Auto policy: Protection at a crossroads

Business Recorder reports that government stakeholders are moving toward agreement on a new auto policy, after the earlier one ran out on 30th June. Industry players and buyers have been left without clear direction since then. The core dispute is between the Ministry of Industries, which wants to keep protection for assemblers, and the Ministry of Commerce, which favours reforms under the National Tariff Policy.

The emerging package begins with cuts to CBU customs duties, which fell from 50-60 percent to 30-40 percent for different engine sizes, along with lower regulatory duties. CKD duties were left unchanged, which partly removes the protection assemblers have. Facing a narrowing gap with imports, several assemblers have slowed output and held back price announcements, particularly for PHEVs and HEVs.

Critics argue that after nearly four decades of protection the industry has not achieved competitiveness or scale, as the last three policies targeted 500,000 cars a year yet output reached at best about two-thirds of that. Industry supporters blame high interest rates, heavy taxation and the lack of backward linkages such as steel and glass. A committee estimate puts employment nearer 300,000 jobs, against the 1.8-2.5 million jobs claimed by the industry without supporting data, and the ministry lacks a documented estimate of the sector's wider contribution.