In this blog post, Pramit Bhattacharya, Student, Damodaram Sanjivayya National Law University writes about how the Automobile Sector is regulated in India, and what other rules and regulation have an effect on the Automotive Sector.
India’s automobile industry is one of the biggest in the world. The industry contributes around 7 % to the GDP of the nation. The annual production of the automobile sector is almost 20 million vehicles, across all segments.[1] The growth of the automobile industry has been on a constant rise after 1991 when the government started allowing 100% FDI in the automobile sector. The Ministry of Shipping, Road Transport and Highways (MoSRT&H) is the primary agency for formulating, implementing and regulating the automotive laws in India.
There are two principle instruments that can be considered as the stepping stones for governing the automotive sector in the country. These two are-
- The Motor Vehicles Act, 1988 and,
- The Central Motor Vehicles Rules, 1989
The function of the MVA is to govern the safety standards and the emission levels. The CMVR explains the MVA in detail.
Two committees have been constituted by the Ministry to aid and advise it in relation to formulating the regulations for emissions and safety standards. These two committees are the Central Motor Vehicles Rules- Technical Standing Committee (CMVR-TSC) and the Standing Committee on the Implementation of Emission Legislations (SCOE).
[CMVR-TSC is assisted by one more committee known as the Automotive Industry Standard Committee]- Central Motor Vehicle Rules- Technical Standing Committee
This committee was formulated to act as a standard committee and receive recommendation from other committees like the Bureau of Indian Standards (BIS) and the Automotive Industry Standing Committee. The work of the CMVR-TSS is to act upon the recommendations of the other committees and form, finalize and approve safety recommendations. The Joint Secretary of the MoSRT&H acts as the Chairman of the CMVR-TSC. This committee also comprises of members form the BIS, Automotive Components Manufacturers Association of India (ACMA) and Ministry of Heavy Enterprises and Public Enterprises.
Major functions[2] of the CMVR-TSC are-
- To provide interpretation of the CMVR and technical clarification to the Ministry, when and so the Ministry desires.
- The Standing Committee also recommends the governments about the International Standards which can be used instead of those provided under the CMRV. The TSC also is the approving body for use of parts/components/assemblies which comply with the said standards.
- The function of TSC includes making any recommendation, apart from giving interpretation and technical clarification, which has any bearing upon the CMRV.
- The TSC sanctions the new safety standards of various components that are introduced and are to be implemented under the CMVR.
- The TSC also makes recommendations about the lead time period for implementation of any measure under the CMRV.
- The TSC can also suggest any amendments in the CMRV, which they feel like would be apt keeping in mind the changing international norms and also the dynamic technological advancements, which have an impact upon CMRV
- Standing Committee on Implementation of Emission Legislation (SCOE)
This is another Committee, which was set up by the Ministry. The Main function of this Committee is to regulate emission norms. This Committee decides what should be the emission norms in the future and also recommends norms for the in-use vehicles to the Ministry. SCOE finalizes the strategy for implementation of norms and also conducts the test of the emission norms. This Committee also advises the Ministry on any issue relating to emissions and also Noise Regulations.[3]
- Automotive Industry Standard Committee (AISC)
Following are the major function of this Committee-
- This Committee prepares new standards for automotive items relating to safety
- This committee also reviews and recommends any amendment is the existing standards. As already stated above, this Committee aids the CMRV-TSC.
- AISC also recommends adoption of any such standard they fell right to the CMRV=TSC, based on which the CMRV-TSC form
- AISC also recommends the commission of tests of the standards at various stages.
- The AISC also provides funds to the CMRV-TSC to implement any such standards that have been finalized
- Advises CMRV-TSC on any other matter which has been recommended to it.
Let us now give a glance to the other regulatory bodies in a very concise manner namely the Automotive Research Association of India and the Bureau of Indian Standards.
- Automotive Research Association of India- ARAI is a cooperative research association, and this has been established by the Ministry of Heavy Industries and Public Enterprises. The objective of this Association to do research and development and testing based on which al norms are created. The Director of ARAI also acts as the Chairman of AISC. But again, the Association is constituted under the CMRV-TSC.
