The Federation of Indian Chambers of Commerce and Industry (FICCI) has suggested increased government incentives to both domestic auto industry and foreign investments in the sector.

FICCI also called for an appropriate tariff policy in the country to safeguard the interests of the domestic auto industry against a surge in imports and to develop adequate indigenous manufacturing base.

The auto industry in several developing countries hasw been growing fast with government support, the industry body pointed out in a study, 'Automotive Policies And Incentives in Developing Countries.'

The study comes close on the heels of huge quarterly losses registered by major domestic auto firms Tata Motors and Mahindra and Mahindra.

Tata Motors reported a quarterly loss of Rs263 crore in the October-December 2008 period due to foreign exchange loss and a massive decline in sales. The company had a profit of Rs499 crore in the same quarter of the previous financial year.

Demand slowdown in the automobile sector has hit Tata Motors' sales of trucks, Indica cars, and Safari sport-utility vehicles very badly in India and overseas, with volumes dipping 32 per cent to 98,760 vehicles in Q3.

Tata Motors said the third-quarter result includes a foreign exchange loss of Rs226.5 crore due to revaluation of foreign currency borrowings. In the year-ago quarter, the company had a foreign exchange gain of Rs27.5 crore.
 
Mahindra and Mahindra`s net profit plummeted 99 per cent. Mahindra said its stand-alone net profit dipped over 99 percent to Rs1.20 crore ($242,760) for the quarter ended 31 December, from Rs405 crore in the same period the previous year.

India, however,  remained a small player in the world automotive market with a share of around 3 per cent in the production of passenger cars and commercial vehicles (compared to China's 12 per cent) and a share of 0.6 per cent in world automotive exports, the study noted.

Developing countries like Thailand, Brazil, South Africa, China and Malaysia were providing liberal assistance and incentives to their automobile sector to attract foreign investment and to develop domestic manufacturing capacity, the study said.

At present, India is the eighth largest manufacturer of commercial vehicles and ninth largest manufacturer of cars, while China is the second largest manufacturer of cars and commercial vehicles.

India continues to be a net importer of automotive items with a trade deficit of over $4 billion in 2005-06 and 2006-07. The deficit narrowed slightly in  2007-08.