Auto importers fume over government’s new import norms

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How to lose a game which is already won? Ask the Indian cricket team
How to commit crime and stay unpunished? Ask the Indian politician
How to kill an industry which is booming? Ask the Indian government
The government sure knows how to upset industrialists. As uttered out by one of my close relatives, who is into manufacturing chemicals ‘I’ve committed the sin of opting to do business in this country without political contacts, the only way to repent is by suffering and paying through the nose for things which should be free.’
Keeping alive its tradition of daft economic decisions, the government recently announced that it will considered components such as fully assembled engines and transmissions as SKDs and not CKDs. This means that out of a sudden, the companies which had invested millions of dollars in the country, trusting the sanity and sensibilities of the lawmakers will have to pay 60% duty on such components instead of an earlier 10%. That kind of a jump in costs is enough to send the business plans of any company to go for a toss, upset it, and ultimately force it into moving out of the country.

For heaven’s sake, the government cannot change policies overnight. You cannot just wake up one fine morning, realize that you can extract more money by increasing duties on certain components critical for a flourishing industry, and distress the industrialists in the bargain. Even if there are noble reasons behind the decisions, the industry should be given ample buffer time to rework their strategies and put relevant systems in place to prevent the whole strategy being thrown out of gear.

The proposal to term some CKDs as SKDs in the Union Budget 2011 can be termed stupid to say the least – for its sheer abruptness alone. What are the engine importers supposed to do now? Set up an engine manufacturing plant overnight? Or is the proposal just a means to have the palms of some ministers greased before it is taken back, only to be presented again in the next year’s budget?

The auto industry in India has sent out strong signals of dissatisfaction about the new proposal. And they are right if they are expressing dismay – they invested money here as they perceived the government to be cooperative and understand. Companies like Audi and VW have expressed their shock in very strongly worded statement. VW, which has been one of the largest investor in the auto segment have said that such sudden decisions are going to affect investments in the country. “It’s unusual to do it and could affect investment plans for brands like Audi and Volkwagen,” Winterkorn said at the company’s headquarter at Wolfsburg.

Promoting the local industry is always good. If the decision is taken keeping in view the long term goal of promoting manufacture of premium cars in the country, we appreciate the sentiment. However, you cannot bully an industry into doing what you want them to do at the drop of a hat. The new duty structure should be implemented over a period of two-three years, so that the policy doesn’t become an undue advantage to some players.
Do let us know your views on the topic.

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