Thaindian News

New Delhi, March 7 (IANS) India’s automobile industry could increase import of components by as much as 42 percent by 2013-14, based on current consumption levels. Imports could grow faster, once free trade agreements (FTA) with a host of countries come into effect, says an industry body.
According to a study by the Federation of Indian Chambers of Commerce and Industry (FICCI) on imports of auto components, the share of imported auto components in India’s domestic market is set to make a manifold jump from the current 31 percent.

“In view of custom duty reduction on several auto components under India-ASEAN and India-South Korea FTA, and forthcoming India-EU and India-Japan FTA, the share of imports in domestic auto component market is likely to be 50 percent by 2013-14,” the study said.

As per the India-ASEAN FTA, custom duty on auto parts like pistons, piston rings, bumpers, gear boxes and radiators would be 0 by 2013.

Similarly, custom duty on motorcycle and engine parts would also come down to 5 percent level or 0 under the India-South Korea FTA.

“This could affect our plans to achieve the targeted size of $40-45 billion of auto component industry by 2016 under the Automotive Mission Plan announced in 2006,” said the report.

India continues to be a net importer of auto components, despite being a favourable destination for small cars.

The country’s trade deficit in auto components has soared from 371 million dollars in 2004-05 to 2.8 billion dollars in 2008-09.

Auto parts imports increased by an annual average rate of 30 percent during this period but exports grew by 17 percent (much below the imports) for the same period.

The European Union continues to be the largest source of imports with a share of 35-37 percent in our total auto component imports. Imports from China increased 4.5 times from 2 percent in 2004-05 to 9 percent in 2008-09.

South Korea’s share grew from 15.4 percent to 17 percent in the same period while that of the US and Japan came down. Of late, imports from ASEAN countries have shown a rising trend.

“In order to ensure orderly development of domestic auto-component industry in view of the growing challenges from various FTAs, FICCI suggests that the government should create a conducive environment to attract investments in the sector,” said a FICCI statement.

“The government should provide fiscal incentives for promoting production of critical and high value added components,” it added.

The body suggested constituting an Automotive Development Fund (ADF) and Industrial Adjustment Fund (IAF) on the lines of similar resources created in Malaysia.

The ADF in Malaysia is a government initiative which extends soft loans (below market interest rates) to improve the overall competitiveness of the automotive industry, particularly the parts and components manufacturers.

And IAF was established to assist Malaysian manufacturers to face the challenges brought about by increased competition and liberalisation.