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Unique: India plans incentives for auto firms to spice up exports – sources

© Reuters. FILE PHOTO: Cars are seen parked at Maruti Suzuki's Manesar plant

By Aditi Shah and Aftab Ahmed

NEU-DELHI (Reuters) – India is currently developing an incentive system for the automotive sector to double exports of vehicles and components over the next five years. Reuters reported this to four sources with direct knowledge.

The Department of Heavy Industries (DHI) has asked the auto industry for feedback on the original proposal, which proposes to create incentives over a five-year period to increase local production and sourcing for export.

The incentives would be based on the sales value of vehicles or components, and eligible companies would have to meet certain conditions, including a minimum threshold for sales and profits and a presence in at least 10 countries, said two of the sources, adding the form of the incentives was not decided been.

DHI did not immediately respond to a request for comment.

The move is part of India's efforts to create "champion" sectors to attract investment, create jobs, and boost manufacturing, and marks Prime Minister Narendra Modi's call to be a nation on its own.

India wants to promote exports and has identified a number of sectors, including automobiles and textiles, for which incentive plans are being designed, a senior government official said.

"For cars, the government has worked with various stakeholders. We need to see what needs to be done in a global context," said the official, adding that there is a plan, although the talks are still at an early stage and the details are still open are not completed Give the sector a "big boost".

India's automotive exports were $ 27 billion in fiscal year to March 2019, led by companies like Ford Motor (N :), Hyundai engine (KS :), Maruti Suzuki (NS :), Volkswagen (DE 🙂 and Bosch (NS :), which analysts say will benefit the most.

However, the surge comes at a time when global auto sales have been affected by the coronavirus pandemic and it may take a while for demand to recover.

To be successful in the present scenario, India must ensure that the proposal is not complicated by too many conditions and is not based on sales targets, said Vinay Piparsania, advisory director for the automotive industry at Counterpoint Research.

"A liberal trade policy will enable companies to introduce new and global technologies that will increase the size and competitiveness of India as an export hub," he said.

LARGE COMPANIES

The original program is designed to incentivize large companies and, in turn, benefit smaller players in the supply chain, making the automotive sector as a whole more competitive, one source said.

To be eligible, automakers must have sales of at least 100 billion rupees ($ 1.3 billion) and operating profit of at least 10 billion rupees ($ 131 million) in three of the past five years, one source said generate income from outside India and commit to research spending.

The conditions for auto parts manufacturers are the same, except that sales and profit thresholds are lower at 20 billion rupees and 2 billion rupees, the person said.

A proposal is a production-based incentive that gives companies benefits that are proportional to the distance from the factory to the point of sale to offset higher storage and logistics costs, the source said.

Another suggestion is to give incentives to increase the production of certain car models, but only if 80% of them are exported, the person said.

Contributions to this have been obtained from trade organizations such as the Society of Indian Automobile Manufacturers (SIAM) and the Auto Components Association of India (ACMA).

SIAM, ACMA did not reply to emails seeking comments.

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