Undue Sops. Lobbyism and Indo-EU FTA

The draft proposal of the Union government to lower import duties on luxury cars during discussions on a free trade agreement (FTA) with the European Union (EU) is something fishy in many senses. Considering the tumbling European economy and the details of India’s free trade agreements with other auto hubs, points to phenomenal lobbyism.
A SLS AMG would be as low as ₹ 1.34 crore if tax cuts make their way

The cuts, if implemented, will help European companies sell some of their marquee brands at mouth-watering competitive prices. Luxury and posh sports cars would become cheaper by almost a crore of rupees. It is believed that fully-built car imports from European countries
could see half of the 60 per cent basic customs duty waived off,
especially for large and premium vehicles. The Economic Times says that a Mercedes SLS AMG, which is currently sold at ₹ 2.44 crore, would be as low as ₹ 1.34 crore once those cuts in import duties. 

An Audi R8 will cost just ₹ 74 lakhs against the present ₹ 1.34 crore. A BMW 7 series, Volkswagen Pheaton and Audi A8 would be cheaper by around ₹ 40 lakhs. This may bring a sense of bliss among the upper class consumers, but they are the only people in India to be offered maximum advantage by every economic policies. The reality is more than what meets our eyes.

Now there is a huge hue and cry at home. Indian automobile companies and other non-European firms have lodged their protest against the proposed tax cuts. Society of Indian Automobile Manufacturers (SIAM) has expressed its defiance too on this regard. Japanese carmakers such as Toyota, Honda and Maruti-Suzuki, which control more than 50% of the Indian market, are irked by the proposals and wants India to provide concessions
similar to those likely to be offered to European auto companies. They demand a level playing field. Now, this has become a bilateral
issue between India and Japan!
Volkswagen is one of the largest European group to operate in India

The proposed FTA may have serious consequences on foreign investments in the sector. Imports may be preferred by the Europeans instead of local manufacturing in India. They account for about 5 percent of market share, but is increasing in terms of sales. Major auto-giants such as Volkswagen group, Daimler, Renault and Fiat are making substantial investments for manufacturing in India. Peugeot-Citroen is establishing a new plant at an investment of about ₹ 4,000 crore. An increased local making cost would reduce further investment and expansion in the domestic car industry and its export potential will be severely impacted too.

It is worth to note the lobbyism around the trade talks. European economy is in its ugliest shape ever with stark decline in car sales and prices of consumer goods. European automobile market is one of the worst hit and there is very thin sign of recovery. Auto companies are doing their level best to secure their out land operations. US market is stagnant and only the Asian markets especially China and India are humble enough. Though sales in India too dipped, luxury cars are largely unaffected. Most of the popular brands have unleashed their costly and luxury models in India. So, in such a scenario, companies aim for a better climate in India and are increasingly lobbying for the trade agreement with their spokesperson, the EU.
With the increasing importance of the automobile sector in the economies, the auto firms put more pressure on policies for favourable upshots. Lobbyism by few and exploitation of masses is now a globalised phenomenon.

Image Courtesy: www.carazoo.com, www.thenational.ae

Dhiyanesh Ravichandran

Editorial consultant (Automotive and Technology), academic, and blogger based in India. He can be reached at wagenclub@gmail.com

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1 Response

  1. Anonymous says:

    As you have mentioned in the article, Indian automobile sector is reeling under an unprecedented downturn, the one that has not been experienced since 2000 I guess. The poster child of India's refurbished economy needs some overhauling. The fall in demand is in the passenger car industry I surmise. The reason is that, the demand for passenger cars soared with increasing flow of credit for real-estate and durables purchase. It was basically a credit-driven demand. Now, it has been proven unsustainable. As far as the luxury cars and SUVs are concerned, I think they have managed to retain their demand. The fact that this move by the Indian govt. has driven the Japanese and other long-operating players is quite obvious, as they have been deprived of such sweetheart deals. Excise duties and customs duties slash underline the growth of 'luxury'industry in India. Remember the roll-back of excise duties on gold last fiscal? We can't do much about it. Fuel prices need to be factored in. India might be willing to assert its bonhomieness with the EU on the economic front-but at what cost and at whose expense? Finally the banals 'policy paralysis' and 'fiscal correction' will be pronounced with great vigour. Regime change will not help matters. This UPA is known for dishing out sops- not just to foreign players, but to the common man as well. Both the UPA and the NDA share bipartisanship in the neo-liberal policy front. I don't think more FDI in the automobile sector is required. A few flourish at the cost of many.

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