India Announces Major Tariff Reduction on EU Car Imports in Landmark Trade Deal
In a significant move to open up its automotive market, India has agreed to slash import duties on cars from the European Union from the current high of 110% down to 40%. This decision comes as part of a comprehensive free trade pact between India and the EU, which is expected to be finalized imminently.
Immediate Reduction with Gradual Phase-Down
According to sources familiar with the negotiations, Prime Minister Narendra Modi's government has committed to an immediate tariff cut for a limited number of imported vehicles. Specifically, cars with an import price exceeding 15,000 euros (approximately $17,739) from the 27-nation EU bloc will benefit from this reduction. Over time, these tariffs are planned to be further lowered to 10%, marking a substantial easing of market access for European automakers.
The agreement includes an annual quota of around 200,000 combustion-engine cars that will qualify for the reduced 40% duty. However, sources caution that this quota could be subject to last-minute adjustments as the deal is finalized.
Protection for Domestic Electric Vehicle Sector
In a strategic move to safeguard India's growing electric vehicle industry, battery electric vehicles (EVs) will be excluded from the import duty reductions for the first five years. This measure aims to protect investments by domestic manufacturers like Mahindra & Mahindra and Tata Motors, who are actively developing India's EV ecosystem. After this five-year period, EVs are expected to receive similar duty cuts as their combustion-engine counterparts.
Impact on European Automakers and Market Dynamics
This tariff reduction represents a major opportunity for European car manufacturers, including Volkswagen, Mercedes-Benz, BMW, Renault, and Stellantis. While some of these companies already manufacture locally in India, high import duties have historically limited their market expansion. With lower taxes, these automakers will be able to:
- Sell imported vehicles at more competitive prices
- Test the Indian market with a broader range of models
- Make more informed decisions about future local manufacturing investments
Currently, European carmakers hold less than 4% of India's 4.4-million unit annual car market, which is dominated by Japan's Suzuki Motor and domestic brands Mahindra and Tata that together control two-thirds of sales.
Broader Economic Implications
The India-EU free trade pact, already being called "the mother of all deals," is expected to significantly expand bilateral trade. For India, the agreement could boost exports of goods such as textiles and jewellery, which have faced challenges from recent U.S. tariff increases.
India represents the world's third-largest car market by sales, trailing only the United States and China. However, the country's automotive sector has long been one of the most protected globally, with import duties of 70% to 110% that have drawn criticism from international executives including Tesla's Elon Musk.
With the Indian automotive market projected to grow to 6 million units annually by 2030, several companies are already planning new investments. Renault is implementing a fresh strategy for its India comeback, while Volkswagen Group is finalizing additional investment plans through its Skoda brand.
The commerce ministries of both India and the European Commission have declined to comment on the ongoing negotiations, citing the confidential nature of the talks and the possibility of last-minute changes before the expected announcement.
