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$100m minimum investment for 4-wheeler makers

Partha Ghosh

A Cabinet note on the new auto policy has for the first time stipulated that investments in component manufacturing by an overseas automobile maker will be considered a part of the minimum foreign investment made by it in an automobile manufacturing subsidiary in the country.

The new policy, which had been sent for the Cabinet approval, had fixed $100 million as the minimum limit for companies manufacturing four-wheelers (including commercial vehicles) and $25 million for those making two and three wheelers, sources told Business Standard.

According to the extant auto policy (based on the MoU route), subsidiaries of foreign auto firms in India were required to make a minimum $50 million foreign equity investment. A previous draft of the new policy sent to the Cabinet last year, had proposed $250 million as the minimum FDI for car makers, $100 million for commercial vehicle manufactures and $25 million for two and three wheeler companies. The draft was later withdrawn.

Now, as per the final policy, manufacturers who have already invested through the existing MoU route - eleven of them so far - will have to discharge their export obligations accrued up to March 31, 2001. Thereafter, there would be no requirement for indigenisation or export obligation, said sources. Investments in component manufacturing have so far not been considered while counting the minimum investments made by an automobile manufacturer in the country.

Now the Cabinet note states that the stipulated minimum equity investment can be made entirely in one automobile company or jointly in separate ventures created to manufacture only automobiles, or manufacture automobile as well as components. This move is aimed at promoting India as a global manufacturing and sourcing hub for auto components.

The policy mentions an export target of $1 billion by 2005 and $2.7 billion by 2010 from the component industry. Additionally, if existing manufacturers with minority foreign holding wanted to convert their joint ventures into subsidiaries, they will be required to fulfil the new condition for foreign investments.

The previous draft policy had also proposed an additional investment of $12.5 million for in-house R&D, which has been removed in the final policy. However, it has been proposed that the weighted tax deduction under the IT Act for sponsored research and in-house R&D expenditure will be further improved for vehicle and component manufacturers from the current level of 125 per cent.

Vehicle manufacturers will also be considered for a rebate on the applicable excise duty for every 1 per cent of the gross turnover of the company expended during the year on R&D in the country. Government will also encourage setting up of independent auto design firms, the policy states.

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