Analysis of Pakistan and India bike industry
Irrespective of merits and demerits to our local industry, stake of jobs of thousands of people and future of our huge vendor base after more liberal trade with India – one thing looks certain that consumers may be able to see arrival of used new design bikes of higher engine capacity from India. However, much will depend of the prices of Indian bikes to lure the buyers.
Many consumers have set their eyes on the bright prospects of running high engine capacity Indian made bikes hopefully from next year as the government looks firm to phase out negative list of items between the two countries by December 2012 thus paving way for more entry of Indian goods.
It is not clear what government has planned about the future of our local bike industry which has been showing tremendous growth after the entry of low priced bikes introduced by Chinese bike assemblers.
How the local industry (Japanese and Chinese bike assemblers) will face the influx of Indian bikes as the government has clearly indicated of eliminating negative list by December 31, 2012.
It is a real fact that the auto vending industry of Pakistan during the last 15 years has come a long way in terms of acquiring technologies to manufacture a wide range of hi-tech products not only for domestic market but also catering for export market to some extent.
The localization levels achieved so far by the vending industry are over 90 per cent for motorcycles but surprisingly the price of Japanese CD70cc is Rs 66,000 as its producer continues to increase prices on rising cost of production and appreciating value of Yen against the Rupee.
However, local vendors claim that the high local content in case of motorcycles has made Pakistan, as one of the cheapest manufacturers of this mode of transport worldwide because the cost of parts produced by PAAPAM members is substantially lower than cost of imported parts.
The quality and reliability of each and every part that is localized is certified by the parent companies assembling their vehicle brands in Pakistan. With an average 35 per cent growth in the two to three wheeler sector during the last decade, there has been a mushroom growth of vendors producing components for this sector.
The motorcycle production has also touched the level of 1.7 million units in 2010-11 in which Honda bikes still hold a major market share. During 2010-11, motorcycle sales have recorded growths in excess of 25 per cent over the last year. The Chinese bike makers mainly focused on 70cc two wheelers which are invariably the Japanese version of the Honda CD70.
Some incentive in the shape of reimbursement of taxes for exports has started a trickle flow of motorcycle exports from Pakistan, but still requires more seriousness from the Ministry of Commerce to really achieve its true potential.
At the moment, Pakistan has 57 Two-Three Wheelers. Unrecorded exports of motorcycles are being done in large numbers to Afghanistan. Two-Three wheelers have also made inroads in African and South Asian Countries. However, accurate CBU Export figures are not available.
Giving a history of Indian bike and vendor industry and their achievements, Chairman PAAPAM Syed Nabeel Hashmi said India is the Asia’s third largest economy. Indian auto market is one of the fastest growing auto markets in the world, and India is home to 40 million vehicles. A total of 9.4 million vehicles were sold in India in FY 2010 (a growth of 27 per cent over the previous year). Motorcycles accounted for 78 per cent of the total two wheelers sold. India produced 8,418,626 two wheelers in 2009-2010 as compared to 8,026,681 units in 2008-2009.
He said the Indian industry, over the years, developed the capability of manufacturing all components required to manufacture vehicles, which is evident from the high levels of Indigenization achieved in the vehicle industry as well as the components developed for the completely Indian made vehicles like the Tata Indica, Tata Indigo, Mahindra Scorpio, Bajaj Pulsar, TVS Victor and TVS star. There is a dire need that production of bikes in Pakistan must cross five million units per year from the current 1.7 million units.
Over the last few years, the Indian Auto Component Industry has created a robust capacity base and all of the world’s major manufacturers have set up their manufacturing units in the country. The quality of the components produced by the component industry in the country is certified by the fact that, out of the 498 ACMA members, 9 are Deming Prize winners, 4 are JIPM award winners and 1 is Japan Quality Medal winner.
The turnover of auto component sector has grown from a figure of $1.5 billion to $9.8 billion. Low labor costs, availability of skilled labor and high quality consciousness among Indian vendors have spurred the growth of auto component exports from India. In 2010-11 the overall auto parts exports touched $5 billion. Indian component industry has now reached a high degree of maturity in terms of quality and productivity and has also developed capabilities in the area of design and engineering, which are critical requirements for being a part of the global supply chain.
