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REGISTERED No. D. 221

The Gazette of India

EXTRAORDINARY

PART I—Section 1

PUBLISHED BY AUTHORITY

No. 213] NEW DELHI, SATURDAY, NOVEMBER 9, 1968/KARTIKA 18, 1890

Separate paging is given to this Part in order that it may be filed

as a separate compilation.

MINISTRY OF COMMERCE

RESOLUTION

TARIFFS

New Delhi the 9th November 1968

No. 8(l)-Tar/68—The Tariff Commission has submitted its Report on the continuance of protection to the Automobile Industry on the basis of an inquiry undertaken by it under sections ll.(e) and 13 of the Tariff Commission Act, 1961 (50 of 1951). Its recommendations are stated below. Professor K. T- Merchant one of the three members of the Tariff Commission who have signed the Report has in a note of dissent expressed views different from those of the other two members on recommendations No. (8), (9), (30), (31) and (42) and his views have been briefly given in brackets below the said recommendations.

(l)Protectlve rates of duty on components may be withdrawn and reve- nue rates of duty imposed instead.

(2) The ancillary industry [components assessed under LC-T. Items 76(9), 76(10) 75(11), 75(12) and 75(14)] should, however, be regarded as protected as in the case of the main automobile industry in view of the quantitative restrictions on imports.

( 9 0 5)

(3) In to far as the automobile ancillaries are concerned It Is immaterial whether a higher quantum of protection is fixed except In so far as these components ure concerned which cannot be manufactured In the near future in the country. Certain suggestions in this con- nection are given in paragraph 29.15 of the Report.

(4) Ti.J automobile ancillary industry Is an important adjunct of the main automobile industry and has begun to grow steadily more recently. Its development needs, therefore, to be carefully watched- A review of the industries again after a period of two years is therefore proposed.

(5) The automobile industry has to remain under protection until such time as it can stand on its own legs. The industry has not yet matured although it has had Its beginning nearly two decades ago. There is no practical alternative but to lot the Industry continue under the present scheme of protection. Even if It could be argued that the industry was able to withstand competition from abroad, reasons of balance of payments would have necessitated the conti- nuance of the present position.

(G) Protection in itself is not a formal declaration but a practical measure which operates under certain stated conditions. To remove the surveillance over the functioning of industries merely because of the formal substitution of nomenclature relating to duties would not only be unrealistic but unfair to the consumer and also to the economic growth of the country. Where effective protection is maintained through quantitative restrictions on imports the necessity for periodical review is even greater than In the case of industries which are subject to protective rates of duty

(7) It Is erroneous to suppose that the review that is periodically conducted by the Tanfl Commission is only with a view to modifying rates of duty. De-protection should not in practice mean the replacement of tanJI duties by quantitative or quota restrictions but relaxation of restrictions.

(8) As matters stand, it is not possible to indicate whether any of the units manufacturing commercial vehicles could be considered uneconomic while all the units manufacturing passenger cars would be considered to be smaller than required for the economic size. The reasons for such a tituation are historical, since each of the units manufacturing passenger cars started from assembly operations at which stage the question of an economic size for manufacture Is not of much relevance. Until the economic level of production is reached by the present manufacturers It would not be advisable to license any additional unit.

[Professor Merchant has expressed the view that since the existing units do not hold out hopes of reduction in costs, there is no alternative but to allow new entrants who promise to do so.J

(9) I he proposition of setting up a new unit In addition to those already in existence is not considered in the least advisable or desirable. With minor variations of degree almost all the units are subject to the same weaknesses and handicaps and it cannot be categorically said that -a particular unit is strong and efficient and another one weak and inefficient. Even if such a classification could be made, there Is no ground to suggest that any scheme of merger should be pursued, least of all to propose compulsory merger, since there is no provision in the law under which such a step can be taken even if it is assumed that it is necessary.

fPiwIessor Merchant has expressed the opinion that in order to remove weaknesses and inefficiency in the automobile industry, the best solution would be the compulsory merger of weaker and Inefficient units Into stronger ones In the larger interests of the automobile industry as well as of the economy.]

(10) Although the Implementation of the recommendations made by the Taritt Commission after its two previous inquiries into this industry has not been adequate, rationalisation of the existing taxation structure, elimination of procedural complexities and delays and development of a good network of road system even now would go a long way in removing the present inhibitions and in increasing tbe domestic demand for commercial vehicles.

