Even as the domestic auto industry remains divided over the proposed free-trade agreement with south-east Asian countries, the Prime Minister's Office advised the industry to prepare itself before the new trade regime comes into effect.

S Narayan, the economic advisor to the prime minister, told the captains of the auto industry at the annual convention of the Society of Indian Automobile Manufacturers here today that "tariffs will come down and the FTA is likely to come into force in the next 5-7 years. The Indian automobile industry has come a long way, but it is the time to take note of challenges ahead."

He said the government would support the domestic industry by reducing excise duty. "I am a proponent of excise duty reduction to a single stable rate," he said.

The conclave discussed the fact that India has ably demonstrated to the world its manufacturing capabilities in the case of motorcycles, for instance, and now was the time to replicate the same in the case of passenger cars and automotive components.

The passenger car industry is, however, divided over the proposed FTA with Thailand.

Industry sources said Maruti, Hyundai and Tata Motors, the top three car makers, have been opposing the inclusion of certain auto components on the early harvest scheme list, since companies with manufacturing bases in Thailand will get the opportunity to source components at duties as low as 5 per cent instead of the current 25 per cent, bringing down their costs drastically.

Local component manufacturers also expressed their reservations on the proposal.

BVR Subbu, president Hyundai Motor India, said the agreement will be a complete disaster to the domestic industry. It will only benefit companies which have not made substantial investments here, while those which have made huge investments will lose advantage over the others.

But companies such as DaimlerChrysler, Ford, General Motors, and Toyota said they would seek opportunities arising out of such agreements to bring in new technologies into the country.

"If it means bringing down costs, what's wrong in it. It is ultimately the consumer which matters. It in no way means that our domestic manufacturing will be affected," a Toyota executive said.

Earlier, speaking on the occasion, N K Singh, a planning commission member, said, though the macroeconomic fundamentals were strong, the automobile sector should not be complacent and take note of issues which throw spanners in the wheels of the industry.