Society of Indian Automobile Manufacturers (SIAM), in a paper on "recommendations for developing Indian automotive policy" said until the WTO commitments are undertaken by 2002-03, government's memorandum of understanding (MoU) policy should apply to all players and restrict number of players.

SIAM vice-president R Seshasayee told newsmen here that while the implicit objectives of the MoU policy necessitating increased value addition within the country were necessary for passenger cars, these policy levers may not be allowed in the post-WTO phase.

He said the policy was already under threat with the European Union (EU) citing the Indian MoU policy as anti-WTO. The MoU policy is perceived as a discriminatory policy and the policy should become applicable to all players in theindustry and not just the passenger car segment.

The paper also suggested reduction in excise duty on multi utility vehicles (MUVs), protection from second-hand vehicles imports under the WTO regime, incentives for independent auto-design firms to set up shops in India by providing tax and duty concessions and industry-government partnership in research and development (R&D).

The SIAM auto policy paper says the auto industry can grow to a size of Rs 2000 billion and contribute 10 per cent of industrial production by 2010. There exists considerable potential for using the auto industry as a growth driver of the Indian economy, the paper says.

The paper further says that it would take 10-12 years in the normal course for current players to develop any level of economies of scale. Therefore, the government should discourage new entrants till 2010. On fiscal incentive, it says the passenger car segment requires direct reduction in prices to achieve growth rates of the past.

These rates could only beachieved with real price cuts through excise reductions and squeezing industry margins. The paper says the price elasticity of demand for passenger cars is 1.9 in India. Therefore a one per cent decrease in prices will lead to close to two per cent increase in demand.