Commerce ministry seeks sops for auto parts makers

In an attempt to soften the impact of the Indo-Thailand Free Trade Agreement (FTA), the Commerce Ministry is battling to win tax concessions for auto components manufacturers affected by the agreement.

The proposal for deemed export status, which was originally put forward by the Auto Components Manufacturers' Association (ACMA) has, so far, not been accepted by the Finance Ministry.

ACMA, which says its members could be hit hard by the Indo-Thai FTA, has suggested a raft of concessions including that the affected companies should be granted export oriented unit (EOU) status.

The government has already announced that customs duty will be slashed on certain grades of imported steel and aluminum used to make auto components.

This aims to help Indian companies compete with zero duty imports from Thai companies.

Moreover, the department of industrial policy and promotion (DIPP) has cleared the setting up of two auto parks in Pune and Vijaywada. Officials say that more will be cleared in the near future. Auto companies would be benefited by sharing common facilities in these parks.

In addition, the government has decided not to reduce import duty on components under the Comprehensive Economic Co-operation Agreement with Singapore.

Negotiations between the Indian and the Thai governments for the FTA have just concluded and some of the details are currently being finalised. The agreement will come into force in 2006.

However, there has been considerable lobbying by the auto and auto components industries, which say they would be put at a disadvantage because of low duties on products like steel in Thailand.

Also, there has been considerable lobbying behind the scenes by Korean companies which argue that Japanese manufacturers which have large units in Thailand will benefit unduly from the deal.

The Commerce Ministry is also hoping to extend a $600,000 Unido project for the auto sector to 400 companies from the current 45.

In a representation to the government following the signing of the framework agreement between India and Thailand last year, Acma had demanded that units in the proposed auto park should not face state levies and should be exempt from certain taxes to make them competitive.

"It is essentially a fight between the Japanese auto companies and the Koreans but at the same time we need to ensure that the domestic industry is not affected," an official said.