New auto policy fails to cheer companies

NEW DELHI, DEC 16: The new automobile policy, which proposes to tighten the screws on car manufacturing companies, has still left certain g...

NEW DELHI, DEC 16: The new automobile policy, which proposes to tighten the screws on car manufacturing companies, has still left certain grey areas.

Observers say that though the policy defines localisation levels, it is silent on how these levels have to be calculated. There is no formula laid down in the policy for calculating the indigenisation as there can be various methods of calculation adopted by different companies.

The policy lays down a localisation level of 50 per cent to be achieved in the third year of operations and 70 per cent in the fifth year.

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Company officials of a leading car firm said, "The government should have extended the MoU route to the entire sector of consumer items such as white goods, brown goods, audio and video equipment which require import licensing; why only passenger cars?"

A serious anomaly in the policy is that companies manufacturing light- and heavy-commercial vehicles, tractors, earth-moving equipment have been exempted from the MoU route. On account of this, there would be less incentive for the foreign companies to start manufacturing in the country, and they would continue to assemble imported kits/components.

There is a feeling in the industry that these should not have been left out as it may lead to "predatory pricing" on account of dumping of products/vehicles at low prices by the foreign companies.

Most car manufacturers said that the government should have clearly defined the percentage of exports to be achieved for every year. "The policy in this form leaves room for confusion, and some companies may be able to get special favours from the DGFT on the export obligation front," a leading car company said.

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Regarding export obligation, the companies have to start exporting from the third year of commencement of production, "an equivalent to the CIF value of imports made by them till that time for the remainder of the MoU period till they complete the entire export obligation". Earlier the DGFT had not renewed the import licences of General Motors and Daewoo Motors (India) Ltd as the companies had not fulfilled their export obligation. xperts pointed out that the policy should have clearly spelt out the localised content as the car manufacturer may be easily sourcing parts from a local vendor who would be importing the kits and assembling them.