Maruti to Sri Lankan govt: Ease 60% mandatory export rule

Nov 21, 2013, 07.35 PM IST

As per the current rules in Sri Lanka, any auto company wanting to setup a manufacturing facility there, nearly 60 percent of whatever they produce has to be exported out of Sri Lanka which is an effort by the government to position Sri Lanka as an export hub. However, this defeats the very purpose why Maruti Suzuki wants to go to Sri Lanka.

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Maruti to Sri Lankan govt: Ease 60% mandatory export rule

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Country's largest carmaker Maruti Suzuki has asked the government of Sri Lanka to relax the mandatory export clause for manufacturing, reports CNBC-TV18's Ronojoy Banerjee.

According to domestic rules in the island nation any automaker setting up a manufacturing plant has to export a majority 60 percent of the cars produced this in an effort to position Sri Lanka as an export destination. This however, defeats the very purpose for which Maruti is setting up an assembly plant. "We feel this rule is highly prohibitive. Have asked the government to take a larger view of the overall benefits that would be accruing to the country due to our investments," a senior Maruti Suzuki official told CNBC-TV18.

Sources say Maruti has asked its top suppliers to invest in Sri Lanka as the company seeks to fulfill another key domestic requirement. As per rules, over one-third of the component requirements should be met locally. "We had taken around half a dozen of our suppliers to meet with officials of the Sri Lankan government. As a company we are committed to making sizeable investments along with our vendors," another official involved in the direct negotiations with the Lankan government said.

The source, declining to quantify the investments that would be made for this manufacturing facility, said that by relaxing one condition Sri Lankan government stands to benefit.

The move by Maruti to set up an assembly plant in Sri Lanka stems from the move by the government of the island nation earlier this year to drastically increase the import duty on finished cars entering the country. For instance, duties on utility vehicles have been increased to 173 percent from 100 percent.

Similarly, the duty burden on small cars (with an engine capacity of less than 1,000cc) has shot up to 200 percent from 120 percent earlier. This has hurt a slew of domestic carmakers namely Tata Motors and Maruti Suzuki apart from two-wheeler major Bajaj Auto .

Sri Lanka has traditionally been Maruti's top export market. Since the announcement of hike in duties Maruti's exports to Sri Lanka has declined 90 percent. The company expects to end FY14 with exports of around 1500 units as compared to 15,000 units in the previous fiscal.

Minuman Bersoda