The issue of import of vehicles in completely built unit (CBU) form by foreign automobile manufacturers operating in India has been referred to the core group of secretaries of the Foreign Investment Promotion Board (FIPB).
Companies whose applications for import of cars, other vehicles and two-wheelers, pending with the FIPB include those of General Motors, Ford India Ltd, Honda Motorcycles and Scooters India, among others. The application of Skoda for import of Octavia in CBU form has been rejected since the company is yet to make its proposed investment in manufacturing operations. The FIPB is yet to take a decision in the case of others.
The government has delayed a decision on these cases in spite of the fact that the FIPB having recommended grant of permission to Mercedes Benz India for importing cars as CBUs and a similar proposal by General Motors India was given the go-ahead in April this year, though the latter is yet to be issued the approval letter for unexplained reasons.
The prime reason for concern is whether car and two-wheeler manufacturers cease manufacturing operations in the long run and resort to import and sale of cars. With QRs being removed, the import of cars is not restricted. However, the import duties being imposed on CBUs is as high as 122 per cent. The question remains as to why car manufacturers make a beeline for approvals for CBU imports.
Companies whose plans are on hold have brought to the notice of the government that companies such as Hindustan Motors do not need government permission to import vehicles (such as the Pajero) from its technical partner, Mitsubishi Motors of Japan, since the Indian firm does not have any foreign equity participation.
Sources told Business Standard that last week the FIPB took a decision to refer the issue to the core group, which comprises secretaries of the ministries of industry, commerce, external affairs, finance and expenditure, because "it was a larger policy decision which may have an implication on the automobile as well as foreign investment policies". The core group is now expected to meet next week, they added.
A commerce ministry official said the ministry only tried to determine whether the import of cars or two-wheelers in CBU form would lead to trading. In some cases like that of Skoda, it recommended rejection. The other companies, however, have insisted that CBU imports cannot be restricted.
They have also reiterated that they will import these niche high-end models in limited numbers in their effort to gauge market perception to such products before commercial production is firmed up. Besides, imported vehicles will create an excitement in the market place, among dealers and customers.
Local manufacturing will not be impacted since it is much cheaper to imports because of the high tariffs.
