The much-awaited automobile policy has apparently failed to enthuse car manufacturers, with not even a single MoU been signed between the manufacturer and the directorate general of foreign trade four months after its announcement. In fact, most car majors have expressed concern at the policy guidelines, saying that they are "tough to meet". The policy stipulates that foreign car manufacturers, whether 100 per cent subsidiaries or joint ventures, would have to achieve indigenisation of up to 50 per cent by the end of three years of operation and 70 per cent by the fifth year. Some foreign companies such as Skoda which plann an entry in the Indian market feel that this is a tough criterion and not feasible if they have to introduce cars of international standard. Companies may not be willing to commit huge investments for achieving the indigenisation level, especially so in a market where there were dismal sales last year. The policy has fixed $50 million as the minimum foreign equity to be brought inwithin three years where the foreign partner holds a majority stake in the venture.
This is generally not a problem in most cases, as that kind of investment needs to be pumped in for a car plant. The policy relaxed export obligation for the firms as it would only be applicable from the third year of commencement of production and would continue till the remainder of the MoU period and forex neutralisation is over. The companies have also been allowed to export components in addition to vehicles as part of the total commitment.
The forex neutralisation is in terms of balancing between the actual CIF value of imports and CKD/SKD kits and the FOB value of export of cars and auto components over the entire MoU petiod. Although the auto policy is silent on what constitutes a CKD kit - there is a duty differential between components and finished car imports - the government has tried to lay down a uniform and non-discretionary policy instead of an ad-hoc case-by-case approach. There was some confusion arisingout of a customs circular which allows firms to import CKD/SKD kits at very low duties of 35 per cent as against 110 per cent they are required to pay under the MoU with the government.
The circular defines "engine, gear-box, chassis, transmission assembly systems, body/cab, suspension system and axles -- front and rear" taken together as a CKD/SKD kit of a complete vehicle. The issue has reportedly been resolved with the DGFT.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
