Auto industry protests move on steel duty
October 27, 2008 10:22 IST
Auto component makers and automobile majors, faced with sagging sales over the last two quarters, have expressed strong reservations against the steel industry's demand for re-imposition of 5 per cent import duty on non-alloy steel (used to manufacture car bodies and stamped auto parts).
The companies, which are bearing the brunt of rising interest rates and shrinking vehicle loans, also stated their wish for removal of the 5 per cent import duty on alloy steel (used to manufacture gear boxes and engine transmissions).
Import duty on steel is a critical factor determining domestic steel prices. Steel prices in India are pegged to the landed price of steel, that is, the import parity price.
This means steel prices are pegged to international prices and 5 per cent import duty will push up the domestic prices.
While prices of international steel have dropped 20-25 per cent in the last month and are predicted to drop further by about $150 per tonne due to lower global demand, domestic prices haven't softened, mainly due to the depreciating Indian rupee. The Indian rupee has depreciated by 15 per cent over the last four months.
"The auto industry
is going through trying times. With liquidity drying up and segments like commercial vehicles slated to post negative growth for the current year, imposing the duty will fuel inflationary pressures. The depreciating Indian
rupee has increased the landed cost of steel," says Srivats Ram, joint managing director, Wheels India.
According to a recent study by CRISIL, the increase in prices of commodities and fuel have resulted in prices of cars rising by 4-5 per cent, motorcycles by 2-3 per cent, and medium/heavy vehicle commercial vehicles between 5-7 per cent since the beginning of this year.
The free trade agreement initiated by Indian with countries like Thailand, where the import duty in zero, has also compounded the woes of the domestic automobile industry.
"For instance, finished goods exported out of Thailand into India come at nil duty, leading to an inverted duty structure that's detrimental to the Indian auto ancillaries industry," says Vishnu Mathur, executive director of Automotive Component Manufacturers Association of India.
"All we need is a level-playing field," says Jayant Davar, vice chairman and MD, Sandhar Technologies.
