In a move that could turn out to be a bonanza for the Indian automotive industry, the government may grant excise concessions on vehicles that use 90 per cent or more of domestic parts.

A working group on the automotive industry for the 11th Five Year Plan has made the suggestion in a draft proposal that aims to put in place a liberal tax system for making the industry globally competitive.

At present, there is an excise duty of 16 per cent on all automobiles, except for big cars, which attract a duty of 24 per cent. On the other hand, incidence of tax on automobiles is lower by 23 per cent in countries like Thailand and China, which could pose a serious challenge to Indian industry in days to come.

To bring down the cost of ownership through greater use of low-cost local inputs, the working group has called for overhauling the present tax structure. It has also sought rationalisation of excise and sales taxes and vehicle registration fees and elimination of octroi.

These changes are expected to increase the size of the Indian automotive industry from $32 billion now to $75.3 billion by 2012 and double its contribution to the GDP from the current 5 per cent to 10 per cent.

The move is also expected to help India become the world's eighth largest producer of cars by 2012. It stands at the 11th position at present.

The National Manufacturing Strategy of the government recommends combining the goods and services taxes and integrating it with value-added tax to have a minimal cascading effect on the manufacturing sector.