(11) When Government are approached in future for renewal of the existing collaboration agreements, they may think in terms of a reasonable time for the operation of the renewed or revised agreements, thus providing a spur to speedy assimilation of technical advance and Improvements of product design with a view In particular to utilisa- tion of Indigenous materials and knowledge-

(12) It may be worthwhile considering the possibility of making the pay- ment of the dues of Indian firms to foreign principals and collabora- tors to the maximum extent in rupees This is a point which may be further explored by Government and the Reserve Bank of India.

(13) In view of the fact that not only has the vehicle production to be planned in the country over a number of units but also FS foreign exchange for the import of components and raw materials as well as for the purchase of plant and machinery has to be allotted equitably to various units, it appears very necessary that the capacity should be technically assessed.

• (14) While Issuing licences for expansion of capacity, care should be taken to see that the capacity is well balanced and is capable of economic production.

(15) The issue of licences for import of raw materials should be related to both production and capacity, the ceiling being the licensed capacity of the unit concerned-

Ud) Government should specify the licensed capacities of each of the units in the automobile industry. Further the D.G.T.D. should undertake a technical assessment of the machinery installed in each unit and determine its installed capacity accurately-

(17) D.G.TD. should make an Immediate assessment of the capacities of Hindustan Motors and Standard Motors for passenger cars and specify these in the industrial licences as has been done in the case of Premier Automobiles.

(18) The liberalised credit facilities referred to in paragraph 11 of tbe Report, it is expected, will help the development of the road trans- port industry.

(19) It will be quite some time before the indigenous steel manufacturers have the capacity and capability to meet the requirements of the automobile manufacturers for rationalised varieties of steel and till then the requirements will have to be met from imports.

(20) It is desirable to reduce progressively the overlapping of production as between the automobile manufacturers and the ancillary units. As the requirements of the automobile manufacturers of such Items increased and their output decreases as a result of the depreciation of plant and machinery, it would be desirable to meet the balance of requirements from the ancillary manufacturers with a view to handing over all such production to the latter eventually. Also in future, care may be taken to ensure that no further expansion of capacity Is allowed to automobile manufacturers for items for which capacity exists In the ancillary sector.

(.21) The method of calculating the indigenous content of different vehicles on the lines of the Jha Committee formula has a number of built-in limitations. The broad lines of an alternative and more practical method of calculating the . progress in ihdigenous content of each vehicle are suggested In paragraph 14 of the Report. It is desirable now to shift the focus of attention from manufacturing progress 1-e.

indigenisation at tbe Anal stage of manufacture to the coat of the automobile Industry tq the country In terms of foreign exchange so that its gradual or faster reduction can be planned-

(22) The Ministry of Industrial Development and Company Affairs may take steps towards coordination for the collection of data with regard to utilisation • of foreign exchange allotted to Industry through different departments and to maintain records In respect of different items including ancillarles in order that suitable measures may be taken for the reduction of the Incidence of foreign exchange spent on the manufacture of automobiles-

(23) The Directorate General of Supplies and Disposals should keep records of purchases of automobiles by Government both by number and value-

.(24) No conspicuous advance has been made in reversing the original verti- cal growth of the industry and even the official demarcation of parts to be manufactured by the main automobile manufacturers and the ancillary sector seems to have not met with the desired success.

(25) In regard to standardisation of functional parts, the hindrance on account of foreign collaboration agreements is faced not only by vehicle manufacturers but also by ancillary manufacturers who have different .collaboration agreements with different firms, ways, there- fore, need to be devised for overcoming the diversities in these matters resulting from foreign collaboration particularly when the functional properties are not likely to be affected adversely.

(26) The work of standardisation has to continue with patience and per- severance both at the company level and national level with regard to certain materials and components that go into the automobiles and for materials and components that would be common to other engineering industries. The progress in this direction is likely to be faster il the manufacturing units are not tied down to specifications dictated by their foreign collaborators where these can be safely modified. It is expected that where adequate initiative is present the collaborators would be agreeable to give their consent to nuch modifications which can be effected in the interest of standardisation, uniformity and indigenisation without detriment to quality.

(27) In the light of the factors mentioned in paragraph 22.3 to 22.7, Premier Automobiles should not be allowed to implement Its licence for the manufacture of engines. So also adding Simpson & Co., to the already existing number of truck manufacturers (by allowing It to manufacture a chassis to utilise Its own engines) will not be economi- cally justifiable-

.(28) Broad observations on certain general issues such as accidents and air pollution are given in Chapter IX-

(2B) In the case of ball bearings used by the automobile Industry a consider- able degree of import substitution can be achieved with minor modi- fications-

(30) Owing to Government policies Which restricted the production of passenger cars on the one hand but encouraged that of commercial vehicles the demand for passenger cars continued to accumulate and even now remains largely "unsafifled; the existing backlog of demand would need the full production of the country for a period of three years to satisfy. As against this huge backlog of demand for passenger cars, the supply of commercial vehicles is much easier and supplies can generally be made off the show-room floor.

