NEW DELHI: Germany has questioned India’s decision to raise customs duty on automobile parts, with its ambassador warning that the budget proposal could backfire at a time when this country is banking on exports to boost economic growth.
Instead of taking protective measures, Martin Ney said, India should negotiate a freetrade agreement with the European Union. New Delhi is in a very strong position to do so, “as India already has a trade surplus of nearly $5 billion with the EU”, he said.
German companies have invested $9.7 billion in India since 2000, creating four lakh jobs directly and indirectly and “bringing ‘Make in India’ to life”, Ney said, speaking at a press conference on the sidelines of an auto-components exhibition here. “I don’t understand the hike in customs duty on auto components. If India wants its GDP to grow at 8% and wants to increase exports, then it needs to allow easy import too,” he said.
Retaliatory Action Likely
Much of this German investment is in the automotive industry. Finance minister Arun Jaitley’s proposal to increase customs duty on specified auto parts including as engines, engine components, gearboxes and transmission shafts to 15% from 5-10% to encourage local manufacturing is expected to hurt several German companies operating in the sector.
Germany’s big three luxury-vehicle makers — Mercedes-Benz, Audi and BMW — ship in completely knocked down (CKD) kits to India and assemble those in local facilities to avoid high import tax on fully built vehicles. But the budget proposal covers CKD kits, increasing their cost. The higher duty would increase the prices of luxury cars and superbikes by as much as 5%, ET reported earlier this month. But the impact will not be one-sided, he suggested, an indication that such steps could trigger retaliatory action by other countries. Increasing the duty would also raise the cost for the automakers who use imported inputs to make their vehicles in India.
Ney invoked the prime minister’s speech at the World Economic Forum in Davos, where Narendra Modi spoke against protectionism and trade barriers, and invited global businesses to invest in India. “As the Indian Prime Minister, Narendra Modi, recently said in Davos, we need free trade as the world is one place now,” he said. At the time of increasing protectionism in several economies, large trading partners like the EU and India should “jointly set the standards … and give an example of a modern free trade agreement”, the envoy said.
While several component manufactures present at the event agreed that the budget proposal would enhance the ‘Make in India’ campaign, Bosch chief technology office Jan-Oliver Rohrl asked India to look beyond manufacturing. “India should not only think of Make in India, but also design in India. Protectionism doesn’t help any nation,” he said. While the customs duty on completely built trucks and buses has also been hiked to 25% from 20%, imports in this segment are almost negligible, so not much impact is expected there.
Source: economictimes.indiatimes.com