONLY to industries feeding basic necessities (food, shelter, clothing and may be public transport). If the local players are killed because of liberalism in these areas, it would hurt us because we would be FORCED to buy at prices decided by foreign players.

All other industries should be liberalized and be driven by the world economy. If local players are killed and foreign players increase the prices of products, people would still have the option of not buying them or even buying from 'cheaper' foreign players.
Eventually the prices would even out.

Case in point: What catastrophe would happen if the Gold Ornaments industry is liberalised and the local players are dead?

[MuzzledMoose]

Local production is much cheaper even if we minus the duties due to import. Cheaper parts are more attractive and this is evident with maruti sales figures. Protectionism kicks in in every big or small economy for that matter. Even Obama says to choose buffalo over Bangalore. I don't find anything new or wrong with it.

[blackasta]

Originally Posted by jinojohnt

Case in point: What catastrophe would happen if the Gold Ornaments industry is liberalised and the local players are dead?

Don't know the exact figures, but thousands, if not lakhs of small scale artisans would lose their livelihood.

[shankar.balan]

Originally Posted by Nilesh5417

A certain amount of protectionism is necessary. A VW or BMW or Merc will always always remain a German company with global operations no matter how much employment it generates in India. It funnels development, money and lot of political mileage back to the country where its head quarters.

If the Indian government creates an advantage for local companies, its doing nothing different from what a lot of other governments world over are realizing today. The cradle of capitalism, USA itself, is now adopting restrictive practices after years of job losses and weakness in the economy. Look how hard it is looking at tax laws to make sure Apple brings back a huge chunk of money it earns as profits world over outside of USA stating that Apple is basically an American company!

I have no factual data to support my statements above but all i say is that governments need to act with interests in mind beyond a single class / section of society in all spheres.

Originally Posted by 999

Shankar, Nehruvian protectionism was good for some period of time when we were independent. If not, we would have been forced into a lobby and end up on something on the lines of Pakistan. But our nation kept stretching it way too long. Reservation is another example. A novel idea, but what about it now. That is way OT. Heard of the quote " If you don't like the colour of your flag, CHANGE it"
Also they is an incentive for our manufactures to be more competetive. Again if we did not have the "phoren" thing, a better car for less price is more attractive.

Originally Posted by avira_tk

dd journalists to that list of evil, most of them push any foreign brand that has given them an all expenses paid trip to an exotic location to test drive a super expensive model variant that they don't plan on selling in India.

the Bolero or Thar in the near future, so Indian brands will always have a place in rural India atleast, although urban areas might completely go foreign in the next decade or so.

Yes Avira. Some of what you say is accepted. Especially those bits about the journos in India, hungry for that expenses paid Phoren trip!

Hey 999. While it was important at the time of independence to take stock and climb back to normalcy through various methods, one of which was protectionism, I somehow cannot accept that the Nehru Gandhi family thrust these ideologies down all our throats but had a completely different set of laws for themselves. For example the old bloke used to get s stuff tailored in Savile Row and dry cleaning done in Paris. Was he God or the Ruler of India by Divine Right?

What was important was the Green Revolution and later, the White Revolution enabling us to produce our own food. Unfortunately all those noble things have turned to dust with greater population growth leading to communal and caste ridden politics and corruption everywhere. For me there is only the sadness of deterioration that I have observed since the 1980's. And Yes, I might very well change my flag as you put it. Exercising one's right of franchise, paying one's taxes, living honestly, looking after those less fortunate in my immediate surroundings etc have resulted in absolutely nothing for the regular office going, working bloke of India. Any wonder then that I am deeply distressed?

Nilesh. Thanks. Yes Apple has become a cult phenomenon which has earned its place by creating smart products, smartly packaged and brilliantly marketed and promoted. Agreed that they are American, but they are performing well because they are giving the consumer what he or she wants. Why grudge that fact? Yes they are repatriating profits as an American company and many of us consumers here in India and China are feeding them by buying their products because we like them. We do have the right dont we, to decide which brand we wish to buy? I dont grudge them their success. On the other hand, just take a good hard look at what wickedness Ranbaxy, an Indian company has been getting up to!
I agree with your statement that the Government needs to act for the greater good of the greater number. Thats the essence of politics- to be able to look on people as a mass...however, our Indian Government has done nothing pretty much since Independence, than line its own pockets and those of a chosen few! Has there been a greater good for the greater number? Take a hard look around you and see!

[getsurya]

our Indian Government has done nothing pretty much since Independence, than line its own pockets and those of a chosen few

Well said, Shankar! Agree with you and I wish the politico+industrialist nexus is not doing any good for Auto industry, as well.

This over protectionism should go and the market should 'really' be open to all 'worthy' brands!

