|| Pratyasha Mohanty, Odisha
Recently Prime Minister Narendra Modi’s government has made a new push to make the country a major manufacturing hub by encouraging domestic production. As a protectionist measure, the government on Friday said that import duty on cars and completely- and semi-knocked down assemblies (CKD and SKD) could be raised as it also advised foreign makers to reduce the amount of royalty payments that they charge on their subsidiaries.
Top selling carmakers Maruti Suzuki and Hyundai Motor’s local unit pay millions of dollars in royalties to parent companies in Japan and South Korea for using their technology and brand to build and sell cars.
With this in mind, minister Piyush Goyal said that the government is open to the idea of a stronger India-based manufacturing plan for carmakers that are currently importing vehicles or kits. As per the sources, “The concern raised during the meeting was that the outflow is high, even for old technologies, and something should be done about it.”
India also wants to increase local investment and reduce foreign outflows. The country’s markets regulator last year suggested imposing curbs on payments exceeding 2% of revenue. The limit was finally set at 5% after complaints from some sectors and fears it may dissuade foreign firms from investing or sharing technology.
While Mr.Goyal sought a booster to manufacturing from foreign players, heavy industries minister Prakash Javadekar pitched for a reduction in the GST rate on automobiles, saying,” he would discuss the issue with the Prime Minister and finance minister.” He also said that , ” a proposal for an auto scrappage policy that would encourage customers to ward off older vehicles for new ones and an announcement can be expected soon”.
According to the statistics it can be seen that Maruti Suzuki paid 38.2 billion rupees ($510 million) as royalty to its Japanese parent Suzuki Motor in the fiscal year ending March 31, 2020, Hyundai’s local unit paid $150 million or 2.6% of revenue as royalties to its South Korean parent in fiscal 2019 and Toyota Motor’s India arm paid $88 million or 3.4% of revenue to its Japanese parent.
Thus the main focus of the government would be to reduce imports of electronic auto components, which are sourced mainly from China and other Asian countries, as well as steel. Due to which the outflow of millions of dollars could be minimised and thus the price of vehicls will decrease and the domestic economy could flourish.