Market Performance: A Protected Auto Market at a Turning Point
India’s automobile market has long been one of the most protected in the world. Import duties on fully built cars currently range between 70% and 110%, keeping overseas models expensive and volumes limited.
Yet, India is no small player. With annual car sales of around 4.4 million units, it stands as the third-largest car market globally, after the US and China. Despite this scale, foreign automakers—especially from Europe—have struggled to expand meaningfully, largely due to high import taxes.
That backdrop is now shifting with the India-EU Free Trade Agreement, which is expected to be finalised soon.
Main News: India-EU Trade Deal Brings Sharp Import Duty Cuts
Under the proposed India-EU Free Trade framework, India has agreed to significantly reduce import duties on select cars coming from the 27-nation European Union bloc, according to a Reuters report.
Here’s what stands out:
- Import duties to be cut from up to 110% down to 40%
- Applicable to cars priced above 15,000 euros (about $17,739)
- Duty cuts will apply only to a limited number of vehicles
- Over time, tariffs could fall further to around 10%
This move is designed to open the door wider for European carmakers while keeping the volume tightly controlled.
Company & Segment Impact: Which Cars May Get Cheaper?
The duty reduction could make premium European cars more affordable in India. Brands that are likely to benefit include:
- Volkswagen
- Mercedes-Benz
- BMW
At present, European brands account for less than 4% of India’s total car sales. The market remains largely controlled by domestic companies along with Japanese players.
- Suzuki Motor
- Tata Motors
- Mahindra & Mahindra
Together, they command nearly two-thirds of the market.
The limited scope of the duty cut ensures that mass-market players remain largely unaffected, while premium imports become more competitively priced.
Quota Details: How Many Cars Qualify?
As per the Reuters report, India has proposed:
- Import duty cut to 40%
- Applicable to up to 200,000 internal combustion engine (ICE) vehicles per year
- Final quota numbers may still change during negotiations
This cap keeps the impact measured and avoids a sudden flood of imports.
What About Electric Vehicles?
Electric vehicles will not see immediate relief.
- EVs excluded from the reduced tariff structure for the first five years
- Aim is to protect domestic EV investments
- After five years, EVs may shift to a similar duty framework
This approach gives local EV manufacturers time to strengthen the ecosystem before facing lower-duty imports.
Why the India-EU Free Trade Deal Matters?
Negotiations around the India-EU Free Trade Agreement have been ongoing for years. The deal is now seen as a major step toward boosting bilateral trade.
Beyond automobiles, the agreement is also expected to support Indian exports, particularly in sectors like:
- Textiles
- Jewellery
These industries have faced pressure from higher tariffs in key global markets since late August.
Summary: A Calibrated Opening, Not a Free-For-All
The proposed India-EU Free Trade agreement signals a controlled but meaningful shift in India’s auto trade policy.
- Import duties to fall from 110% to 40%
- Applies only to select, higher-priced European cars
- Annual quota of around 200,000 vehicles
- EVs remain protected for five years
- Domestic market leadership stays intact
Instead of a dramatic overhaul, India is choosing a gradual opening—balancing global trade ties with domestic industry protection. For the auto sector, this marks a subtle yet important turning point.
Source: Livemint
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