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Budget 2011-12: Car companies split over import duty
February, 22nd 2011

The proposed India-EU trade agreement has divided car makers with Pawan Goenka, the president of industry body Society of Indian Automobile Manufacturers (SIAM), opposing any move to cut duty on imported cars while several members, including foreign luxury car makers such as Audi, Mercedes and BMW, batting for lower tariffs.

SIAM has struck a protectionist note, opposing any move to remove car imports from the negative list, that will see a gradual lowering of duty from the current level of 60%, which finally bulges to around 110% after the addition of counter-vailing duty (CVD), VAT and other local levies.

The industry lobby has made a strong pitch to the commerce department against the lowering of duty (something sought by the EU), saying it could see a flight of manufacturing investments from India and will negatively affect the domestic players and hurt employment.

"We are not being protectionist. Every country should ensure that opening up of trade does not hurt its local industry," Goenka told TOI. Goenka said Indian companies did not have the scale to protect them from an onslaught of imported products if they came in cheaply.

But the split within SIAM comes out in the open when you speak to companies such as Audi, BMW and Mercedes. Even Japanese player Honda feels that the stiff import duty should be lowered, at least for green technology vehicles like hybrid cars.

"It is a misconception that the Indian industry will suffer if duty is lowered. While we support the argument that duty should remain high where competitive volume products are there, there is no argument to support talk of maintaining higher duty for the luxury-end," said Debashish Mitra , director, sales and marketing at Mercedes-Benz India.

"There are no competitive products from India in the luxury end, and thus nobody will be hit. In fact, lower duty will help companies like ours to bring in the latest technology products at cheaper prices, something that will spur their demand and push us to gradually manufacture them here," Mitra added.

Michael Perschke, MD of Audi India, also sought lower duty, especially for cars above 2000cc. "This way there is no fear of the domestic industry being cannibalised as about 80-90% of Indian car market is below 2000cc."

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