The India-EU Free Trade Agreement (FTA) is officially signed, and it brings good news for India’s auto enthusiasts. As part of the bilateral ties, India will be slashing import duties on European cars to 10% from as high as 110%.
Before we dive in, here are all the major changes in a nutshell:
– India has announced tariff reductions to 30-35% on cars priced above Rs 25 lakh (about €27,000). They will be phased down to 10% over five years. The final terms apply to vehicles with an import price exceeding €15,000 ($17,740), with the tax cuts limited to a capped number of units to protect domestic manufacturers.
– EV imports from Europe will see quotas delayed until the fifth year post-ratification, providing a “calibrated approach” to safeguard India’s burgeoning electric vehicle sector, which is projected to hit 10 million units annually by 2030.
– As far as CKD vehicles are concerned, India will allow EU carmakers to export up to 75,000 units a year, priced above €15,000 (about Rs 16.3 lakh). The tariffs on these CKD imports will be cut from 16.5% to 8.25%. This shall make more accessible luxury vehicles a lot more affordable than before.
– Duties on car parts will also be reduced to zero from the current rates over a period of 5-10 years.
India-EU FTA: The market for European imports finds favour
Based on the agreement between India and the EU, India will gradually allow up to 250,000 ‘made in Europe’ vehicles to be sold in India at preferential duty rates. The quote, which is far more than the 37,000-unit limit for the UK, will see tariffs falling from 110% to as low as 10%. The import tax on imported car parts will also be abolished after 5 to 10 years.
– European vehicles with internal combustion engines will see import duties fall to 10% within five years.
– As far as electric vehicles are concerned, India is still shielding the local manufacturers. The FTA grants 90,000 electric vehicles to enjoy import taxes slashed to 10% by the 10th year of the deal.
– Initially, the in-quota tariffs will be set to 30% for most ICE vehicles, says a Bloomberg report. Once the quote is reached, the rate of tax cuts will go down to 35% over 10 years.
How will the FTA benefit EU carmakers
The FTA comes at a time when EU carmakers grapple with US tariffs and price wars in China. With priorities now shifting to an emerging market like India, these brands can now pin their hopes for growth, considering the booming Indian auto sector. Germany’s export-driven economy stands to benefit significantly, but analysts warn that the limited quota and phased implementation may hold any immediate gains.
The EU brands will also set to gain an advantage over luxury cars from Asian brands, which have been finding favour with the highly aspirational Indian auto buyer. Brands like Lexus, Toyota, Hyundai, BYD, and others have earned a lot of favour with the wealthy Indian automobile enthusiasts.
How the FTA benefits Indian carmakers
As part of the deal, Europe will offer greater access to Indian carmakers, thus helping names like Tata Motors and Mahindra expand their local production to the more sophisticated European market. A Reuters report states that the import concessions will cover up to 625,000 vehicles, which will make it more appealing to European buyers. Tata and Mahindra already export their popular mass market vehicles to several foreign markets and have seen decent success. India’s Maruti Suzuki could set to gain on its export models in the coming years.
Export tariffs on Indian EVs within the quotas will eventually be removed over a period of 10 years, with low-cost compact EVs overseeing a phased reduction in the export duties over 14 years. Indian automakers will enjoy the benefits in a quota of 27,500 units in the fifth year and will eventually rise to 125,000 units.
