A Daimler regional manager criticized trade policies of Indian Prime Minister Narendra Modi in an unusually sharp manner, telling local media that planned increases on tariffs for auto components are killing foreign carmakers and stifling the country’s ambitious plans for growth. “Whenever we see a bit of growth, we get taxed more,” said Roland Folger, who manages Indian production for the maker of Mercedes-Bnez vehicles. “The costs for taxes and logistics are finishing off exports.”
The tariff increases announced at the beginning of February are designed to stop the flow of imports from China. But by reversing India’s path to trade liberalization and reverting to the knee-jerk protectionism of the past, Mr. Modi is undermining his own plan to grow the economy fast enough to create jobs for the country’s rapidly growing population.
Daimler is coming to see India as the “land of thrown-away chances,” Mr. Folger told Indian journalists. His remarks went viral on social media and were viewed in German diplomatic circles as an unusually blunt critique of India’s economic policies.
“If only they would leave us in peace.”
Raising the tariff wall is supposed to encourage foreign producers to buy more components in India, but Mr. Folger contended this would backfire. Luxury carmakers like Daimler, Audi and BMW assemble too few cars in India to make local procurement economical, so they rely on imported parts. The Indian market for premium cars is a fraction of China’s. “For every luxury car sold in India, 53 are sold in China,” the Daimler manager said.
The tariff increase is not the first policy from Mr. Modi to crimp growth. His decision last year to limit the use of cash in illegal transactions by banning high-denomination notes, along with the introduction of a national value-added tax, helped send the economy into a relative slump. On top of everything else, foreign investors are pulling capital out of India. The rupee fell 2.2 percent against the US dollar in February, making it one of the biggest losers among Asian currencies.
There is growing concern about the banking sector due to a high proportion of bad loans, while a $2 billion scam at Punjab National Bank disclosed last month raised alarms about risk controls at the banks. The government’s growing deficit is another issue, with some analysts saying Mr. Modi is juicing economic growth with increases in state spending.
The Daimler manager, in short, is not alone in finding fault with India’s current course. The government was bragging on Thursday that it had won back the title of fastest-growing major economy with a 7.2-percent annual rate in the fourth quarter of 2017, once again pulling ahead of China. All that won’t do Daimler much good, Mr. Folger suggested, unless the government stops putting obstacles in its path. “The luxury segment could grow much faster,” he said, “if only they would leave us in peace.”
Mathias Peer is a Handelsblatt correspondent based in Bangkok. Darrell Delamaide is an editor for Handelsblatt Global in Washington, DC. To contact the authors:firstname.lastname@example.org and email@example.com.