India-EU trade deal: Only native EU carmakers may get import tariff relief

Move to block non-Europe firms from using lower duty to dump cars in India

India has reserved the right to restrict the gains from lower import tariffs and quotas for European automobiles, offered under its free trade agreement (FTA) with the European Union (EU) finalised on Tuesday, for eight EU native automakers.

 

This is aimed at ensuring that non-native automakers from other countries will not exploit the concessional tariffs to dump four wheelers into India through the EU. “We have kept the right to deny these benefits to non-traditional automobile manufacturers of the EU,” a government official said on Wednesday. 

As per the pact, India has granted an annual import quota of 1.6 lakh units of internal combustion engine (ICE) cars and 90,000 electric vehicles (EVs) over a 10-year period. In the first year of the FTA implementation, the tariff for ICE cars will be reduced from the current 110 per cent to 30-35 per cent, and further reduced to 10 per cent in five years. EV imports from EU will only be allowed after five years. 

The import duty reduction offered to EU will only apply for cars priced above 15,000 euros (₹16.5 lakh) — which will roughly translate into ₹25-26 lakh after taxes for Indian consumers. The government has estimated that as much as 90 per cent of India’s domestic automobile market is made up by vehicles costing up to ₹15 lakh.

 

Commerce Ministry officials said India has agreed to a ‘calibrated, phased and development oriented quota-based liberalisation’ strategy for the ‘sensitive’ automobile sector.

 

The European bloc's focus in trade negotiations has largely been on higher-end automobiles, as they do not manufacture cars priced below 15,000 euros. On the other hand, India produces more affordable and smaller cars, a segment the Centre has sought to protect, even as it has bought more time for Indian EV makers, seen as sunrise sector, to scale up.

 

“This calibrated offer will allow EU suppliers to launch their models in the Indian market but graduate into producing more automobiles in India,” the official said.

 

For every car import quota allowed from the EU, India will receive 2.5 times the access for its exports. The quota for completely knocked down (CKD) imported vehicles will be 75,000 ICE-fitted vehicles, at a reduced duty of 8.25 per cent compared to the present levy of 16.5 per cent.  

 

Liberalising CKD imports will encourage EU’s Original Equipment Manufacturers (OEMs) to set up local assembly lines, which can push foreign OEMs from ‘importing’ to ‘assembling’ and eventually to ‘full localisation’, while building local supply chains. This will result in high-end manufacturing processes, quality standards, and advanced research and development practices in India, an official noted.  

 

The government hopes that CKD imports will benefit consumers by lowering vehicle prices through reduced import duties and expanding choice with faster access to global models. It will ensure higher safety and tech standards while lowering maintenance costs due to better local availability of spare parts.