The local automobile industry might be more concerned over prospects of trade liberalisation with India but its fate, according to a Global Research report, lies in the government’s upcoming new auto policy.
Looking at the reputation of a pro-business government, the PML-N government is expected to give space to the struggling auto industry while continuing its plan on liberalising trade with India, the report said.
Uneven sales volume coupled with inconsistent policies in the recent past have resulted in an uneven performance of the auto sector in Pakistan. Resultantly, the domestic auto industry failed to escape from its nascent stage and still faces similar problems when it comes to meeting its targeted deletion (localisation) program, the report added.
In contrast, India is currently amongst the sixth largest manufacturers of vehicles – passenger vehicles (PV) and light commercial vehicles (LCV) – in the world. It had an annual car production of 4.1 million units in fiscal year 2013 (FY13), which is 29 times higher than production in Pakistan, recorded at 0.14 million units during the same period.
Moreover, a similar case is seen on comparing auto sector exports. In FY12, India exported $5 billion worth of automobiles or parts, while Pakistan exported just $128 million worth of auto parts during the same period.
In the past, Pakistani auto assemblers have remained dependent on the supply of completely knocked-down (CKD) and semi knocked-down (SKD) kits from Japan, Thailand and Malaysia.
India remains excluded from this list because of trade restrictions between Pakistan and India and hence, Pakistan local assemblers could not reap the benefits of importing cheap supplies from India. Similarly, owing to trade restrictions, car importers in Pakistan have been importing cars from Japan – a distant market compared to geographically closer markets.
On the brighter side, if the government allows Pakistani auto assemblers to import auto parts from India (parts that Pakistan does not produce), while imposing a ban on import of new or used cars, it will allow local assemblers to reduce car prices, added the report.
It will also enable auto assemblers to introduce newer car models in the local market at affordable prices, the report said.
Furthermore, import of technology in the auto sector will further enhance the process of deletion levels in the country. Nonetheless, allowing imports of new or used cars from India (considering existing custom tariffs on imports) is likely to reap benefits to car importers at the cost of local industry growth.