Guest Column

The same is true for a key sector like auto components. The Indian automotive industry is one of the most liberalised sectors of the Indian economy with almost all categories of auto components under OGL. We now have the task of ensuring that the foreign car firms operations in India do not just end up as quot;assemblyquot; operations. An effective quot;Localisation Policyquot;, therefore, is a must. But it is very unfortunate that even after over 30 years of local manufacture of complete vehicles, we are allowing assembling of cars at the expense of the Indian customer and Indian industry.

When, rightly, so much noise has been made about import of gearbox by one of the vehicle manufacturers,the new vehicle manufacturers are importing the entire powertrain 8211; so much for Indian-made cars.Having done away with the quot;Phased Manufacturing Programmequot; of yesteryears, the Ministry of Commerce has evolved an MOU Route which has no legal binding to encourage localisation of auto components. However, it has become difficult to implement this MOU Policy due to Ministry of Finance8217;s different interpretation of what is a quot;CKD/SKD Kitquot; and what is a quot;componentquot;.

To further complicate matters, the Ministry of Finance has reduced engine and engine parts Duty to 20 per cent while keeping the CKD/SKD Duty at 40 per cent. Obviously, this is a great blessing to the vehicle manufacturers at a very heavy cost to the local engine component manufacturers if they are allowed to import complete engines at 20 per cent while the raw materials imported by local component manufacturers attracts import duty of 30 to 40 per cent. I think India is the only country with such an inverted duty structure, which discourageslocal employment potential and penalises local value addition.

As per the MOU Policy of the Ministry of Commerce, the new vehicle manufacturers will have to clear all their imports as CKD/SKD Kits at 40 per cent duty, till the time they achieve a 70 local content. However, the Ministry of Finance8217;s definition of Kits has left a window open which allows classification of the imports as quot;componentsquot; even before the 70 per cent local content is achieved as per the MOU. Consequently, some of the key and critical component systems like Engines are today being imported at 20 per cent customs duty without meeting the MOU requirements. We urgently need an inter-ministerial consensus on this issue. It is also unfortunate that complete sub-assemblies are being imported by Tier 1 suppliers as SKD/CKD kits and then these are being supplied to the vehicle manufacturers as quot;locally procured componentsquot; to reach the 70 per cent target. What a sham!

To encourage local manufacturing, we should rationalise the CustomsDuty structure on components and equalise the Customs Duty of CKD/SKD Kits with all components. Once the Customs Duty differential between Kits and Engines is removed, it would put an end to the debate on what is a CKD/SKD Kit and what is a Component. Secondly, we need to rationalise our Excise Duties with the objective of discouraging spurious parts. Spurious parts flourish in an environment of high local duties and tax avoidance.

The author is the president of the Automotive Component Manufacturers Association of India