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Cheaper auto imports to affect local industry - Views on News from Equitymaster
 
 
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  • Jan 3, 2000

    Cheaper auto imports to affect local industry

    The Indo-US agreement signed in Geneva to phase out all quantitative restrictions could have an adverse impact on the local auto industry. This move will also affect consumer durables, small-scale industry and textile and agriculture.

    Domestic automobile manufacturers have expressed grave concerns at the prospect of competing with cheaper imports. According to the Indo-US agreement all quantitative restrictions on imports will be withdrawn by March 31, 2001. Such a move would make car imports cheaper than domestic vehicles. Earlier, India was to have phased out car imports by 2003, but has now advanced it by two years.

    Understandably domestic car manufacturers have not taken very kindly to this move. S G Awasthi, managing director of Daewoo Motors India remarked, 'The Indian car industry is still in the nascent stage and another two years of breathing space would have helped big capital investments made in the recent past. Depreciated plants are better placed to face competition from the international market. However the industry was mentally prepared to face this situation by 2003. So far as we are concerned this would already have been factored in our plans.' This was reported by a leading financial daily.

    A senior Maruti official said, 'It may become attractive to import and sell in India. The high excise of 40% (on auto manufacture) will reduce the competitive edge of Indian car manufacturers. In a totally free trade situation.' According to estimates, with the liberalisation of imports, importing a second-hand Toyota Corolla could amount to the same as buying new Maruti-800.

    Auto manufacturers opine that the government could be under some pressure to cut down excise duty in the next union budget. This is the only way for domestic manufacturers to become competitive vis--vis cheaper imports.

    Countries like New Zealand, which opened their local auto markets to imports were adversely impacted. Local industry witnessed a stream of cheaper imports as second hand cars were dumped from Japan at attractive prices. Indian manufacturers want to ensure that this is not repeated in India.

    However, even if cheaper imports flood the country, Indian manufacturers will continue to hold the edge (in the short run) given their extensive spare parts and service centres. This factor will play an important role in consumers preferring domestic cars to imported ones.

     

     

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