It is a universally acknowledged fact
that countries which have achieved major industrial growth in the last century
have focused their efforts on the auto industry, e.g. USA, Japan and, in more
recent times, India, Korea, Thailand, Taiwan, Malaysia, etc.
Compared to India and Thailand,
Pakistan has a long history of automotive industry dating back to the days when
General Motors (GM) established a bus/truck assembly plant. Unfortunately, while
both India and Thailand have taken a lead in automobile manufacturing, the
Pakistani auto industry has just been able to achieve double digit growth,
becoming a major contributor to the economy.
The auto policies of Thailand and India
are a clear manifestation of the importance placed by both the governments to
the auto industry in the context of their contribution to overall economic
growth. Their policies are supportive of the local industry providing adequate
cushioning through strict regulations governing import of automobiles.
The Indian policy's stated vision for
the industry is "to establish a globally competitive automotive industry in
India and to double its contribution to the economy by 2010." The facts and
figures relating to the Indian auto industry speak volumes about the importance
of its role in the local economy. The size of the market has increased
dramatically, from approximately 600,000 vehicles in 2002 to more than a million
vehicles in 2004, numbering more than 20 manufacturers among its ranks.
The Indian government reviews the
automotive tariff structure periodically to encourage demand, promote the growth
of the industry and prevent the country from becoming a dumping ground for
international rejects. High rate of customs and other duties, upto 180%, imposed
on import of used cars in India are aimed at stopping the import of
reconditioned cars. The auto policy strongly discourages import of second-hand
or reconditioned cars, making it virtually prohibitive.
The Indian auto industry is protected
through non-tariff barriers. Imported vehicles are tested by agencies especially
set up in India to ensure that poor quality; fuel inefficient old vehicles do
not enter the country. The vehicles have to conform to Indian EPA standards.
These EPA standards are yet to be developed in Pakistan. Only right hand drive
vehicles with speedometer in Km/hr reading and signaling system for keep left
traffic system are permitted in India.) Cars no older than three years from the
date of manufacture are allowed and the importer has to submit a pre-shipment
certificate, confirming that the vehicle conforms to regulations specified in
the Motor Vehicles Act 1988 of India and lastly the importer has to submit a
pre-shipment certificate which states the vehicle conforms to the Original
Homologation certificate issued at the time of registration. The Indian
government has also further reduced duties from 20% to 15% on imports of auto
components in the budget 05-06.
Likewise the Thai Vision for 2011 is
"Thailand is the automotive production base in Asia that adds value to the
country with strong domestic supplier base". The Thai objective is to
produce at least one million vehicles per year (700,000 one-ton pick-up trucks
and 300,000 passenger cars) with total production value of more than 500 billion
bahts, 40% of which will be exported by 2006. This vision is backed by a very
supportive and long term auto policy which discourages import of cars through
both, tariff and non-tariff barriers.
The automotive industry in Thailand
encourages automotive assembly in Thailand. From the early 1960s, when Ford
first established a car assembly plant there, the major multinational automotive
companies have expressed confidence in the country through substantial
investment in the auto sector. Sixteen leading automotive brands have since been
serviced by a diversified base of 1,637 small and medium parts manufacturing
companies that continue to capitalize on the growth of billion dollar
multinational automobile companies.
Thailand is expected to become the
region's biggest player, as the country's investments in infrastructure support
the industry, the government's policy on tax and duty, and the Board of
Investment's support has all played an instrumental role in putting the country
at the forefront.
The size of the market in Pakistan has
increased from just about 60,000 vehicles in 2002 to 150,000 vehicles in 2004.
Nevertheless it is still a very small market if compared to 1,586,400 vehicles
in India and 1,092,000 vehicles in Thailand. The total number of Pakistani
manufacturers amount to only 8, comparatively smaller than in India and
Thailand. The number of vendor companies in Pakistan is around 300 whereas India
boasts 500 and Thailand accounts for 1,809. The exports of vendors in Pakistan
amounted to $ 30 million in 03-04 which is quite small as compared to $760
million and $ 817 million of India and Thailand, respectively. Investment in the
industry is over Rs. 20 billion whereas the amount in India totals to US $ 10
billion. The automobile sector provides employment to around 120,000 people in
Pakistan whereas in India it provides employment to 450,000 people directly and
The point to be noted here is that in
2004, Pakistan was not in a position to export any car whereas 130,000 and
250,000 units were exported during the year from India and Thailand,
respectively. The import of CBUs during 2004 in Pakistan amounted to 3,655 in
new and 3,436 in used. This import of CBUs was sharply increased from third
quarter of 2004. India and Thailand on the other hand didn't import any CBUs.
There are no conditions for the import
of used cars in Pakistan whereas in India the vehicle needs to get tested from
testing agencies for the adaptability to Indian conditions and protection of
environment. Alongside this it should be designed for right hand drive with
speed meter in km/h. Similarly, the conditions for import of used cars in
Thailand state that only Thai workers living abroad for more than one year can
import their cars, which are in use. The vehicle has to clear the test of
exhaust emission at Environment Protection Office. Additionally, the
registration of the car has to be in the name of the user and the price
evaluation method exists by model and years.
Sadly, despite the huge potential, a
clear strategy for the auto sector in Pakistan is still a dream; in fact, we are
yet to develop a comprehensive auto policy. Every now and then, there are vested
interests and lobbies such as the resellers and the motor dealer associations
that try to curtail the government's long term plans.
The import policy in India aims to
neutralize foreign exchange outgo on imports (CIF) by export of cars, auto
components etc. (FOB). Likewise in Thailand, the local content requirement is
abolished as those who import automobiles have to follow the duty structure.
In view of the exemplary growth of the
Indian auto industry as well as the Thai auto sector, we need to take a lead
from these countries' auto policies to provide "adequate accommodation to
indigenous industry for attaining global standards".
The government should take into account
the need to encourage investment for capacity expansion in order to meet the
rising demand. The policy should make Pakistan a global supplier of auto
components, embodying incentives to facilitate R&D and setting up of
engineering educational institutions to provide trained manpower. Import tariffs
should also be fixed in a manner so as to promote manufacturing of cars and auto
parts in Pakistan, as opposed to gradually reducing protection of the domestic
industry. While ensuring a balanced transition towards open trade, the
automotive tariff structure should be reviewed periodically to prevent Pakistan
from becoming an international dumping ground for used and reconditioned
vehicles like Bangladesh and Sri Lanka.