Honda Siel Cars has decided to sign a fresh memorandum of understanding (MoU) with the Directorate General of Foreign Trade (DGFT). This follows the recent amendment in the auto MoU policy, under which the formula for calculating indigenisation levels of car firms had been altered.
If the indigenisation levels are calculated according to the revised norms, Honda will be able to show a higher indigenisation level compared to its present 55-60 per cent, said N K Goila, vice president & director, Honda Siel Cars.
Under revised policy, if a vendor-to-car project is importing less than 50 per cent of its inputs, the equipment supplied by it will be treated as indigenous. Under the original policy, if a vendor imported even 10 per cent of its inputs, it would be counted while calculating the project's level of indigenisation.
Honda Siel had earlier signed the MoU with the DGFT, which had not incorporated the above relaxation for the vendors. The change had been subsequently made in the memorandum signed by the DGFT with Fiat, the Italian car manufacturer. Fiat had been granted a licence to import 36,000 semi-knocked down and completely knocked down kits by the DGFT.
Sources in the DGFT said that further policy changes in the auto MoU policy at present are not on the cards. The MoU policy of the government, which was announced in December last year, prescribes indigenisation of components by car firms up to a minimum level of 50 per cent in the third year or earlier from the date of clearance of the first import consignment of CKD/SKD kits and 70 per cent in the fifth year or earlier. Once the signing firm has reached this level of indigenisation, there will be no need for further import licenses from DGFT. Consequently, as and when the firms achieve 70 per cent indigenisation, they would go outside the ambit of the MoU automatically.
Car companies had, however, argued that the indigenisation norm of 70 per cent in 5 years does not make sense since companies would be phasing out models within four years or even earlier at times.
They had pointed out that the models will undergo complete changes including new moulds, dies and components specifications. It would, therefore, not be viable to indigenise 70 per cent over 5 years. A dedicated component manufacturer, for instance, will need to make drastic changes to adapt to the new model in certain cases.
