Germany unhappy with India's customs hike; urges to jointly set example of a modern free trade agreement

Irked by the hike in customs duty of automobile parts, Germany has questioned India's decision on the same. German ambassador, Martin Ney, said that this proposal could backfire especially as India is looking at exports to boost its economic growth. Ney also mentioned that India should rather draw up a free trade agreement with the European Union, than take protective measures.

As mentioned in a report by The Economic Times, Ney said that Germany has invested USD 9.7 billion in India since 2000, creating four lakh jobs directly and indirectly, in turn also helping in 'Make in India'. Ney who spoke at a press conference during an auto components exhibition said that he does not understand the hike in customs duty on auto components. "If India wants its GDP to grow at 8% and wants to increase exports, then it needs to allow easy import too," he added.

Ney also spoke about PM Modi's speech at the World Economic Forum 2018 in Davos, where the prime minister invited global businesses to invest in India.  "If you want wealth with wellness, work in India; if you want peace with prosperity, live in India; if you want health with whole life, be in India. And our promise is that your agenda will be part of our destiny. We both will have a shared and successful future," he had said.

Invoking the speech, Ney said that we need free trade as the world is one place now. Leading trading partners like EU and India should "jointly set standards" and give an example of modern free trade agreement.

The ambassador's reaction comes after FM Arun Jaitley proposed an increase in customs duty on certain auto parts like gearboxes and engines from 5-10 per cent to 15 per cent. It means that it will get costlier for German auto giants like Mercedes-Benz, BMW and Audi to make - or rather, assemble - cars in India. These companies import completely knocked down (CKD) kits - also subject to the custom hike - to India, where it gets assembled in local facilities; it is done to avoid high import tax on fully built vehicles.

Although this proposal was made to encourage local manufacturing, it will hit German auto companies nevertheless, and there could be retaliatory action.