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Indian government preparing an incentive based scheme to double auto sector exports

The Indian government is working to design an incentive-based scheme that would help it realise its plan of doubling the exports of ‘vehicles and its components’ in the next five years. According to sources, “The Department of Heavy Industries (DHI) has sought feedback from auto industry groups on the initial proposal, which suggests giving incentives over five years to increase local production and procurement for export”.

The incentive will be provided based on the auto sector company’s sales value of vehicles or components that they manufacture. The sources added, “eligible companies would need to meet certain conditions, including a minimum revenue and profit threshold and presence in at least 10 countries”. However, the form of incentive would take is not decided yet.

A senior government official said, “India wants to promote exports and has identified some sectors, including autos and textiles, for which incentive plans are being designed. For autos, the government has engaged with various stakeholders. We have to see what needs to be done in the global context”.

The government wants to give a big push to the auto sector whose exports in FY19 went up to $27 billion. But due to the outbreak auto sales presently are under a setback and rebound may take a while.

According to the Consulting Director, automotive, at Counterpoint Research, Vinay Piparsania, “To make it a success in the present scenario, India needs to ensure the proposal is not complicated by too many conditions and is not based on sales targets”.

He said, “Having a liberal trade policy will allow companies to bring in new and global technologies which will increase their scale and India’s competitiveness as an export hub”.

According to one of the sources, “The initial scheme has been designed to incentivise large companies and in turn benefit smaller players in the supply chain, making the auto sector more competitive overall”.

The source person added, “To be eligible, automakers must have revenues of at least 100 billion rupees ($1.3 billion) and an operating profit of at least 10 billion rupees ($131 million) in three of the last five years. They must also have earnings from outside India and commit to spending on research. The terms for auto part makers are the same except that the revenue and profit thresholds are lower, at 20 billion rupees and 2 billion rupees, respectively. One proposal is to have a production-linked incentive under which companies will get benefits proportionate to the distance between the factory and point of sale to compensate for higher warehousing and logistics costs. Another proposal is to give incentives to increase the production of specific car models but only if 80% of them are exported”.

The sources said, “Inputs on this have been sought from trade bodies such as the Society of Indian Automobile Manufacturers (SIAM) and Auto Components Association of India (ACMA)”.

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