EU-India Trade Agreement: Luxury Vehicle Quotas and Duty Reductions Detailed
The recently concluded trade agreement between India and the European Union includes specific provisions for passenger vehicles that are expected to primarily benefit traditional European luxury car manufacturers. This development offers reassurance to domestic Indian automotive players, as the market access is specifically targeted at vehicles priced above Rs 25 lakh and comes with carefully structured numerical limits.
Quota Structure and Implementation Timeline
Under the terms of the agreement, India will establish an annual import quota for European Union vehicles. This quota will reach 1.6 lakh units for diesel and petrol vehicles and 90,000 units for electric vehicles when the agreement reaches full implementation. The tariff benefits will be phased in gradually over time.
For internal combustion engine vehicles, lower tariffs of either 30% or 35% (depending on vehicle cost) will become available starting from the first year of implementation. However, electric vehicles will not receive any tariff benefits until the fifth year of the agreement. By the tenth year, duties will be reduced to 10% for a maximum of 2.5 lakh vehicles.
The quota system will begin with one lakh vehicles once the treaty becomes effective, then increase to 2 lakh units in the tenth year, and finally reach 2.5 lakh units in the fourteenth year.
Impact on Local Assembly and Component Manufacturing
Significantly, the agreement also includes provisions for completely knocked down (CKD) kits for 75,000 internal combustion engine vehicles. The duty on these kits will be reduced by half from the current rate of 16.5%, a move that is anticipated to lower prices for luxury cars assembled within India.
Major European manufacturers such as BMW and Mercedes-Benz have indicated that over 90% of their vehicles currently sold in the Indian market are assembled locally. Industry experts note that these companies have been importing individual components rather than complete kits, with components attracting duties between 5-7%.
Targeted Benefits for Genuine European Manufacturers
Government officials have emphasized that the treaty provisions have been specifically designed to ensure that only authentic European car manufacturers can take advantage of the concessions. This addresses a significant concern among automotive industry representatives from both India and the European Union.
As a result, the primary beneficiaries of these trade concessions are expected to be established European brands including BMW, Mercedes-Benz, Audi, Skoda-Volkswagen, Stellantis (which encompasses brands such as Citroen, Fiat, and Jeep), Volvo, and Renault.
Strategic Import Approach and Market Testing
A senior government official explained the strategic thinking behind the agreement: "What auto companies have told us is that they will use the import route for testing the market for models that they intend to launch. We have designed the package in a way that there will be local assembly once the number of vehicles sold here goes up."
The official further clarified that the import quota will not exceed three lakh units at any point during the agreement's implementation. Overall, officials estimate that imported vehicles will constitute less than 2.5% of total vehicle sales in India.
Reciprocal Benefits for Indian Carmakers
In a reciprocal arrangement, the European Union will provide Indian car manufacturers with a quota that is 2.5 times larger than what India offers to the trading bloc. This translates to a quota of 6.25 lakh vehicles for Indian manufacturers exporting vehicles costing up to 50,000 euros to European markets.
Another official elaborated on the strategic objectives: "We want to capture the market and bring in supply chains. Auto part concession goes down to zero in the tenth year, so that we can bring in supply chains here and do value addition."
This comprehensive approach aims to balance market access for European luxury vehicles with opportunities for Indian manufacturers to expand their presence in European markets while encouraging greater localization of automotive supply chains within India.