When do we wake up is the Trillion dollar(oops)... rupee question

[Sanjunair5]

This is a very interesting question and can be looked at in in various ways. To begin with all issues like corruption, politics, industry nexus, Nehru/Gandhi family etc. needs to be kept out. Else we will go in circles without reaching an answer. This is pure economics, about an industry that is growing and has the potential to influence the economy more than any other industry.

Lets try to understand the government mindset. Government (this is not a Congress or a BJP government, but just a government) does not bother about whether the driver is a pure commuter or a race car driver.

1. Government needs money to run the economy. Government has two sources of income – Direct (income tax etc.) and Indirect taxation (sales tax, value added tax etc.) (not considering borrowing as a source of income, selling PSUs etc.).
2. Government needs to generate jobs for the greater good of its populations (think of it as a noble government that is not thinking about winning the next elections)
3. Government needs industry to have broad based growth so that it is more sustainable, there is more cascading effect, so that we don’t end up like a banana republic, so that local resources are better utilized and there is more value add at the source (exporting finished goods earns more than raw materials – finished steel earns more than iron ore) and for various other reasons
4. Government needs to think long term. What can help the country grow for a better and brighter future? What would encourage the country to innovate?
5. Government needs to think about what is good for its citizens

Now, the question in front of the government is what can help government meet its objectives through the auto sector?

Scenario 1 – zero import duty (so there is no unfair taxation of an imported car), excise duty paid on par with local manufacturers, no local manufacturing by foreign manufacturers

1. Government earns money from excise duty, same from local manufacturers and imported cars, Perhaps government would earn as much as it would from this auto sector as it would in a scenario where imports are unfairly taxed
2. Government does generate jobs, all of it in the services sector. This is likely to be restricted to a narrow vertical of car sales and services. So this scenario is likely to generate fewer jobs
3. Government exports more, but more raw material. Now that we are consuming, some country somewhere is manufacturing more, so it needs more raw materials. More iron ore, more rubber, more raw chemicals exported. Government is exporting more raw materials, so loses out on what it can earn through value adds and also loses out on an opportunity to create more steel sheets, tyres, batteries, plastics
4. Short term vs long term. In the longer run the status of the industry does not change. Innovation does not happen within the country as all of that is happening outside. There is no incentive for the manufacturers to do that within the country either
5. What is good for its citizens? This is good for its citizens as they get the latest (remember it is still an open economy where different manufacturers can bring their latest products) and best

Scenario 2 – High import duty (imported cars are unfairly taxed), local manufacturers enjoy a benefit over imported ones, local manufacturing by foreign manufacturers

1. Government earns money from excise and import duty. Perhaps the higher import duty results in lesser sales and government loses any extra income. Net net same as in scenario 1.
2. Government generates extra jobs. Remember the auto ancillary employs more people than the auto industry itself. So government has managed to employ more people
3. Government exports perhaps less (at least auto related products). But there is more value add happening locally. More steel sheets are consumed, more tyres consumed, more batteries consumed. Government may also import more if there aren’t enough natural resources to support. But this can get compensated through exports of other finished products that happens through value add happening locally.
4. Short term vs long term. In the longer run local manufacturing does a world of good. More local people employed, more innovation, more thinking happening locally, a very favorable situation indeed
5. What is good for its citizens? This may not be the most ideal situation for the general citizens till the time the market matures and country grows. The local products may not meet the international standards and imported ones are beyond reach

Now, compare the two scenarios – it is clear that points 2/3/4 government gets to meet its objectives. True point not 5 does indicate that customers may not be getting the best deal. But think of it, is it not a small sacrifice for the greater good?

So, this was an oversimplified explanation. All the points that I specifically asked to be kept aside do influence government’s industry policy and that results in funny definitions like anything with more than 200mm GC is an SUV, import duty for bikes above 800cc being higher than a 799cc one and more such implementations. But this should not be the basis for questioning the macro policy itself.

I am all for protectionism in the auto sector, for it is a huge industry that has the potential to take our country to the next level. Not protecting this industry now is actually letting go of an opportunity that comes only once in the life time of a country.

[apachelongbow]

It is a positive measure that we have high import taxation in our country. This coupled with strict pollution norms (atleast on paper) has ensured that foreign car makers spend some money in investing factories in India (create jobs), get in the latest technology (to clear pollution requirements) and basically make India into a car manufacturing and R&D hub. Once a maker sets up a factory, its a huge job creation process. He/She will need to help setup/invest in R&D, sales, after sales, servicing units, lot of small businessmen will set up ancillary component units, so it means more money and jobs for all.
If we had free import policy, we would be like our neighbour, the failed state of Pakistan, who cant produce a tin can on their own.
Also having state of the art auto manufacturing facility in India ensures that in critical times (for example war), these facilities can be easily adapted/modified to produce war weapons instead. That is also a big reason why heavy industries and big auto makers are concentrated in the south in Andhra Pradesh, Karnataka and Tamil Nadu.

