The new year is expected to give automobile industry some respite, as import tariffs for critical components imported from the Asean block, India's largest trading partner, are slated to halve from January, thus cushioning the impact of incessantly rising costs of auto components. Automakers were reeling under a hike in prices on five occasions in 2012.
Carmakers such as Toyota, Honda, Suzuki, Ford and Nissan are likely to be the key beneficiaries when the lower tariffs kick-in. The lower tariffs will cover major components such as brakes, gears, airbags, fuel tanks, suspension system, steering systems and seat belts. The tax will be halved to 5% from January onwards, from the existing 10%. The tax would finally be eliminated when total exemptions under the Indo-Asean free trade agreement (FTA) for these critical parts take effect in December 2013.
Toyota Kirloskar Motor deputy MD (commercial) Shekar Viswanathan told ET, "It's a big relief to maintain a healthy cost structure. The benefits coming from lower cost would help us improve our bottom lines, which are under considerable pressure due to currency fluctuations. But these reduced tariffs may not be enough to offset the impact of the depreciating Indian rupee that has forced us to increase prices from next month."
Carmakers in India in a domestic market dominated by the Japanese automobile manufacturers account for over 50% market share. These companies import several auto components from Thailand and Japan. They also export many critical components and cars to these markets - Maruti Suzuki exports loose components of its multi-utility vehicles Ertiga to Indonesia. It is also planning to increase its trade with more countries in South East Asia.
"We are now taking components from few suppliers who have shifted base from Japan to the Asean region to derive benefit from lower tariffs applicable from this region," said Sudam Maitra, managing executive officer (supply chain) at.
Indian automakers have been increasing imports from Asean and China to drive benefits of cheaper priced components. A study conducted by the industry chamber, Federation of Indian Chambers of Commerce and Industry (Ficci), stated that imported auto components form over 30% of the total Indian domestic market. Imports from Asean countries have also shown rising trend with Thailand leading the pack and emerging as the largest exporter of engines. Around 32% of engines imported by India, especially in the diesel segment, come from Thailand with major importers being companies like Toyota Kirloskar Motors and Ford India.
Companies such as Honda, which have been battling to keep its costs competitive, is now importing critical parts from Thailand as it look at ways to pass on the lower tariff benefits to customers.
The Society of Indian Automobile Manufacturers, the body of automaker in India, said that the lower tariff would help the industry to control costs in the long term. "There has been direct impact from the fluctuating currency and high commodity prices. Lower tariffs would help in cushion some impact of such rising costs and make the Indian industry globally competitive," said a senior executive of SIAM.
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