India To Consider New Policy On Foreign Investment In Auto Sector.(Brief Article)

An Indian cabinet panel will soon consider a new automobile policy that aims to set fresh investment guidelines for foreign firms wishing to manufacture vehicles in the country, a financial daily said. The Business Standard newspaper said that a report prepared for a ministerial panel has said that foreign companies wishing to make four-wheeled vehicles in India must invest at least $100 million in the project. Companies wishing to make two-or three-wheelers must invest at least $25 million.

The newspaper report said that investments in making auto parts by a foreign vehicle maker will also be considered a part of the minimum foreign investment made by it in an auto-making subsidiary in India. The move is aimed at helping India emerge as a hub for global manufacturing and sourcing for auto parts.

The policy sets an export target of $1 billion by 2005 and $2.7 billion by 2010. India last announced an automobile policy in December 1997. The policy required majority-owned subsidiaries of foreign car firms to invest at least $50 million in equity if they wished to set up manufacturing projects in India. It also forced them to take on export obligations to fund their auto part imports and required them to submit to a schedule for increasing the share of locally made parts in their cars. Mere car assembling operations were not welcomed.

The earlier policy also applied only to car projects and not to the making of other four-wheeled vehicles. But these restrictions lapsed in April after India complied with the requirements of a World Trade Organization pact. Under the earlier policy, foreign car firms were required to meet at least half their requirement for locally made parts by the third year of beginning operations in India and 70 percent by the fifth year.

The report also said that companies that have already invested through the earlier policy will need to discharge all their export obligations that accrued up to March 31, 2001. They would also need to meet their targets for using local components in the earlier policy.

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