The India-UK Free Trade Agreement (FTA) is a welcome move on many fronts, and automotive enthusiasts have been especially eager owing to the massive price cuts the vehicles will see. Cars made by Bentley, Rolls-Royce, McLaren, and Mini will see a 50 percent reduction in price. While on paper this seems perfect, there are a number of criteria, and it’s not this simple. Let us explain.
India-UK FTA: How will it work for ICEs?
According to the agreement signed, imported ICE vehicles will see a 30–50% reduction in import taxes in the first year of implementation, limited to a quota of 20,000 vehicles. Over time, in 15 years, the import taxes will see a complete reduction to 10 percent, again, limited to 15,000 units.
For vehicles that don’t fall under the quota, the import taxes will see a reduction of 60-95% in the first year, and from the tenth year onwards, it will see a 45-50% reduction.
This reduction, ranging from 16–56% over a period up to 5 years on ICE vehicles up to 2.5-litre diesel and 3.0-litre petrol engines, and 80-100% for 5 years on ICE vehicles more than 22.5-litre diesel and 3.0-litre petrol engines, will make luxury vehicles more affordable.
Saurabh Agarwal, Partner and Automotive Tax Leader, EY India says, “To prevent sudden surges in imports and safeguard the Indian auto industry, import quotas have been implemented. These quotas will restrict the number of vehicles eligible for the reduced tariff, striking a balance between market liberalisation and industry protection. On out-of-quota vehicles, the duty will reduce to 50% over a period of 10 years.”
India-UK FTA: How about EVs then?
Under the agreement, EVS, hybrids, and hydrogen vehicles that cost under £40,000 CIF (cost, insurance and freight value) have been eliminated completely. For vehicles that cost between £40,000 and £80,000, importa taxes will see a 50 percent reduction, but limited to a quota of 400 units, and from the 15th year, they will see just 10 percent tax with a quota of 2,000 units.
For vehicles costing more than £80,000, import duties will be set at 40 percent with a limit of 4,000 units, and from the 15th year, these will be reduced to 10 percent tax with a limit of 20,000 units. This is primarily done to safeguard domestic automakers and the industry here.
The industry has welcomed the move and Pratik Shah, Partner, EY-Parthenon, says, “The India-UK Free Trade Agreement is a strategic milestone for the automotive sector reducing import tariffs on UK vehicles from over 100% to 10% within quota limits, while ensuring 99% duty-free access for Indian exports.”
He added, “With a growing base of auto component & vehicle exports from India, the agreement sets the stage for stronger bilateral trade, deeper supply chain integration, increased jobs and investment flows. While there are few concerns around backdoor Chinese imports & Uks CBAM levies, long-term success hinges on balancing collaboration with protecting local innovation.”
Ross Maxwell, Global Strategy Lead at VT Markets, says, “The Free Trade Agreement signed between India and the UK presents a great opportunity not just for the two countries at a time when we are seeing global trade realignment, but also for global investors.”
For India, it expands its export base beyond its traditional partners. The reduced tariffs will allow its textile and pharma exporters to be much more competitive in the UK market. Whilst for the UK it deepens its ties with one of the fastest growing economies giving its financial services and educational services access to India’s rising middle class.”
“With the agreement expected to boost bilateral trade by more than 15% annually it will increase investor confidence and provide more stable and predictable trade conditions allowing for an increase in foreign direct investment. Whilst there are the obvious long-term economic benefits, geopolitically it is also a clear signal of India’s growth thesis and for the UK to show its resilience and ability to forge free trade agreements independently, post Brexit.”
