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Role of Government in Automobile Industry

Role of Government in Automobile Industry

Discuss Role of Government in Automobile Industry within the Service Sector Management forums, part of the Resolve Your Query - Get Help and discuss Projects category; Role of Government in Automobile Industry The government is making efforts to overcome the constraints at their research centers for ...

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Sunanda K. Chavan
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Role of Government in Automobile Industry - September 15th, 2010

Role of Government in Automobile Industry

The government is making efforts to overcome the constraints at their research centers for automobile industry. India can also learn from countries like Japan that are already using these technologies for a wide number of applications. The Indian auto industry should launch programmes for market development and a wider acceptance of alternative energy-driven vehicles in India. It should also work in tandem with the government to make India a world leader in this area.

Indian automobile industry is also consistently trying to meet the emerging challenges of environmental pollution and better safety standard. According to a study, automobile exhaust contributes more than 60% of the atmospheric pollution in metropolitan cities, with the growing number of vehicles, the pollution in the cities is continuously increasing. Government initiated controls by notifying emission standard from the year 1992 under which were furthers tightened in April 1996 under the Motor Vehicles Act.

Euro-I emission norms have already been made applicable throughout the country and Indian is poised to induct Euro-II norms across the country by April 2005. Form that date 7 metropolitan cities are going to switch over to Euro–III norms. To meet this emerging challenges of newer emission norms Indian automobile industry has already braced itself up with new investment and fresh technological induction.

With the growing number of vehicles, the pollution in the cities is ever increasing. Government initiated controls by notifying emission standards from the year 1992 which were further tightened under the Motor Vehicle Act. For meeting these norms, unleaded petrol was also introduced in metropolitan cities from 1995, which enabled fitments of catalytic convertors on new petrol driven vehicles.

The norms are being further tightened from April,2000 when India’s stage one norm equivalent to Euro-I will become effective. For 2-wheelers, India has announced one of the tightest norms in the entire world. In the national capital territory region of Delhi, India’s stage 2 norms equivalent to Euro-II norms, will be effective from April, 2000, as per the order of Hon’ble Supreme Court.

This would apply to passenger cars.

The government seems most keen to hand over a huge replacement market on a platter to the automobile industry without ensuring that manufacturers take responsibility of the emission performance of the vehicles they produce for its useful life.

In fact the most important action point that was recorded after the ministerial consultation was that manufacturers would have to give emissions warranty for two- wheelers from But ultimately, the government could not muster enough courage to push the mighty automobile industry and enforce it.

Government will encourage and assist establishment of specialized training institutes for the automobile sector through the active association of interested automobile industries.

These institutes will be set up in Bidadi Industrial area and Dharwad Growth center. The Institute will be managed by the participating automobile industries and will train skilled category of auto workers, in specified skill areas such as painting, welding, auto mechanical, etc.

It also is making an effort abe to enlist the support of multilateral aid institutions to provide part of the funding for this project, which promises tremendous environment-improvement benefits for the vehicle, which create pollution.

The policy of broadbanding capacities in the eighties led to increased utilization of capacity for four-wheelers in the industry.

The liberal policy on foreign participation through technical and financial collaboration in early eighties led to substantial product upgradation and introduction of new models. But it was alleged that the policy was discriminatory in favor of MUL, while others like Telco, PAL, HM were denied permission to produce cars in collaboration with Japanese companies.

The GOI controls the car sector by way of framing policies on depreciation norms, import duty on cars and parts used in it, petrol prices and import duty of steel.

During the era of socialist inspired controls, the government protected the car industry from new entrants by making effective use of licenses. However, after liberalization and with the consequent opening up of the auto sector in 1992-93, the license raj ceased to exist .

The perception of a car as a luxury good lead to heavy excise duty on cars. The excise duty doubled from 25% in FY87 to 55% in FY91. Till 1987, the GOI followed a discriminatory policy so as to charge lower duty on fuel efficient car with engine capacity of less than 1000cc. This helped MUL to price its car at a lower price in comparison to others. But with lobbying from PAL and HM government withdrew the provision in 1987.


But with the onset of the liberalization process in the early nineties, the government has continually rationalized the excise duty regime. Presently, there is a duty of 40% (16% + 24%) on motor vehicles, designed for transport of not more than six persons (excluding the driver). On vehicles designed for transport of more than six persons, but not more than 12 persons, the duty is 32% (16% + 16%).

Over and above the excise duty, cess by the Central Government, states are now charging a uniform sales tax of 12%. This came in being after the 15th of May 2000. Earlier, states used to charge sales tax varying from 3 to 14%. But MUL vehicles receive favorable treatment in terms of sales tax as well.


In line with its treatment for luxury items import duties for car have been maintained high. In the 80's, import duties varied between 150 to 200% based on the engine capacity of a car.

The import duty on cars and components has come down in the last few years in line with general reduction in import tariffs. In the FY98 budget, the import duty on cars has also been further brought down from 50% to 40% ad valorem. Substantial reduction in import duty has been extended in the budget FY98 for import of certain items which would help the industry to reduce the emission level of vehicles. The import duty on catalytic converters and parts thereof has been reduced from 25% to 5%. The duty on CNG kits and parts thereof have been reduced from 10% to 5%.

The import duty on auto components will be a key factor in deciding the final pricing of cars as new ventures start with about 50% indigenisation levels. The reduction in import duty on steel in the last few years has helped the industry in reducing raw material costs as major steel requirement of car industry was imported. Even today, all CKD/SKD imports include metal pressed body panels.
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