Financial Daily from THE HINDU group of publications
Friday, Dec 17, 2004
Industry & Economy
ACMA not too worried about Re rise
Chennai , Dec. 16
THE rise of the rupee against the dollar is not a matter of serious concern to the Automotive Component Manufacturers Association of India (ACMA). The auto components industry expects exports to reach $1.35 billion (Rs 6,075 crore) in the current year, up from $1 billion (Rs 4,500 crore) in 2003-04.
The ACMA's President, Mr Deep Kapuria, said most auto components companies had taken into account the possibility of rupee appreciating against the dollar, while drawing up long-term plans. "If it does not happen, they get a windfall," he said.
Mr Ashok K. Taneja, Vice-President, ACMA, noted that a strong currency cued a strong economy and companies could borrow abroad cheaper with the consequent improvement in country rating. Besides, a rising rupee would keep energy costs under check, he said.
Mr Kapuria further observed that many companies had a provision in their agreements with the overseas buyers for sharing the risks and rewards of exchange rate fluctuations.
ACMA's views contrast with the clamour of most exporters for some sops to offset the harm done by the appreciating rupee. For example, the forging industry says it may not be able to take any further rise in the currency.
Mr Vidyashankar Krishnan, Chairman-Southern Region, Association of Indian Forging Industry, has told Business Line that most forging companies were hesitant to enter into long term contracts with foreign buyers, fearing a further rise in the rupee.
"Thus far we are okay, but any further rise will make us uncompetitive," Mr Vidyashankar said.
The Association has called for an enhancement in the DEPB rates, using which companies could import raw material duty-free, as a temporary measure against the rupee's upward climb.
But ACMA's pleas to the government do not have anything to do with the rupee. Its apprehensions are more over the impact of the Free Trade Agreement (FTA) with Thailand and the rise in steel prices.
It has represented to the government asking for parity with the ASEAN countries in customs duties.
Explaining ACMA's stand, Mr Vishnu Mathur, Executive Director, observed that ASEAN countries had a graded duty structure - with over 50 per cent duty on fully built vehicles, 20-30 per cent on components and 5 per cent on raw materials such as steel. He said India should have a similar structure.
ACMA also wants VAT to be implemented, so that the burden of the "huge embedded taxes" could be eliminated. The association feels that today India is rendered "about 18 per cent uncompetitive" because of various state and central levies.
ACMA stresses the need for government's support in view of the huge business potential on the horizon. Mr Kapuria said that according to a McKinsey study, the demand for automotive components by 2015 would be about $1.6 trillion, of which about $700 billion could be outsourced.
India could get about $20 billion of this, but to do that the industry will have to invest about $1.5 billion (Rs 6,750 crore) every year for the next 5-6 years. In contrast, the industry investments in capacity expansion in the current year are expected to be close to Rs 3,000 crore.
Government's support is necessary, not in the least to give confidence to the industry to make such large investments, Mr Kapuria said.
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