Moving Beyond Protectionism: Revitalizing India's Auto Industry

India's automobile industry, shielded by tariff walls for eight decades, needs a paradigm shift towards liberalization. The key to this turnaround is in dismantling trade barriers to unleash the true potential of the sector and foster global competitiveness.

• Since its inception in 1942, the Indian auto industry has operated within a protectionist framework, hindering its growth and denying job opportunities.
• The prevailing distorted industrial policy, marked by high tariffs and skewed priorities, requires reevaluation.

Tariff Barriers and Impact on Prices:

- Currently, a massive 125% customs duty shields all passenger vehicles, except those designed for 10 or more persons.

- This tariff inflates the cost of an automobile, making a $10,000 vehicle soar to $22,500 upon crossing the border.

- The impact is felt domestically, with buyers potentially paying exorbitant prices for products that could be more reasonably priced in the global market.

Historical Industrialization Model:

- In the 1950s, India prioritized heavy industries over employment-intensive sectors like textiles and apparel.

- General Motors and Ford, with assembly-only plants, were ousted, favoring domestic companies like Hindustan Motors and Premier Motors.

- The emphasis on heavy industries and neglect of textiles led to a loss of competitiveness in global markets.

Persistent Protectionism in the 1990s:

- Economic reforms in the 1990s did not rectify the imbalance.

- The textile industry remained subject to exclusions, while the automobile sector enjoyed freedom from investment licensing.

- In 2001, the automobile industry, citing its "infant industry" status, gained protection through high customs duties.

Labor Laws and Changing Dynamics:

- The removal of small-scale industry reservations in the mid-2000s did not immediately change the landscape due to stringent labor laws.

- However, recent voices, including RC Bhargava of Maruti Suzuki, advocate for free trade agreements (FTAs) and acknowledge the global competitiveness of Indian car companies.

FTA Talks and Winds of Change:

- Ongoing India-UK FTA negotiations highlight the asymmetric patronage the automobile industry receives.

- While dissenting voices argue for protection, industry leaders like RC Bhargava endorse FTAs, asserting the global competitiveness of Indian car manufacturers.

Rejecting the "Infant" Status:

- The call is to reject the outdated plea of "infancy" as an excuse for inefficiency and protectionism.

- The prolonged inefficiency has cost consumers in terms of quality and high prices, impeding the growth of more efficient players.

Embracing Global Competitiveness:

- The government should focus on encouraging large-scale, efficient producers rather than sheltering small and inefficient manufacturers behind high tariff walls.

- This shift must extend beyond the auto industry to foster competitiveness in textiles, apparel, and other sectors.

India's manufacturing sector can experience substantial growth through an outward-oriented policy. The call is for the conclusion of FTAs with the UK and EU to open avenues for large-scale enterprises and position India as a global competitor. The time has come to move beyond protectionism and embrace a more globally integrated approach.