Ink trade agreements with Africa, Latin America to push automobile exports: Industry

With automobile exports in slow lane, the industry has asked the government to aggressively pursue FTAs with nations in Africa, Latin America and Asean region that do not have strong manufacturing base, besides asking for enhanced duty drawbacks.

Proposing a list of interventions that can help rev up automobile exports, the industry has asked the Commerce Ministry to adopt a holistic approach to address tariff and non tariff barriers in the potential export markets of Africa, Latin America, Asean and Saarc countries.

According to sources, a study conducted by iMaCS on behalf of the industry has also been submitted to the ministry suggesting various measures in order to accelerate exports.

The government should aggressively pursue FTAs (free trade agreements) with countries that do not have a strong manufacturing base for automobiles, according to the study.

In Africa, FTAs should be pursued with Algeria, Egypt, Nigeria and South Africa, while in Latin America the government should try to pursue FTAs with Chile, Peru and Colombia, it said.

Of the total automobile exports of around $8.86 billion (nearly Rs 58,943.3 crore) in 2015-16, Africa alone accounted for 30-35% of the total overseas shipments in value terms.

Automobile exports from India to Latin America stood at $91 million (Rs 605.4 crore) in 2004-5. It grew to $1,044 million (nearly Rs ​6,945.5 crore) in 2013-14.

The study further said FTAs with countries like Philippines, Myanmar, and Vietnam should be pursued.

For Saarc nations like Sri Lanka, Nepal, Bhutan and Bangladesh, the auto industry wants the government to press for reduction in import tariffs on its vehicles and components in these countries.

"While India has given free access for automobiles to these countries we have not got reciprocal tariff concessions.

Need government interventions to reduce import tariff for Indian automobiles and parts," sources said.

Asean, Africa and Latin America are the fastest growing markets for automobile exports from India since 2004-05.

However, exports to Europe, which was once the biggest market, and Saarc nations have been declining.

Stressing on the need for a holistic approach to rev up exports, the study said tariff disadvantage of 25 to 40% is likely to emerge vis-a-vis competing countries in all the potential markets of Africa, Latin America, Asean and Saarc.

In Latin America, India's competing countries like Japan and South Korea have already signed FTAs with many nations.

"Coherent trade strategy by way of free trade agreements (FTAs) with key markets is needed to address this tariff disadvantage," sources said. 

Seeking support from the government on exports, the study said duty drawback must be enhanced so as to effectively counter the cascading effect of taxes and duties.

"The current rate of duty drawback ranging between 2% on two-wheeler and 2.85% for manual transmission cars is highly inadequate," it said.

One of the major reasons for slowdown of growth of two-wheeler exports is the withdrawal of DEPB benefit (7.5%) and very low rate under drawback scheme (2%) as a replacement, it said.

The industry body said focus product scheme needs to be introduced for automobiles to set off infrastructure bottlenecks, geographical disadvantages in markets like Africa and Latin America.

"Minimum 12% for the next five years or till we have FTAs with target markets," the sources said.

Total automobile exports from India grew by just 1.91% in 2015-16 at 36,41,546 units. Passenger car exports were down 1.86% to 5,32,053 units in the year, while that of two-wheelers grew by just 0.97% to 24,81,193 units from the previous fiscal.