Economic think tank GTRI said in a report on Wednesday that India should not impose import duties on the auto sector under free trade agreements (FTAs) with the UK and others as it could have a negative impact on the sector and lead to closure of Indian companies. He said it should not be lowered.
The Global Trade Research Initiative (GTRI) said India has no tariffs or tax breaks on cars in its free trade agreements with ASEAN (Association of Southeast Asian Nations), Japan and South Korea.
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“Do not reduce tariffs on vehicles (including electric vehicles) through FTA. This will have a negative impact on the auto giants who have invested billions of dollars in India and will be forced to exit,” he said.
He added that there was no reason to offer Britain such concessions, as the country mainly assembles cars using parts imported from the European Union and China.
The report said that if India were to offer tariff concessions to Britain, it could put pressure on other free trade partners such as Japan and South Korea to do the same.
Ajay Srivastava, co-founder of GTRI, said: “This could lead to some companies reducing or even canceling car production in India and instead exporting from their home country. This could lead to competing local production. “It would be more rewarding to import and lead to the closure of many key sectors.” .
India is negotiating a trade deal with the UK, and negotiations are at an advanced stage. The UK is seeking tariff concessions on EVs.
He suggested that the government should support the industry through the continuation of the current tariff regime and additional PLI (Production Linked Incentive) support.
It also recommended investing in research and development of next-generation battery technology instead of subsidizing EVs on the road.
“The import intensity of EVs is over 70-90%, and most of the imports, including batteries, come from China.Over 70% of electricity is generated from coal, so EVs are fully environmentally friendly in India. I can’t say it’s kind to people,” he said.
Giving one example, he said Australia produced 89 per cent of the cars used in 1987. It protected the auto industry through high import duties of 45%. However, as Australia gradually lowered import duties, the share of locally produced cars has declined.
“With tariffs further reduced to the 5% level, Australia now imports almost all of its cars. Most Australian manufacturers have closed their factories,” the report said.
“In contrast, India has the potential to attract significant investment in the automotive sector due to its high import duties. As a result, it has developed its own auto and auto parts industry,” it added.
The report touches on the major challenges facing the auto sector, which is struggling with global supply chain issues that are driving up the cost of materials such as steel, aluminum and rubber, coupled with a significant shortage of semiconductor chips. He said he was facing it.
In addition, disruptions to Red Sea shipping routes and various geopolitical conflicts are delaying deliveries and increasing costs.
“The industry is under increasing pressure to comply with regulations, including stricter emissions standards and increased safety regulations,” Srivastava said.
He added that the industry relies heavily on imported components, especially for advanced technology and specialized features.
This dependency makes the industry vulnerable to fluctuations in global supply chains and foreign exchange rates.
“Imports of auto parts and other inputs in fiscal year 2022 were estimated at $20 billion, with original equipment manufacturers (OEMs) and auto parts suppliers accounting for 60% and 40%, respectively,” the report said. .
Approximately 70% of these imports fall into four categories: engines, drivetrains, electrical systems, and electronics.
As the value and importance of electronics installed in new cars increases, reliance on imports is also expected to increase, with China being India’s largest source of auto parts imports, accounting for nearly 25% of total imports. It added that it accounted for .
Japan, Germany, South Korea and Thailand are also major import sources.
He also said that around 70% of passenger cars in India are manufactured by companies controlled by foreign companies.
India is the world’s fourth largest automobile producer after China, Japan, and the United States, and will produce 4.6 million cars in 2023. In terms of exports, India was ranked 10th with a share of 2.4%.
Its contribution to the country’s GDP was 7.1%, up from 2.8% in 1992-93. Also, he accounts for more than 50% of India’s manufacturing GDP. It provides direct and indirect employment to over 19 million individuals.
Sales of the automobile and auto parts industry exceeded $150 billion in 2022-2023.
According to the report, exports were strong for automobiles at $8.7 billion, motorcycles at $2.8 billion, and auto parts at $7.3 billion.
The report states, “Measures such as non-reduction of tariffs under FTAs and high import duties, such as allowing up to 100% FDI under the automatic route, led to the rapid growth of India’s automobile industry from the late 1980s. ” he said.
The basic import duty for large cars is 100% of the car’s import value, while the duty for medium or small cars is 70%. For older cars, the customs duty is 125%.