The government has decided to allow car companies to offset export earnings of local vendors against their export commitments. This will apply even if the companies do not have equity participation but only technical collaboration with vendors.
However, this relaxation imposes restricts vendors' exports to global subsidiaries of the car company.
Confirming the move, the director-general of foreign trade (DGFT) told Business Standard, "Export of local vendors who might not have any equity partnership with the car company but only technical collaborations, will be counted for in the total export obligations as outlined in the MoU. But the vendors would have to export to any of the global subsidiaries of the car company."
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The move follows representations by the foreign car companies to the commerce ministry to ease the foreign neutrality clause in their MoUs. They argued that since global exports were declining, very few car companies could push forward exports that could adversely affect their foreign exchange neutrality obligations.
The DGFT had earlier relaxed the MoU policy by allowing companies to offset export earnings from 100 per cent subsidiaries against their export commitment. Now, by allowing vendor exports to subsidiaries to be counted in the total exports of the company, the government has further relaxed norms.
The move will benefit car companies like Daewoo Motor, General Motor, Ford and Hyundai that have set up their vendor chains and also components manufacturing subsidiaries in India.
Korean car majors like Daewoo Motor and Hyundai Motor, which have set up bases in India, have already achieved high levels of indigenisation by developing the vendors.
These companies provide technical know-how to component manufacturers and also outsource their requirements from them.
Car companies are required to undertake to make their projects foreign exchange neutral _ exports should be equal to value of their completely knocked down/semi knocked down imports _ within five-seven years of start of operations.
At present, only exports by car companies, including cars and components manufactured by them, form the basis of calculating export earnings.
Third-party exports are not considered for these calculations. Under the new rules, which are being considered by the government, even export earnings of a car company's subsidiaries and its vendors can now be used to offset the car company's foreign exchange commitments, provided they are related to auto products.