India's finance minister is giving more protection to the country's automakers against car imports by increasing, within a period of less than two months, total import duty to 120% from 85%. The move increases the incentive for domestic carmakers to build more models locally.
Many of these foreign companies had plans to import luxury cars for niche markets until increasing demand made local manufacture worthwhile.
General Motors India Ltd. now may have to re-evaluate its Vectra project. Other imports in line for a second look include Maruti Udyog Ltd.'s Suzuki Grand Vitara, Daewoo Motors India Ltd.'s Nubira and Lanos, Ford India Ltd.'s Mondeo and Toyota Kirloskar Motor Ltd.'s Camry.
Nissan Motor Co. Ltd. was preparing to import five cars and multi-utility vehicles. The most successful of these models after two years was to be built or assembled locally. But Nissan now is applying brakes to its entry plans. The higher tariffs, however, will boost local manufacturing plans for Honda Siel Cars India Ltd., Hyundai Motor India Ltd. and Mercedes-Benz India Ltd. Additionally, the new tax regime encourages import of DaimlerChrysler AG's 0.6L 2-seat Smart. Volkswagen AG's New Beetle will follow later in the year.
But while the stiffer tariffs encourage domestic production, they also will create a stumbling block for India, which in two years must lower import duties to meet the Asian Free Trade Area's (AFTA) requirements.