The import duty on passenger cars imported as semi and completely knocked down (SKD/CKD) kits is expected to come down from 30 to 25 per cent in the Union Budget.
The duty on completely built-up units, however, is unlikely to be changed from the current 60 per cent to 50 per cent as car-makers had hoped.
This means that models that were to be imported in CBU form -- like the Suzuki Grand Vitara, Hyundai Terracan, Honda CR-V, GM/Subaru Forester, Toyota LandCruiser, Ford Explorer and new premium cars from Skoda and others -- will only be able to make an entry at higher price points.
On the other hand, Hyundai, General Motors (Chevrolet), Skoda and Mitsubishi Motors, all of whom are planning to import car models in SKD/CKD form, will benefit.
A senior finance ministry official says this is being done to balance two conflicting requirements. The finance ministry's opinion is that the Indian automobile industry needs protection for at least another year.
At the same time, the ministry is trying to accommodate car-makers' demand that they should be allowed to introduce new global models to create excitement in the Indian market and help it grow faster.
The decision to lower the duty on SKD and CKD units is designed to help generate a certain amount of localisation and, therefore, employment.
"Freeing imports of CBUs will only kill the domestic industry, which is what happened in New Zealand," the official said.
Under current duty structures, however, domestic passenger car manufacturers still enjoy a high level of protection.
Both CBU and SKD/CKD kits of passenger cars attract countervailing duty as well as a special additional duty.
As a result, the effective duty rate on CBUs is as high as 128 per cent, and for SKD/CKD kits it is around 85 per cent.
The Kelkar committee report on indirect taxes had recommended that the import duty on CBUs should be brought down from 60 to 50 per cent.
For SKD/CKD kits, the committee has suggested a reduction from 30 to 20 per cent, which would be in line with India's commitment to the World Trade Organisation.
Neither the Society for Indian Automobile Manufacturers nor the Confederation of Indian Industry have made specific recommendations on CBU import duties. SIAM is, however, considered to be in favour of lowering duties on only SKD/CKD kits.
