Toyota Motors, the world's second largest automobiles maker, is considering setting up a new engine manufacturing facility in India.
The company says it found India to be more competitive in terms of costs compared with other fast developing nations such as Thailand and China.
The company recently set up a Rs 400 crore (Rs 4 billion) export oriented unit for manufacturing engine transmissions in Bangalore.
K K Swamy, deputy managing director of Toyota Kirloskar Motor India, said the transmissions plant was set up in India despite a strong case in favour of Thailand.
"We have found that manufacturing engines in India will also provide us distinct cost advantages over Thailand. We will require an engine manufacturing unit depending on the volumes in the domestic market," he added, without revealing further details.
Swamy was dispelling apprehensions expressed by the Indian auto industry that Toyota may use the proposed Indo-Thailand free-trade agreement to import engines from, and export components and transmissions to, Thailand at lower costs using the preferential duty rates. The firm has a manufacturing hub in Thailand.
Toyota, the industry executives claim, is using the Asean trade agreements to lower costs and keep competition in Asian and neighbouring markets at bay. Industry sources fear that Toyota will be the biggest beneficiary of preferential agreements.
The company currently imports its entire engine requirements from Thailand at an import duty of 25 per cent. If the Indo-Thailand agreement is reached, Toyota will be able to import engines at a duty of just five per cent.
Similarly, it can export transmissions to its manufacturing unit in Thailand at a similar duty instead of the current 30 per cent. The market for cars in Thailand is bigger than that in India.
Swamy said Toyota's critics have ignored the fact that the duty rates will be revised over a period of time and not at one go. "The Indian market is also growing - we have witnessed a 30 per cent growth in car sales this year - and the market is opening up. We are now looking at capacity expansion. We may have a requirement of 75,000 units more a year, and this will call for an investment of Rs 200-300 crore (Rs 2-3 billion)," he said.
Toyota manufactures Qualis, its multi-purpose vehicle, and also the Corolla, a sedan, at its Bidadi factory. It also markets the Camry, a luxury sedan, in the country.
Swamy said Toyota was working on a new multi-purpose vehicle which will be manufactured using a mix of the existing lines of the Corolla and Qualis.
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