Even though the government hiked the import duty on luxury vehicles from 60% to 75%, commerce ministry officials said that the proposal of slashing import duty on luxury vehicles from the European Union to 30% as part of the India-EU free trade agreement (FTA) was still on the cards and was likely to be firmed up in the next round of meeting with the EU officials in April.
However, the news of the increase in the import duty of luxury vehicles was an unexpected bonanza for the automobile industry body since Society of Indian Automobile Manufacturers (Siam) had vociferously opposed any reduction in import duty of luxury vehicles under the proposed FTA saying it would be harmful for the local industry.
Clearing the air of uncertainty which arose after the Budget, a senior commerce ministry official told FE, ?The finance ministry?s move is completely divorced from from our efforts and must be seen independently. We are still on track and are preparing for the next round of negotiations due in April first week?.
Meanwhile in the India-EU FTA story so far, while India was prepared to cut the 60% duty on the import of luxury vehicles by half, small Indian cars which attract a duty of 6.5% import duty in Europe were supposed to get a duty free access to the 27 member EU block.
In fact, officials privy to the FTA say the increase in the import duty would give India an upper hand in bargaining over the terms of trade with EU. For instance, according to sources, the European side has been lobbying hard for a zero duty on the import of luxury cars which India has flatly refused to. So an increase in the import duty is only going to tilt the balance in favour of the Indian side which can then argue for giving even more ground by slashing the duty down by 60% from the earlier figure of 40%.
The proposed India-EU FTA which is expected to be thrashed out by the year end attempts to double trade volume between the two giants to $200 billion. Apart from European car makers such as Volkswagen, Mercedes-Benz, Skoda, Peugeot and Audi which stand to gain directly from the FTA, other car makers such as Honda, General Motors, Ford and Toyota would also benefit by shipping larger vehicles to India from their European plants when the new duty regime of 30% falls in place. While on the Indian side car manufacturers such Maruti Suzuki and Hyundai would be among the beneficiaries from the duty free access to European market.