Protecting domestic player is a minor reason for import tarrifs. Had this been the major reason, then the govt would have provided tarrifs for importing lower end cars and kept no tarrif for import of high end cars, simply because no Indian player makes a Ferrari or a Lamborgini for example.

[999]

Originally Posted by shankar.balan

Yes Avira. Some of what you say is accepted. Especially those bits about the journos in India, hungry for that expenses paid Phoren trip!

Hey 999. While it was important at the time of independence to take stock and climb back to normalcy through various methods, one of which was protectionism, I somehow cannot accept that the Nehru Gandhi family thrust these ideologies down all our throats but had a completely different set of laws for themselves. For example the old bloke used to get s stuff tailored in Savile Row and dry cleaning done in Paris. Was he God or the Ruler of India by Divine Right?

Hi Shankar,
I never said I agree to everything that Nehru did. But Nehruvian protectionism in the early days of Indian independence was needed and that was my point. But as I said before it is stretched too far and thin now.
Regards

[nitinbose]

Subsidies and the so called "local industry protection" are spoiling our country big time. Competition should always be encouraged. Instead of protecting the local industries, they should strive up to meet the international standards. What's now happening is that foreign companies are selling the inferior "Indian-ized" versions of their vehicles and exorbitant prices! So in the end, its the consumer that suffers. While the rich and affluent buys the imported high-end cars giving all the safety, performances and comforts.

I'm deeply getting a feeling that everything is done to prevent the middle-class from developing so that the affluent can always enjoy "cheap labour" by using the "carrot"

[Maky]

To give my opinion on the thread title, I would like to think that the intention was saint initially. India had a very weak economy many decades ago and we needed every Industry to grow stronger, In this scenario the car Industry. So the govt. placed these duties on imports for this very reason. To protect the domestic car industry and to nurture it while it was still in its infancy.
However throughout the later years I think the duties have remained because of reasons of fat margins, maintaining low R&D costs & profiteering through politicking rather than anything else. PR friendly terms such as job creation is for the naive, even though true to a certain extent. I for one would like to see a duty yearly duty cut put in place. That being said the govt. still should get a small slice of the pie as these are after all foreign manufacturers trying to make money in an Industry that has grown thanks to us.

[zenren]

Adding another perspective on why we should not allow direct imports in the current Indian automotive context.

With the incentives for setting up a factory in India, a lot of investment has to be put in India which helps the Indian economy as many others have already pointed out.

From a customer's perspective, a company that has put a lot of investment in India is less likely to shut shop at the first instance of a 'not so profitable' market sentiment. With free hand on imports, we are likely to see more car owners face the fate that Peugeot 309 owners had in the past. Its much easier for foreign players to pull the plug on their models without any accountability. This is definitely not going to help the customers in the long run.

Another fact to note here is that a free import is not going to be utilized by just the German trio. We are likely to see our market flooded with cheap Chinese products too that may not meet all the quality standards. AFAIK, only the cars manufactured in India need to go for extensive ARAI tests. For imports, the assumption is that it would already be tested elsewhere. No idea how it would apply for the cheap alternatives that could be dumped from elsewhere.

[ashlil]

Originally Posted by black12rr

Well ,the so called "GERMAN BUILT" tag be still there ? .Will someone buy MADE IN INDIA lambo?

How come people buy iPhone 5 (made in China), Nikon D600 (made in Thailand) and Sony home theatre (made in China) with pride? So, why not made in India Lambo?

[999]

Originally Posted by nitinbose

Subsidies and the so called "local industry protection" are spoiling our country big time. Competition should always be encouraged. Instead of protecting the local industries, they should strive up to meet the international standards. What's now happening is that foreign companies are selling the inferior "Indian-ized" versions of their vehicles and exorbitant prices! So in the end, its the consumer that suffers. While the rich and affluent buys the imported high-end cars giving all the safety, performances and comforts.

I'm deeply getting a feeling that everything is done to prevent the middle-class from developing so that the affluent can always enjoy "cheap labour" by using the "carrot"

hi Nithin,
2 things. Subsidies and import taxes are 2 different things normally. If the country gives a subsidy to export stuff then they can be clubbed together. Otherwise they are mearly to support the lower income bracket or encourage a few specialized industries.
Case point PDS (public distribution system), Urea and other fertilizers, farming loans etc. These are there for a reason. Developed countries do it as well, but more to promote exports like wheat cultivation in US, so that exports remain competetive. How in earth can you believe that American wheat after travelling halfway across the world to India is cheaper than the locally grown one, a few years ago?
why are you buying an Indianized inferior product at the first place? If you are comparing with the same brand international product, then the company is to blame for, not the taxes. Choose the best. Nobody stops you from that other than the "phoren" mindset.
By the way of higher taxes, government is earning from the ego, of the status concious Indian in this case.
Regards