Why these high tariffs?

The Prime Minister has released a mission document for the automobile industry, put together by the ministry of industry and the Society of Indian Automobile Manufacturers. The ambition to make India an automobile hub for the world has grown and has been clearly articulated, with an impressive set of numbers. On the one hand, there is the handsome growth in exports projected by the industry. On the other, individual producers like Tata Motors promise to deliver a car for as little as Rs 1 lakh, two years from now""an unbeatable price by any international yardstick. The current growth numbers for sales are comfortable, and profit margins are nothing to complain about, either. The share prices of the automobile companies reflect the prosperity, with Maruti Udyog's share having proved to be a multi-bagger since its listing a few short years ago. And when it comes to two-wheelers, India is now the world's second-largest producer and second-largest market, next only to China. Indian two-wheeler companies are in fact setting up assembly and manufacturing plants overseas. In short, the country has a healthy automobile industry, one that reflects its growing maturity by wanting to project itself on the world stage.

So it bears asking why the industry and government want to continue with the current high level of import protection""with basic duties of 100 per cent for cars, and total duties going up in some cases to the region of 160 per cent. Only sin products like alcohol and cigarettes, apart from sensitive agricultural items, continue to attract very high import tariffs""and there is no reason why a healthy automobile sector should enjoy the same privilege. After all, the basic duty on most inputs for the industry vary from 5 per cent to 12.5 per cent, Indian factory labour costs less than it does in most other countries, and productivity levels are now comparable with the best in the world. So much so that Maruti Udyog in India threatens to get bigger than its parent company, Suzuki Motors, in its home market of Japan, and contributes an increasingly sizeable chunk of the latter's profits. With so much going in its favour, India's automobile industry does not need to hide behind protectionist curtains.

The story of the high tariffs goes back to the issue of low-cost imports coming in from China, amid allegations that their costing was not transparent and that Indian industry was therefore at a disadvantage. When leading lights of the automobile industry lobbied with the then finance minister, Yashwant Sinha, they were persuasive enough to get exactly what they wanted. Even if there was a case for such high tariffs in the late 1990s, it is manifestly the case that the industry has got stronger and more competitive in the years since then, and that these tariff levels should be reduced. Customers who are faced with the high tariffs end up paying the international price of a luxury car (like a Mercedes) for something like a Honda Accord or Toyota Camry""and surely this is to no one's benefit. The government may well choose to raise excise rates for high-end cars in order to discourage the use of fuel-inefficient vehicles, but that is not the same thing as keeping tariff levels so much higher than the rest of Indian industry lives with.