The director general of foreign trade (DGFT) is set to tighten the indigenisation norms and ease export obligation guidelines for automobile companies that have signed memorandums of understanding with the government. The measures on the cards include allowing export of components and intermediates, instead of only cars, and a three-year grace period before export obligations come into force.
DGFT S B Mahapatra told Business Standard that the government was waiting for cabinet approval before issuing licences for import of kits to Ford-Mahindra and Pal-Peugeot, whose applications have been pending with the directorate.
The cabinet proposal suggests that the car firms be allowed to export automobile parts to meet the total obligation. Earlier, the Centre had refused a Ford-Mahindra proposal seeking permission to do this. However, it is now considered realistic to allow car companies to export all items related to the auto sector since it will give the sector a major boost.
DGFT sources explained that completely knocked down (CKD) and semi-knocked down (SKD) kits were given to these companies subject to fulfilment of certain criteria, such as, production, imports, exports, indigenisation and foreign equity inflows. These parameters in the memorandums are voluntary and there is no strict schedule for indigenisation at present.
It is felt that a stricter indigenisation schedule needs to be imposed on these companies. Under the proposed schedule, the companies would be obliged to indigenise 66 per cent by the end of the third year and 75 per cent by the end of the fifth year. Officials said the new norms would lay stress on ancillarisation and indigenisation for the automobile sector. Talks with various ministries reveal that export obligation norms need to be eased, since it is unrealistic to expect new ventures to start exporting cars in the first year of operation. As a result, a three-year grace period has been proposed.
The government has also been contemplating whether the system of MoUs needs to be continued with.
According to the comments of various ministries, the system should continue for some time, and car firms should be obliged to step up manufacturing operations in India and develop the domestic automobile sector. instead of bringing in kits and assembling them in the country.
