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Automobiles: competition to benefit users

March 22, 2013

I READ with deep despair that parts’ localisation of two-wheelers has not benefited customers. Locally-manufactured car prices have also doubled since 2008 on the pretext of devaluation etc (March 17). Our auto sector has demonstrated strong aversion to competition.

Driven by rent-seeking behaviour, auto manufacturers have coerced policymakers into framing and perpetuating protectionist policies at the cost of customers and economy. Operating as a cartel, the industry has over time resorted to an engineered gap in demand and supply to fleece and exploit customers with exorbitant prices, poor quality and long delivery delays.

Their collusive behaviour at home, coupled with high duties on import of cars, has contributed to inefficiency as the auto sector remained oblivious to the importance of research and development. Moreover, coincidence of phasing out of two small cars by two competitors seems to have been driven more by collusion than by customer preferences.

A brief comparative analysis of our auto industry with that of India’s reveals our auto sector’s dismal state. The Indian auto industry too enjoyed protectionism but unlike ours it did not suffer from a sense of complacency nor did it stick to infant industry argument for rent seeking.

During the high entry barrier regime, the Indian auto industry focused on developing and preparing for competition. India removed quantitative restrictions on imports opening the way for FDI which gave a boost to indigenous car production as well as exports.

Today the Indian auto sector has achieved greater efficiency and innovation to offer quality cars and even the world’s cheapest car Nano. India’s auto sector with a turnover of $73 billion in 2011 contributed five per cent to the Indian GDP.

Moreover, India has also become an exporter of automobiles. In 2011-12, India exported over 2.9 million vehicles worth $6 billion, a fifth of which were passenger and commercial vehicles.

Despite protectionism, our auto sector’s contribution to the GDP is $3.6 billion only and exporting a car, to my knowledge, is still a pipe dream.

In its recent ‘Competition Assessment Report on the Automobile Industry of Pakistan’, the Competition Commission of Pakistan makes a rational recommendation of opening up of the domestic market to the import of new cars at reasonable tariffs and reducing protection of the local industry to allow foreign competition for the benefit of consumers. This will bring in new technology and offer a greater choice to the consumers.

M. SHAHID DAYO Islamabad