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The flat to negative growth this year notwithstanding, domestic tractor manufacturers are staring at a bleak future if the government's decision to allow import of tractors on zero duty gathers steam.
Manufacturers are opposing the import of tractors under the free trade agreement because of the adverse duty structure that forces them to pay input excise duty even as imported tractors are brought to the domestic market without any duties.
A S Mittal, vice chairman, Sonalika Group said, "Under the FTA, local manufacturers will be at a disadvantage whereas importers will benefit because of the exemption of excise duty. When you allow free import of tractors you should also do away with the input excise duty to give the local manufacturers a level playing field".
Punjab-based Sonalika is the third largest manufacturer of tractors in India after Mahindra & Mahindra and TAFE.
Raw material for tractors today attract an input duty of 10.3% for engine, electricals and hydraulic pumps, while the rest of the parts attracts a duty of 12%.
Domestic manufacturers claim that importers are getting an undue advantage because finished tractors are exempted from CVD as they donot attract excise duty. In addition, the basic customs duty is also zero.
Some companies, which operate in India purely on imported tractors or other agricultural products, are at an advantage. Since India has an FTA with Japan among other countries such importing companies are subsidiaries from the benefiting countries.
"The 12% duty on input is a cost, since finished products are exempted from excise duty when it is sold to the farmers. In other sectors, whereas all other industries pay only the duty on value addition, in tractors, the manufacturer has to bear the entire duty amount, because output tax is exempted", said one of India’s top tractor manufacturers.
Presently authorities charge CVD wherever there is excise duty on the finished product, under Customs Act, which is equivalent to the excise duty of the product levied on imported products. This is done to give protection to the domestic manufacturers. Therefore on imported products, the importers have to pay CVD, which is equivalent to the domestic excise duty which Indian companies pay.
Tractor manufacturers are especially concerned with the idea of a similar free trade agreement with China, one of the world’s biggest manufacturers of tractors. Imports of tractors and other agricultural equipments from China as of today is negligible. However, on cost terms products from China, which thrive on government-backed subsidy, pose a threat to local manufacturers, fear Indian tractor producers.
The local market, which was around 6.20 lakh units per annum, may marginally degrow this year since the first half has witnessed a fall in sales. Monsoon deficiency in several parts of the country, delay in harvesting, muted increase in minimum support price and non-seasonal rains among other reasons have impacted tractor off-take.
“The capacity in the industry is more than the demand in excess of 50%. The government should quickly address the anomaly for the domestic tractor industry by levying additional customs duty of 12% on tractors imported under FTA”, said a tractor manufacturer.
