Export push for auto parts

RUN-UP TO THE FOREIGN TRADE POLICY

The government is working on a package of incentives for the automobile components sector to transform India into an international hub for automobile parts.

The measures being considered include providing deemed export benefits for automobile parts and spares manufacturers to mitigate any adverse impact of the free trade agreement (FTAs) with countries such as Thailand.

Officials told Business Standard that Commerce and Industry Minister Kamal Nath was keen to push through a package of incentives, including fiscal concessions, in the Foreign Trade Policy to be announced on August 31.

As the policy was only a few days away, a detailed package for the sector was expected later. The minister would only make a reference to the scheme in his speech.

However, the Duty Entitlement Passbook (DEPB) benefit on steel, a key input for the automobile industry, was expected to come down in the wake of duty cuts on steel announced by the government last week.

"The value addition, which is inversely proportional to DEPB benefits, is being revised upwards from 50 per cent to 75 per cent. This means that the DEPB benefits will come down for the steel sector," officials said.

Senior commerce ministry officials said fiscal sops to the automobile components sector was being discussed with the revenue department, which had not agreed to the proposals so far.

The Automotive Components Manufacturers' Association (ACMA) had suggested granting export-oriented unit (EOU) status to automobile component companies affected by the FTA with Thailand.

In addition, ACMA also sought the setting up of three dedicated special economic zones around major automobile industry clusters in the north, south and western regions.

It has also recommended the creation of an automotive investment and modernisation fund on the lines of the textile modernisation fund for financing all new investments in the sector.

The association has also suggested that the automobile components industry should be accorded the status to access investment funds through priority lending by banks.

International majors like Volvo, Cummins, Navistar, Caterpillar and Delphi have already evinced interest in sourcing from Indian automobile component manufacturers.

The commerce and industry ministry, in the medium-term export strategy, has identified automobile parts as an item with immense export potential.

Automobile component manufacturers said a majority of the components manufactured by Indian companies were low-end and basic items given the development of the Indian automobile industry. The components for the export market are, however, for high-end cars.