Old entrants included in auto policy MoU norms' ambit

Wednesday, December 17 1997

Old entrants included in auto policy MoU norms' ambit

OUR ECONOMIC BUREAU

NEW DELHI, Dec 16: The Director-General of Foreign Trade (DGFT) has prescribed a new set of parameters that require existing as well as new joint venture car companies to sign with it a fresh memorandum of understanding to implement their projects under the revised automobile policy recently cleared by the Cabinet Committee on Economic Affairs.

A notification giving effect to the CCEA decision has thus set at rest reports that only new entrants in the car manufacturing field need initial an MoU with the DGFT. This means the concept of MOU introduced three years ago allowing auto giants to set up shop in India will apply equally to existing as well as new auto companies. The notification says import of components for vehicles in ckd/skd form shall be allowed against a licence and it will be issued only to joint venture automobile manufacturing companies on the basis of an MoU.

The MoU shall be based on the following parameters:

Establishment of actual production facilities for manufacture of cars and not for mere assembly of imported kits/components

A minimum foreign equity of dollar 50 million to be brought in by the foreign partner within the first three years of start of operations if the joint venture involves majority ownership. However, this condition will apply to new joint venture companies only.

Indigenisation of components up to a minimum level of 50 per cent in the third year or earlier from the date of clearance of first import consignment of ckd/skd kits/components and 70 per cent in the fifth year or earlier. Once the MoU signing company has reached an indigenisation level of 70 per cent, there will be no need for further import licences from DGFT.

Consequently, as and when the companies achieve 70 per cent indigenisation, they will go outside the ambit of MoU automatically. However, they will discharge the export obligation corresponding to the imports made by them till that time.

Regarding export obligation, companies entering into an MoU will achieve broad neutralisation of foreign exchange over the entire period of the MoU in terms of balancing between actual CIF value of imports of skd/ckd kits/components and the FOB value of exports of cars and auto components over the said period. * The period of export obligation will commence from the third year of commencement of production. The date of commencement of production will be deemed to be the date of the first release of consignment from factory after payment of excise duty. But there will be a moratorium of two years from this particular date of commencement of production during which the firm need not fulfill any export commitment.

However, from the third year onwards (effective from the date of release of first consignment), the MoU signing firms will have an export obligation equal to the cif value of imports made by them till that time for the reminder of the MoU period till they complete the entire export obligation.

From the fourth year onwards, the value of imports of skd/ckd may be regulated with reference to the export obligation fulfilled in the previous years as per the MoU. The export commitment will be met by export of cars as well as auto components. This will be over and above the EPCG related export obligation.

The notification says the MoU scheme will be enforced through the import licensing mechanism and MoU signing firms will be granted licences by DGFT on the above parameters.