UPDATE: Cutting import duties on European cars. Why not?

It seems like that other people within the industry hold a similar viewpoint. Came across this Business Line article, where Ford India President and Managing Director, Mr. Joginder Singh commented that the FTA between the EU and India will benefit the Indian consumer; which, essentially means the benefit of the Indian automotive sector.

Cutting import duties on European cars. Why not?

The Economic Times carried an article today on the recent "progress" on the 6-year long dialogue between the European Union (EU) and India on Free Trade Agreements (FTA) between the two economies. Among other things, one significant 'demand' by the EU is the reduction of import duties (tariff) on CBUs and engines by half to 30 percent. If this FTA were to be passed, European cars would become significantly cheaper, especially the German luxury cars, and more importantly, the Indian customer would get a far greater option of quality European hatchbacks and compacts to choose from.

Then why is the Society of Indian Automobile Manufacturers (SIAM) crying hoarse over this possible trade agreement?

Well, it seems the arguments that the SIAM puts forward are that such free trade between the two economies would reduce investments, and harm local manufacturing, local value addition and local employment.

SIAM goes on to say in a whitepaper it released just to oppose this FTA, that “Opening completely built units (CBUs) to imports/lowering import duties under the EU FTA is a retrograde step, and will have a long-term irreversible effect for the Indian economy, the auto industry and the consumer at large." (Source)

It is pretty self-explanatory that customers will not be "harmed" in any way with this FTA. In fact, no consumer is harmed by free-trade among economies. The only "harm" that I can imagine is that the Indian consumer will be spoilt for choice.

Then, what about local value addition and employment? U-mmm. Nothing. You see, this FTA, in case it comes to pass, will make it cheaper for European OEMs to bring in completely built cars (CBUs) to India. Please note, I said cheaper, not free. They still have to pay custom and import duties and in the long run manufacturing these cars in or near the market still remains a cheaper proposition for these OEMs. And most of these OEMs already have production lines running in India. The reduction in duties will only "force" the OEMs to introduce models faster in the Indian market. So, why worry.

You may have also noticed that these European OEMs mostly sell luxury vehicles in India apart from one or two odd hatchback or compact models. Luxury car buyers are relatively less price sensitive. And if I were a car maker, I would like to test-run a slightly more expensive hatchback in the highly price-sensitive Indian market before I go out all guns selling it. A reduction in import duties will exactly offer this flexibilty to European OEMs to experiment with a wider variety of mass-market passenger cars.

And as far as the issue about job-generation goes, I personally feel that job creation via trade-protection is a short-term fix.

As far as SIAM's arguments go, the only issues I foresee are, well, Mahindra having to slog out a tad harder in terms of the quality they offer, or Tata fixing up its aftersales service department...

If opening trade with the EU will affect the Indian automotive sector, it will only increase competition for domestic OEMs and suppliers, encourage consumer spending in the sector and offer world-class products to Indian consumers at competitive prices.

UPDATE: First voice in correcting the Indian aftermarket?

In my article First voice in correcting the Indian aftermarket? I had discussed how the anti-competitive practice of many OEMs (in selling spare parts only through authorised dealership at a higher price) is affecting the Indian spare parts market.

Well, the Competition Commission of India (CCI) — a body of the Government of India responsible for enforcing The Competition Act, 2002 throughout India and to prevent activities that have an adverse effect on competition in India (source) — served notice to 17 undisclosed carmakers in India for indulging in such anti-competitive practices (source).

If the CCI ruling holds, all OEMs will be forced to sell spare parts in the open market, which in turn would make products and services more competitive and cheaper.