By Srija Kumar
India agreed to reduce its customs tariffs applying to high-end European cars by a large margin as part of a major new free trade agreement with the European Union, a major shift in the traditionally protectionist policies of the government in New Delhi and a welcome one from the perspective of automobile manufacturers.
The agreement also includes a reduction in the import tax levied on premium European cars, from as high as 110% to 30%. This decision is likely to provide a significant boost to luxury vehicle makers such as BMW and Mercedes-Benz, who have claimed that high taxes have hindered the sale of fully imported cars in the country.
The agreement establishes a newer scale for customs duties levied on any vehicles based on their value. Vehicles valued above €50,000, along with those between €35,000 and €50,000, will be charged a 30 percent duty. Vehicles priced between €15,000 and €35,000 will attract a 35 percent duty. The agreement initially sets a limit of 100,000 internal combustion vehicles, increasing to 160,000 after a decade.
The reduction in tariff rates is part of a broader agreement on trade between India and the European Union, termed as the “mother of all deals” as trade talks were stuck for years. The agreement seeks to ease or abolish most of the tariff rates between the two nations, thus increasing trade volumes between them in a period of trade uncertainty around the world.
Similarly, electric vehicles will now be handled with care. There are plans for tariffs on imported luxury electric vehicles to be cut in five years after the RCEP agreement takes effect, first for a limited number of vehicles in the 30-35 percent tariff bracket and eventually reducing to 10 percent. The measure has been taken to protect Indian EV manufacturers, which include Tata Motors and Mahindra.
Currently, luxury vehicles make up less than 1 percent of India’s passenger vehicle market. While the benefits of the fall may not immediately accrue to consumers as prices come down dramatically, auto makers see this as an opportunity to expand their portfolio.
Other European manufacturers, such as Volkswagen, Renault, and Stellantis, are also deemed to gain from improved market access.
The agreement, though yet to be ratified, indicates a major economic alliance between the EU and India, with the auto industry the most visible sector to benefit from the agreement.