Sunday, March 11, 2007

Govt links Harley's entry to bank licences in US

ICICI Bank chief KV Kamath and State Bank of India chairman OP Bhatt's plans to expand their footprint in the United States could be linked to Harley Davidson's entry into India.

The US government seems more than keen to ensure that India lowers import duty for Harley Davidson besides allowing it to ply on Indian roads despite not complying with the Euro emission norms.

Sources negotiating with US said deep interest is due to Harley Davidson's association with US President George W Bush.

While India has made it clear that it was not in a position to allow Harley Davidson's import without complying with the Euro II emission norms, it has indicated its willingness to follow a system of tariff rate quotas (TRQs) that will mean lower customs duty for a certain number of bikes (say 1,000), beyond which the applicable customs duty will be levied.

Sources said US government officials, who again raised the issue with their Indian counterparts earlier this month, have indicated that Harley Davidson expects to sell around 10,000 bikes over the next 10 years.

By allowing for TRQs for Harley Davidson, the government may be getting into a knotty situation and will make it open to such demands from other automobile makers, who have been complaining of the high import duties in India in the "garb" of protecting domestic manufacturers. So far, India has confined the use of TRQs largely to FTAs when dealing with import of sensitive products.

But officials said India will give the method a try if the US government was willing to grant fresh branch licences to ICICI Bank, SBI and Bank of Baroda, whose proposals have been pending for several years and also fast-track new rules for export of Indian mangoes.

"Indian negotiators have made it clear that any progress on Harley Davidson's case has to be linked to the progress on banking licences. Since US is more than keen to get a favourable dispensation for the bike maker, India is simply trying to seize the chance to negotiate a better deal for its banks,"said a negotiator.

The US government has kept in abeyance applications from the three Indian banks saying that India needs to amend its Prevention of Money Laundering Act to provide that terrorism per se is an offence.

It has said that amendments were a pre-requisite for India to become a member of the elite Financial Action Task Force (FATF).

But India, which believes that US is trying to arm twist it into agreeing on the changes, has cited China's case and said that membership of the FATF was a political decision.

China, which hardly follows any of the prudential or money laundering norms, was recently accorded observer status in the FATF.

In a retaliatory move, the government wants RBI to stop issuing fresh branch licences to US banks. But with Harley Davidson betting big on India, Indian banks could just get a few more US branches.