India prepares biggest auto market opening yet: up to 40% customs duties on cars imported from EU
India plans to drastically cut customs duties on cars imported from the European Union to 40 percent, from levels of as high as 110 percent, sources told Reuters. The measure would represent the widest opening of the Indian car market so far, in the context in which the two sides are approaching a free trade agreement, which could be announced as early as Tuesday, reports Reuters.
The government led by Prime Minister Narendra Modi has agreed to immediately reduce taxes on a limited number of cars from the 27 EU member states with an import price of more than 15,000 euros ($17,739), two sources familiar with the negotiations told Reuters.
The tax level will be further reduced over time to 10%, the sources added, making it easier for European carmakers such as Volkswagen, Mercedes-Benz and BMW to enter the Indian market.
The sources requested anonymity, as the negotiations are confidential and could undergo last-minute changes. India's commerce ministry and the European Commission declined to comment.
The agreement has already been dubbed the “mother of all agreements”.
India and the European Union are to announce on Tuesday the end of the long negotiations for the free trade agreement, after which the two sides will finalize the details and ratify the document, already dubbed the “mother of all agreements”.
The deal could expand bilateral trade and boost India's exports of products such as textiles and jewellery, which have been hit by 50 percent tariffs imposed by the United States since late August.
India is the world's third-largest auto market by sales, after the United States and China, but the domestic auto industry has been among the most protected. New Delhi currently imposes tariffs of 70 percent and 110 percent on imported automobiles, levels frequently criticized by industry executives, including Tesla chief Elon Musk.
According to one of the sources, New Delhi has proposed to immediately cut import duties to 40% on around 200,000 combustion engine cars per year, the most aggressive move yet to open up the sector. The quota could be changed at the last moment, the source said.
Battery electric vehicles will be excluded from import tax breaks for the first five years to protect investments by local manufacturers such as Mahindra & Mahindra and Tata Motors in a nascent sector, the two sources said. After this period, electric vehicles will also benefit from similar tax reductions.
The market is currently dominated by Suzuki and local manufacturers
The cut in import duties would be a boost for European automakers such as Volkswagen, Renault and Stellantis, but also for premium brands Mercedes-Benz and BMW, which already make cars in India but have struggled to significantly expand their presence, partly due to high tariffs.
The lower taxes will allow automakers to sell imported vehicles at more affordable prices and test the market with a wider portfolio of models before committing to expanding local production, one of the sources said.
Currently, European manufacturers hold less than 4% of the Indian car market, which has about 4.4 million units sold annually and is dominated by Japan's Suzuki, along with domestic brands Mahindra and Tata, which together control about two-thirds of the market.
With India's car market expected to reach 6 million units per year by 2030, some companies are already preparing new investments.
Renault is returning to the Indian market with a new strategy, looking for growth outside Europe, where Chinese manufacturers are rapidly gaining ground, and the Volkswagen Group is finalizing its next stage of investment in India through the Skoda brand.
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