EU Luxury Cars To Get Cheaper In India Under FTA

Premium luxury European cars, such as BMW, Mercedes, Lamborghini, Porsche, and Audi, are set to become cheaper in the Indian market once the bilateral free trade agreement comes into force, likely next year, as India will offer quota-based import duty concessions under the pact, an official said.

While India will lower the taxes to 10 percent for certain quantities, the EU will gradually remove duties on Indian cars.

Italian carmaker Lamborghini, which sells vehicles in India with prices starting around Rs 3.8 crore, imports all its models. The EU FTA is likely to be beneficial for the company.

The free trade agreement (FTA) negotiations between India and the European Union (EU) came to an end on Tuesday. It is anticipated to be signed later this year and could take effect early the following year.

The negotiations for this trade agreement began in 2007, and both Indian customers and European industry were closely monitoring its development. One of the main divisive topics that caused negotiations to halt in 2013 was the extension of duty concessions in the industry.

India is expanding duty discounts under free trade agreements as the nation's automobile industry grows. Additionally, it has given UK automakers exemptions based on quotas.

As per the agreement, India and the EU have negotiated on a “quota” based duty concessions, the commerce ministry official said, adding that the EU has a “very” aggressive demand for this sector.

India also protects its auto industry strongly, as the sector is growing at a faster pace and is a major employment creator. It is one of the core areas in the ‘Make in India’ initiative of the government.

"The EU has got a very well laid out auto industry, one of the most advanced auto industries, and their cars are one of the best, and it is a reality," the official said.

"Taking note of sensitivity on both sides, we have agreed to a quota-based ecosystem, wherein we are trying to take care of each other’s sensitivities," the official added.

Explaining further, the official said India's auto sector is largely dominated by small cars (retail price Rs 10 lakh - Rs 25 lakh) and the EU's interest in that area is "not great".

"So, that has been taken cognisance of, and we have decided that cars that are likely to sell below Rs 25 lakhs in this country, the EU will not be exporting those cars to India. They may manufacture it here, but they will not be exporting those cars," the official said.

It is the most significant market for India (cars under Rs 25 lakh). The Indian industry is very strong there, and this is a very fast-growing market in the country, the official added.

Petrol, diesel, and hybrid variants are among the cars priced at Rs 25 lakh. India's market is a little over Rs 25 lakh, but since they are competent manufacturers, there is a lot of interest.

"Having taken care of that, we have given them quota-based market access. The market has been segmented into three parts beyond that. And the quota will increase in a phased manner," the official said.

Duty reductions will be offered for a predetermined number of automobiles under the quota system.

India now levies import duties in the vehicle sector that range from 66 per cent to 125 per cent.

India would not reduce out-of-quota duties because it wants EU companies to consider manufacturing in India.

"The idea is that beyond quota, if your market grows, you come and build it here, as India is a growing market," the official pointed out.

"We would like European car manufacturers to test this market, come here, and if they find this market good, they set up shops here, which will be win-win again, because they will not do 100 per cent on capital. They will have their supply chains from the EU. So, you will have some bit of value-add, we will have some bit of value-add," the official said.

The quota-based system will help create jobs in both economies.

“That's how we have designed it, and we hope this will create some competition and bring in a lot of manufacturing technology in the medium and long run. So, that will be something good for consumers and in the long run, good for our manufacturing ecosystem also," the government official said.

"For every car quota that we have given them, we take 2.5 tile quotas from them. So, if I give them 1 lakh cars, I will take 2.5 lakh cars," the official added.

"They are twice our market. We are able to sell in that market, and they will give us complete duty-free access. We are giving quota duty reduction, phased duty reduction in five years." Explaining further, the official said the actual threshold is 15,000 euros (about Rs 15 lakh). That means a car worth Rs 15 lakh will come to the Indian ports from the EU under the FTA. After that, there will be duty, tax, registration, and it will add another Rs 10 lakh. It can go up to Rs 12 lakh or more with 28 or 40 per cent GST, insurance, freight transportation, and logistics."

For electric vehicles (EVs), India's quotas will start from the fifth year of the agreement.

"It will not start from day one because our EV market is growing, and the EV production is growing. So, we have actually protected them for the first five years," the official said.

Duty reduction in the EVs will vary in every segment.

"In some segments, it will be 35 per cent and in some, it will be 30 per cent in the first year. And then it will go down slowly,” the official said.

Currently, imported passenger cars costing less than $40,000 are subject to a basic customs duty of 70 per cent, while those costing more than $40,000 are subject to an effective customs duty of 110 per cent.

The government has supported the domestic auto industry in a number of ways.

The Indian government actively supports the industry-led Automotive Mission Plan 2047 (AMP 2047), which aims to make the Indian sector globally competitive.