| About Us - Registration/Login - Contact Us - Message Board - Glossary - Features - B-School - Legal - Biz-End - Orange-GTM - WAP |
| STOCK MARKETS | COMPANIES | SECTORS | ECONOMY | MUTUAL FUNDS | ONLINE TRADING | INVESTOR POINTS |
| |
|
| 'This site is a must read for investors ..' Forbes magazine | |
| India Infoline Sector Reports | Thu, 11-Dec-2003 11:57:29 IST (GMT+5:30) | |
| Automobile - Cars | ||
|
 |
Government Policy The policy of broadbanding capacities in the eighties led to increased utilization of capacity for four-wheelers in the industry. The liberal policy on foreign participation through technical and financial collaboration in early eighties led to substantial product upgradation and introduction of new models. But it was alleged that the policy was discriminatory in favor of MUL, while others like Telco, PAL, HM were denied permission to produce cars in collaboration with Japanese companies. The GOI controls the car sector by way of framing policies on depreciation norms, import duty on cars and parts used in it, petrol prices and import duty of steel. During the era of socialist inspired controls, the government protected the car industry from new entrants by making effective use of licenses. However, after liberalization and with the consequent opening up of the auto sector in 1992-93, the license raj ceased to exist . The perception of a car as a luxury good lead to heavy excise duty on cars. The excise duty doubled from 25% in FY87 to 55% in FY91. Till 1987, the GOI followed a discriminatory policy so as to charge lower duty on fuel efficient car with engine capacity of less than 1000cc. This helped MUL to price its car at a lower price in comparison to others. But with lobbying from PAL and HM government withdrew the provision in 1987. But with the onset of the liberalization process in the early nineties, the government has continually rationalized the excise duty regime. Presently, there is a duty of 40% (16% + 24%) on motor vehicles, designed for transport of not more than six persons (excluding the driver). On vehicles designed for transport of more than six persons, but not more than 12 persons, the duty is 32% (16% + 16%). Over and above the excise duty, cess by the Central Government, states are now charging a uniform sales tax of 12%. This came in being after the 15th of May 2000. Earlier, states used to charge sales tax varying from 3 to 14%. But MUL vehicles receive favorable treatment in terms of sales tax as well. In line with its treatment for luxury items import duties for car have been maintained high. In the 80's, import duties varied between 150 to 200% based on the engine capacity of a car. The import duty on cars and components has come down in the last few years in line with general reduction in import tariffs. In the FY98 budget, the import duty on cars has also been further brought down from 50% to 40% ad valorem. Substantial reduction in import duty has been extended in the budget FY98 for import of certain items which would help the industry to reduce the emission level of vehicles. The import duty on catalytic converters and parts thereof has been reduced from 25% to 5%. The duty on CNG kits and parts thereof have been reduced from 10% to 5%. The import duty on auto components will be a key factor in deciding the final pricing of cars as new ventures start with about 50% indigenisation levels. The reduction in import duty on steel in the last few years has helped the industry in reducing raw material costs as major steel requirement of car industry was imported. Even today, all CKD/SKD imports include metal pressed body panels. Policy on petroleum products, auto emission and depreciation The prices of petrol and diesel was regulated till recently by the government as part of its policy on petroleum products management. However, since 1997, the prices of these fuels have been deregulated and linked to the movements in international prices. As a result, already, the price of diesel has been raised twice, the latest by a huge 40%. This dismantling of the Administered Price Mechanism (APM) of petroleum products will reduce the cost disadvantage of petrol driven cars. On the vehicle emission front, judicial activism has goaded the government to take certain policy measures in the recent past which has led to stricter emission norms for automobiles. As per a Supreme Court judgement, banning registration of all non Euro I compliant cars within Delhi, all vehicles should become Euro I compliant by April 2000. (In the National Capital Region of Delhi, Euro II norms are now in operation) As a result, almost all the existing players and new entrants have started introducing models complying with the said norms. This development has led to an increase in the prices of cars, which by an estimate, could be anywhere between 10-15%. The depreciation norms have effect on demand for cars as institutions purchase cars for use by managerial staff and claim depreciation in their books. With this the companies are benefited from tax shelter provided by depreciation. Therefore any change in depreciation norms affect the demand from this segment. The depreciation benefits which accrue to institutions & corporate buyers was slashed from 33.33% to 20% in 1990. This led to decrease in demand from this segment for a short period. But with increase in depreciation rate to 25% in 1994, corporate demand was restored. Automotive Policy In a policy announcement in FY94, the government had permitted foreign car producers to invest in the automobile sector in India and hold majority stakes. The objective of the policy was to build automobile production capabilities in the country, with minimum foreign exchange outflows. The key conditions of the policy related to production, imports, exports, level of indigenisation and foreign equity inflows. Since all the new ventures involved the import of capital goods and CKD/ SKD kits, the promoters had to fulfill certain export obligations. They were also required to provide an indigenisation program. However, these conditions were framed in the nature of MOUs which the new ventures had to sign with the Directorate General of Foreign Trade (DGFT). But, in the last three years many of the companies failed to live up to their export commitments, which made it difficult to obtain permission for importing additional CKD/ SKD kits. In addition, the uncertainty regarding the threshold level for classifying imports as CKD/ SKD or component imports continues. Currently, the threshold level is set on a case to case basis where imports below a certain percentage of the total value of the car are being charged duty that is applicable to components (30%), while imports above this percentage are being charged at the rate applicable to CKD/ SKD (45%). The industry wants the threshold level to be at 70%, while the government wants it to be at 35%. In November '97, the Cabinet Committee on Foreign Investment cleared a new policy for permitting new car ventures. It addresses the aspect of indigenisation level and exports by the new ventures. The main proposals of the new policy are :
The new policy is expected to provide development of ancillarisation and increase employment opportunities. But for some of the new car ventures, auto policy will be a speed braker as they have to sign a new MOU with the government and make necessary arrangement to meet the new policy.
|
|
|
| 5PAISA | PREMIUM CONTENT | ADVERTISE WITH US | FEEDBACK | DISCLAIMER | PRIVACY POLICY | JOBS | FAQS | SITE MAP | HELP |