According to WTO, India’s average bound tariff rate was 48.6 percent, while its simple MFN average applied tariff for 2009 was 12.9 percent across all goods. Given this large disparity between bound and applied rates, exporters to India face tremendous uncertainty because India has considerable flexibility to change tariff rates at any time.
While India has bound all agricultural tariff lines in the WTO, over 30 percent of India’s non-agri tariffs remain unbound, i.e. there is no WTO ceiling on the rate. India maintains very high tariff peaks on a number of goods including automobiles and motorcycles (60 per cent for new products, 100 per cent for used products). Some ad valorem equivalent rates exceed 300 percent.
PAAPAM chief said Pakistan Government, MOC and FBR need to do a lot of homework and understand what its strength and weaknesses are with specific focus on engineering sector.
Pakistan is still in the process of developing standards for its products having export potential. We should ensure on a reciprocal basis reorganization of tests and accreditation of testing laboratories with India. We are still unaware as to how many testing laboratories are accredited and acceptable to SAARC member states.
Nabeel Hashmi said the commerce ministry is the prime government organ that is supposed to ensure that Pakistan’s industrial base does not suffer due to the proposed MFN status to India. The commerce ministry must take cognizance of ground realities of each specific industrial sector of Pakistan and negotiate such policies which offer increased trade opportunities to Pakistani companies
There is a need for initiating a detailed study on the impact of opening doors to India with a focus on Auto sector. The study must look into the TBT’s and NTB’s restricting export of Pakistani Auto products.
He said the State Bank should enhance SME assets value to Rs 400 million for Engineering Auto Industry to avail SME preferential mark up regimes. Clarification on FDI investments of Indian companies in Pakistan and vice versa by Pakistan Businessmen needed and reduce mark up rates and banking spread to create a more competitive environment.
Chairman Association of Pakistan Motorcycle Assemblers (APMA) Mohammad Sabir Shaikh looks highly worried over the fate of 25 year old model local assemblers of Pakistan when full-fledged trade with India will underway from January 2013.
India usually produces more than 50 high range models but in contrast the CD-70 sale in Pakistan is 1.5 million while the share of 100-150cc is estimated 200,000 units a year. Despite producing high engine power bikes the price of India produced bike is almost similar to Chinese made bikes.
Before further liberalizing trade with India, the government should remove the bottlenecks being faced by the Chinese bike makers. For example, he said that the makers of Honda and Suzuki bikes are enjoying concessionary duty relief of zero to 20 per cent while Chinese bike makers are forced to pay 15 to 65 per cent customs duty. The government has yet to remove the dual taxation system for the bike industry.
Currently, the officials of Sales Tax and Customs are harassing the bike makers by making cases which indicates that some officials force the assemblers to evade taxes and duties and then other officials come to grab the industry people in the name of recovery drive.
Sabir said that Customs Department PRAL takes two to three months to clear completely knocked down (CKD kits) as per list passed by the Engineering Development Board (EBD) for bike assemblers but in contrary, the CKS for makers of Honda and Suzuki are cleared in 24 hours. Is this is a fraud or contradiction, he questioned.
Motorcycle assemblers pay their sales tax returns every month through computerized network and PRAL also holds computerized record of every CKD kits imports. But assemblers are frequently asked to present their records, he said.
He said there is a higher valuation advice imposed on imports of parts and accessories. We pay customs duty as per whole weight on clearance of parts at the ports but at some dry ports collect half duty by assessing half weight.
Japanese bike makers were provided export refund for shipping bikes to Afghanistan but small assemblers, despite sending their bikes to Afghanistan for the last three years, are not getting export refund, APMA chief said.
APMA chief said the government has to remove these problems being faced by the small bike assemblers but it seems that some government departments are looking forward to destroy the low cost bike makers by their controversial and biased policies just to favor Japanese bike assemblers so that influx of Indian bikes could play havoc with small bike makers….
This exclusive article is published in monthly AutoMark magazine's March-2012 edition, www.automark.pk