- Bureau of Indian Standards- the Standards which are formulated by the AISC are converted into uniform Indian Standards by the BIS. The BIS form their own standards also which are then submitted to the CMVR-TSC for approval who then sends them to the Ministry for finalization. Standards formulated by both AISC and BIS are taken into consideration.
Under Rule 126 of the CMRV, other various testing agencies have been set up to test and certify vehicles based on emission norms and safety standards which are specified by the Ministry. These agencies are Central Farm Machinery Testing and Training Institute, Indian Institute of Petroleum, Central Institute of Road Transport and International Centre for Automotive Technology.
Laws and regulations affecting the Automotive Industry
- Transfer Pricing Regulations– the Income Tax Act has provisions which make provisions for taxation of income arising from transactions between associated enterprises. Transfer Pricing Regulations lay down that any income arising from such an “international transaction” shall be computed having regard to the “arm’s length price”. The regulation also lays down the method to calculate the tax. Since it is already discussed above that the Automotive Sector in India is one of the largest in the world and producing almost 20 million units a year, the industry is often subjected to rigorous transfer pricing scrutiny, which may lead to slower growth in the Automotive Sector.
- Research and Development Cess Act, 1986– in the previous section, it was discussed about Automotive Research Association of India. Their main work is to do research and development work for the Automotive Sector. Here the Research and Development Cess Act comes into play. The act states that all payment made towards import of technology will attract a cess of 5 %
- Customs Duty– Customs duty is charged when any product is imported to India. Automobile manufacturers based in foreign countries who want to avail lower custom duties and pass on the benefits to the customers can import Completely Knocked Down Kits (CKD) Kits which are charged concessional Customs duty at 10%.[4] At present, if a completely built unit of any vehicle is imported it attracts a duty of 105%. That is more than twice of the actual cost of the vehicle itself. While on the other hand a Semi Knock Down Kit attracts an import duty of only 62% as compared to it.[5]
For the purpose of this exemption, a CKD kit should exclude a pre-assembled engine or transmission or gearbox or a chassis.[6] This provision was first introduced in the 2012 budget. Also, excise duty which is charged on the import of diesel engines is more than that of charged on the petrol engines. The 2012 budget also introduced the provision or concession. Certain concessions were provided for the import of specific parts of hybrid vehicles. The Custom duties on these parts have been reduced to 6% from 10%.[7]
- Sales Tax/ Value Added Tax– In this case also the Central Sales Tax is higher for diesel vehicles than petrol vehicles.
- The automobile sector also attracts the Cenvat.
The Indian Automobile Sector is sure to start a great phase of growth. Rather a rise in the sector has already started. The production of 20 million units is not a small thing. The option of alternative fuel vehicle hasn’t been explored efficiently yet. If and when these types of vehicles will enter the market, new laws will have to be instituted to regulate them.
As of now, the norms and standards which apply to the Automotive Sector are at par with the International Standards, to the extent that the sector has been growing at a sustained level. But still there is a need to consolidate the different acts into one primary act. A chief legislation should be brought into force that would govern all the other committees. The biggest drawback of the regulation system in the current period is that although different committees have been set up under the ministry, yet those committees are being controlled by ministers from the Cabinet itself. If a chief autonomous body, is constituted, it’ll help in making the process of regulating the industry streamlined, instead of having various committees.
[1] http://www.ibef.org/industry/india-automobiles.aspx
[2] http://www.siamindia.com/technical-regulation.aspx?mpgid=31&pgidtrail=32
[3] Ibid.
[4] New rules on CKD imports may hit carmakers that import engines, The Hindu Business Line, http://www.thehindubusinessline.com/industry-and-economy/economy/article1501157.ece
[5] http://exim.indiamart.com/customs-duty/ch87.html
[6] Customs Notification 1 of 2011, http://www.cbec.gov.in/ub1112/cs-explanatory.pdf
[7] Budget 2012: Auto industry welcomes incentives to promote hybrid vehicles, The Economic Times (March 16, 2012), http://articles.economictimes.indiatimes.com/2012-03-16/news/31201196_1_hybrid-vehicles-lithium-ion-electric-vehicle