[Professor Merchant'has expressed the view that the priority given to the production of commercial vehicles from the beginning should not only be continued but also be effectively enforced. A close check on the expansion of the installed capacity for passenger cars is also necessary so that the social objective of priority to commercial vehi- cles is not defeated.]

(31) The Impression that, there is any attempt on the part of automobile manufacturers to continue to or take over the manufacture of what could be supplied by the indigenous ancillary Industry or that there is an effort at vertical Integration in the automobile industry is erroneous and based on inadequate appreciation of facts and data.

[Professor Merchant has expressed the view that no new units in the ancillary industry should be licensed at present till the existing efficient units become economically viable- Moreover, the tendency of vertical growth must be discouraged.]

(32) The complaints received more recently by the Tariff Commission and by D.G-T.D. in 1965 in respect of the auallty of cars are broadly In the ratio of cars manufactured by different manufacturers. While the sudden spurt of complaints lodged In' 1968 with the D-G.T.D. against Hindustan Ambassador may perhaps Indicate that users had relatively more complaints to make against this car than against others, it must also be noted that the production and therefore the number of users of this car are also very much more than those of other cars.

(33) The agreements between the automobile manufacturers and their dealers are those privately entered Into by the two parties and hence the terms etc, are better settled between themselves and are not within our purview. The" manufacturers have been advised to look into the grievances of the dealers sympathetically to win their goodwill as they play an Importanf role In the development of the automobile industry,

(34) In regard to warranties, what, is required ia a determination of the minimum period of usage or mileage run during which defects could reasonably be expected to show up. The period of warranty should not be less than this minimum- If any manufacturer wishes to give a longer warranty period to win his customers' confidence he would be welcome to do so.

(35) Where defects are admitted under warranty claims the labour charges

should be borne by the manufacturers.

(36) It would be preferable to place the production and inspection staff at an independent and equal level, both being co-ordinated to the extent necessary at the point of top management, who it Is needless to say must be themselves highly quality conscious If significant improve- ments are to be expected.

(37) It is obvious that es far as standardisation of parts is concerned it Is only the manufacturers of automobiles who can take decisions in this matter, since it is a question of some adjustments or alterations-

(38) A greater degree of collaboration between the various testing institutes in the country and the automobile industry as well as the automobile ancillary Industry should be established for utilising the facilities available In the Institutes

(39; It is desirable that automobile manufacturers should cooperate with ancillary manufacturers in establishing suitable testing facilities and that full use Is also made of the existing facilities available in the various institutions.

(40) It Is hoped that the Automotive Research Association of India would soon start functioning actively. It wolud be In the interest of the development of the industry on sound and healthy lines, not only of manufacturers of automobiles but also of major ancillaries If they assoclnte themselves with this organisation and derive full benefit from It,

(41) It is for the automobile manufacturer to arrange settlement of claims with the ancillary manufacturers who supplied the components and the ownor of the vehicle should not be made to deal with a number of agencies. He should be provided with redress by the manufacturer or his authorised dealer irrespective of the outcome of the claim which may subseouently be made bv the manufacturer on the ancillary unit whirh sunplied the original equipment.

(42) In respect of the model changes of vehicles, it cannot be said that there are too many models or that there have been too frequent changes. The low volume of production stands undoubtedly in the way of the normal change in models.

[Professor Merchant has expressed the view that it is necessary to reduce the number of makes and models of vehicles to achieve economies of scale, to reduce the original cost, and to facilitate standardisation which could out down the maintenance costs. He has, therefore, suggested that Government should emphasise utility and economy In the designs of vehicles and that there should not bo more than one type in each cateRory of the vehicles.]

(43) Although the question of setting up more servicing stations and diversifying their locations would depend more upon business con- siderations than upon the need, it appears that there is considerable room for improvement of standards of servicing and repairs of auto- mobiles.

(44) Of late the ancillary industry has developed not so much with a view to fulfil the replacement demand as for supplying the needs of auto- mobile manufacturers.

2 Government accept recommendations (1) and (2) above. They have decided that, after the withdrawal of the protective rates of duty, the effective rates of revenue duty should for the present be maintained at the same level as the effective rates of the existing protective duty. However, where in the manu- facture of vehicles some manufacturers are using indigenously manufactured components while others are resorting to imports for one reason or the other. Government will consider subjecting such components to higher rates of import duty to make lmoorted supplies costlier and thereby hasten the pace of indlgenisa- tion by those lagging behind-

Necessary leeislation to implement the decisions of Government will be undertaken in Parliament in due course.

