New Delhi, March 2: The governments decision to impose a higher import duty on critical car parts such as engines, gear box and transmission equipment is aimed at localising their manufacture.
Following the budget, the duty has been raised to 60 per cent from 10 per cent — on a par with the duty on an imported vehicle.
According to industry ministry officials, this will not only help the government meet its target of increasing the share of manufacturing to 25 per cent of GDP (gross domestic product) from 16 per cent over the next 10 years but also increase the localisation level.
Foreign car makers who have been importing CKD (completely knocked down) units to take advantage of lower duty and domestic car makers who were planning to import some auto parts through the CKD route, while neglecting investment in domestic manufacturing will be brought under the net, officials said.
Abdul Majeed, auto practice leader at PwC India, said, Auto makers will now be forced to localise car part manufacturing, which is essential to create a long-term sustainable business model.
Local value-addition and innovation in essential car components such as engines, gears and transmission is required if India wants to develop as an emerged economy, he said.
Luxury car makers Mercedes Benz, BMW India and Skoda India import engines that form at least 15 per cent of a cars cost.
Other companies which import critical components include Toyota in its Fortuner, Volkswagen in Jetta and Passat, and Ford in Endeavour.
Tata Motors and Mahindra & Mahindra (M&M), having foreign arms, were also planning to import engines for some new models.
Pawan Goenka, president (automotive business) of M&M, had said the company would assemble and sell two Ssangyong sport-utility vehicles — Rexton and Korando —in India. M&M bought South Koreas Ssangyong Motor last year and expects to finish the deal by April.
Tata Motors, which sells Jaguar Land Rover cars in India, was also planning assembly operations in the country.
Hyundai Motors India may also face higher tariffs on its diesel engines.
According to an official from the Society of Indian Automobile Manufacturers, the government probably wants to increase revenues from the sector and the emphasis also seems to be on value addition to be made in India.