SEZs on cards for auto ancillary firms

The government seems determined to protect auto ancillary companies from unfair foreign competition by setting up special economic zones (SEZs) even as it signs a raft of free trade agreements (FTAs).

According to industry sources, to help the component industry fight competition post-FTAs, the government is considering setting up auto and ancillary SEZs in Haryana, Rajasthan, Mumbai-Pune belt, Pondichery and Gujarat.

For example, the Thailand FTA has five components falling within the tariff lines currently and by 2010 it will move on to zero export duty on all auto component between the two countries.

According to Deep Kapuria, president of the Automotive Component Manufacturers Association, this put together with Thailand's uncomplicated regulations and simple duty structures, this will mean that it is much cheaper for a company to set its manufacturing base in Thailand, import raw materials from India, do the required value addition in Thailand and export it out of there.

Central help

• Auto and ancillary SEZs are being proposed for Haryana, Rajasthan, the Mumbai-Pune belt, Pondichery and Gujarat.
• Private entites such as M&M and the Adanis are making special provisions for auto components in their SEZs such as Mahindra City near Chennai and the Mundra SEZ in Gujarat.

Its not just the government, even private companies such as the Mahindras and the Adanis are making special provisions for auto components in their SEZs such as Mahindra City near Chennai and Mundhra SEZ in Gujarat.

The SEZs are not just expected to protect the players, the duty incentives and good infrastructure is also expected to get multinationals rooted in India.

Though 20 of the top 25 multinational auto component majors such as Delphi, Visteon, Cummins, Bosch, American Axle have a presence in India in some way or the other, there is still a lot more investment that can come our way.

"It is essential that the government does its bit to keep India attractive for foreign companies. Setting up these SEZs along with other incentives for research and development will encourage MNCs to invest in full-fledged facilities here," said a senior official with a multinational joint venture company.

Consultat Mckinsey, which recently brought out a special report on the component sector, also advocates the cluster approach for the component industry.

They have identified three areas for the development of auto component clusters""National Capital Region (NCR) where manufacturing units such as Maruti, Hero Honda, Honda are located, Bombay-Pune belt with Bajaj and M&M and Hosur where companies suc as Hyundai, Ford, TVS have set base.