SIAM opposes India-EU FTA; says it can kill auto mfg sector

Excerpts from India Business Hour on CNBC-TV18 Watch the full show »

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The auto industry body SIAM is opposing the proposed India-EU free-trade agreement (FTA) and is worried about the impact of the FTA on the Indian auto sector. President of SIAM, S Sandilya discusses with CNBC-TV18's Shereen Bhan the implications of such a deal.

Sandilya argues that the Indian auto manufacturing focus cannot be sacrificed, which will inevitably happen if the FTA is signed. Moreover, other investors like the Koreans and Japanese will cry foul over their FTA's and why the Euro region is being given a preference.

He firmly states that an FTA with tariff reductions is unacceptable for the Indian auto sector. "In this context if you have imports coming in at lower tariffs, it will kill the manufacturing sector and that's a very clear cut indication."

Below is an edited transcript. Watch the accompanying video for more.

Q: Auto makers are maintaining that the Commerce Ministry hasn't done its cost benefit analysis but these negotiations have been on for over four years. Why is SIAM raising the alarm bells now as far as the proposed FTA is concerned?

A: SIAM has not raised it now; we have always been saying this from the very beginning. From the day the discussion started we have been saying that the Indian auto industry cannot be put into a kind of doldrums on this issue.

When the auto mission plan 2016 was made out, we said the automotive industry is going to be one of the significant growth areas for the industry and therefore we talked about growth and we talked about employment generation, we talked about investment, so the focus was on manufacturing.

So we have been saying from the very beginning that the manufacturing focus cannot be sacrificed.

Q: Similar apprehensions were raised when we signed the early harvest scheme with Thailand, similar concerns were raised during the ASEAN, Japanese and South Korean FTAs, but look at where the Indian auto industry stands today - nothing has happened. We are growing at double digit growth?

A: I don't think we have signed where we have permitted CBU imports from the other countries. That's the point that the Koreans and the Japanese will raise that we have been investing in India for the purpose of auto industries growth within the country and now how can we look at European Union being given a special treatment of permitting imports with lower tariffs on vehicles.

Import of cars from any country today is high tariff; we can't afford to have tariff reduction. Look at it from various angles. I spoke about the auto industry and the auto mission plan. The next thing is the government's manufacturing focus. They said we want manufacturing to be 25% of GDP. That's the kind of intent that the government has announced and if we permit imports at the cost of manufacturing then there is the argument itself.

Q: Aren't we being short sighted? India exported to the tune of 2 lakh 30 thousand cars to the EU in 2011, they exported 6,000 cars to India. Why are we trying to hide behind tariff walls? Don't we have a greater opportunity? Europe wants to move towards more fuel efficient smaller cars, that's India's advantage and expertise?

A: It is not necessarily so. Look at the Indian cost structure. We have an excise duty on cars which are much higher and the bigger cars we have an excise duty of 22% and Rs 15,000 per car extra duty. On the one hand, we are talking about high production duty; on the other hand we want to talk about import duty being far less.

This is not fair play at all. Look at it from a perspective that we don't have second stage reforms in this country; we need to get to the kind of volume that we talk about. India still has a major opportunity in terms of growth.

Q: We are still far more cost competitive that is why the Indian auto component industry is growing at the rate at which it is, that is why the Indian auto industry is growing at the rate at which it is?

A: We are far more cost competitive than what we were, but yet still not comparable of the world standards. Our volumes are still far lower than what the international standards in volumes are. We cannot argue at cross purposes. What we are talking about is not a permanent thing.

We need to get to a stage where we have significant volumes; we have significant manufacturing investment in the country. We need to promote that. That's why the Indian automotive industry can become a hub for the world.

Q: Are you opposed to the FTA in totality and do you believe that if certain conditions are imposed you would be okay with tariff reduction?

A: I am very clear that FTA with tariff reduction for automobiles only for certain countries in the current stage is not okay for the Indian auto industry, period. However, what will happen in the long-term, we can always see it. As the auto industry grows and we become a significant volume player in this, we should be open to look at any kind of treatment.

Today, we are talking about components where we have given some concessions, but I think on the CBU we are still there and because our commercial vehicles are at a lower rate that's a different matter. In fact, even there we have been saying our rates should have been far higher even when we discuss WTO discussions.

We are looking at it from the context of the auto industry. The stated intention of the government to make manufacturing a significant part of the GDP, automobile is a significant part of that manufacturing sector, which the government wants to be 25%. We are talking about the auto mission plan, where we talk about a significant investment in manufacturing, which again is supposed to bring a certain amount of employment. In this context if you have imports coming in at lower tariffs, it will kill the manufacturing sector and that's a very clear cut indication.