3. Government have noted recommendations (3) and (7).

4- Government accept recommendation (4).

5. Government accept recommendation (5). They further consider that the progress of the automobile industry should be reviewed again by the Tariff Com- mission aftei a period ni five years, that Is ix. 1973.

6- As regards recommendation (6), Government agree that periodical reviews are necessary in the case of all industries which are under protection, whether that protection has been granted by the levy of protective duties or in any other manner such as through Import restrictions.

7- Regarding recommendation (8), Government agree with the view of Pro- fessor Merchant and consider that it should be open to them to license a cew unit of economic size for the manufacture of passenger cars to enable the advantage of 'transfer line' production and economies of scale to be availed of and to introduce an element of competition with its resultant benefits In the, shape of better quality and cheaper prices.

8- Government agree with recommendation (9) of the Commission that any scheme for merger of the existing units is neither feasible nor desirable.

9. Government have taken note of recommendations (10), (14), (15) (17) '18), (20), and (22) to (28), and steps will be taken to implement them'as far ao possible. The attention of the State Governments is also Invited to recom- mendation (10) in so far as they are concerned, and that of the manufacturers of p"+omobiles and the manufacturers of automobile tmcillaries to recommendations (24) to (28).

10 As regards recommendation (11), Government are of the view that requests of the automobile units for extension of collaboration agreements should be examined strictly on merits, taking into account the benefits that have already accrued by the collaboration and the leeway, If any, yet to be made up In acquiring the necessary know-how and skills,

11. Regarding recommendation (12), Government observe that payment In rupees would not by itself solve the problem, as any rupees in the hands of a foreigner would invariably give rise to a foreign exchange liability, either direct or indirect. They consider that it Is more important to ensure that the overall liability is kept to the minimum.

12. Government agree with recommendations (13) and (1G). In making a technical reassessment of the capacity of the existing units it is proposed that the circumstances in which large increases In capacity, as claimed by some of the manufaturcrs, have been brought about and the sanctions behind them, should be carefully investigated before finally deciding on the revised installed capacities of the existing units.

13- Government have taken note of recommendation 09) and steps will be taken to implement It to the extent possible Government will formulate a policy and procedure which, while aiming at import substitution, will not adversely affect production programmes of manufactures and will enable them to import such varieties of steel as are not available from Indigenous resources in adequate quantities or of the requisite quality and specifications.

14. Recommendation (21) is still under the Consideration of Government.

15 Government have noted recommendation (29). They will explore with Ball Bearing manufacturers the establishment of manufacture of the ball bearings needed by the Automobile Industry with a view to saving on Imports. The attention of the automobile industry Is also drawn to this recommendation-

16. As regards recommendation (30), Government have noted the views of the Commission as well as of Professor Merchant-

17. Regarding recommendation (31), it will be Government's endeavour to prevent further vertical growth as far as possible and to encourage horizontal development.

18- The attention of the manufacturers of the automobile is invited to recom- mendations (32), (33), (35) to (41) and (43), that of the manufacturer-, of auto- mobile anclllaries to recommendations (36), (3B) to (41) and (44), and that of the Indian Institute of Science, Bangalore, the National Test House Calcutta, and the National Metallurgical Laboratory, Jamshedpur, to recommendation (38)

19- Regarding recommendation (34), Government have already, on the basis of the recommendations of the Motor Car Quality Enquiry Committee, issued statutory directions to the car manufacturers to give a uniform warranty of 12 months or 16,000 kms., whichever occurs earlier,

20. As regards recommendation (42), Government are of the view that th( development of the Automobile Industry has now reached a stage where the manufacturers should have freedom to make model changes and produce dillcren-¹ types of vehicles as dictated by the demand, subiert to the impoitant rpservatior that such diversification will not involve extia drain of foreign exchange by wa> of import of components, equipment or raw materials or purchase of additional technical know how and documentation A further relevant factor to be taken into account in such diversification programme is the need to keep the cost ol production and the ultimate cost to the buyer at reasonable levels.

ORDER

Ordered that tht Hc-soluiioi be published ii. th<- CazL+t _ TTJ >i:i and a *'opy thereof communicated to all co-co ncd

R. S. TALWAR, Jt. £eo>.

POINTED BY IHE OENERAL MANAGER, GOVERNMENT OF INDIA PRESS,

NEW DELHI AND PUBLISHED BY THE MANAQEH OF PUBLICATIONS, DELHI; 1 9 68