India EU FTA: European cars to get cheaper

After a years-long bout of negotiations, India and the European Union (EU) are reportedly close to announcing a landmark Free Trade Agreement (FTA). Under the terms of this FTA, cars built in Europe that qualify for certain criteria would see an immediate drop in import duties when sold in India – from up to 110 percent to 40 percent – with more reductions planned in the coming years. India signed a similar FTA with the UK last year.

1. India-EU FTA could be announced by January 27
2. EU-made cars priced above 15,000 euros qualify for 40 percent tariff in limited numbers
3. No import duty reductions for EVs for first five years

India-EU FTA details

Announcement likely by Tuesday

A Reuters report suggests that the Indian government has agreed to immediately scale back duties on European-manufactured cars, among other commodities. The announcement of the India-EU FTA may come as early as Tuesday, January 27. However, the timeline for finalisation and ratification remains unclear.

Import duty reduction criteria

Thanks to this FTA, import tariffs on limited quantities of EU-made cars priced above 15,000 euros (Rs 16.28 lakh) will come down to 40 percent from the prior ceiling of 110 percent. Over the coming years, these duties are expected to be further lowered to 10 percent.

Interestingly, these import duty reductions will go into effect for ICE-powered cars immediately, but not for EVs. The tariff rates on imported European EVs will remain unchanged for the first five years after the FTA is finalised and ratified, with reduced import duties being levied only after that point. This limitation is supposedly being enforced to protect Indian EV makers such as Mahindra and Tata.

Several European brands to benefit from the FTA

Expectedly, the India-EU FTA will benefit European carmakers. Luxury brands like BMW, Audi, Volvo and Mercedes-Benz assemble lots of their models in India via the CKD route, so they already qualify for lower duties. However, performance offerings from the BMW M, Mercedes-AMG and Audi RS divisions might see price reductions. Even the Land Rover Defender could see a price drop in India since it is imported from Slovakia.

Expect Ferrari, Lamborghini, Maserati and Porsche cars to become more affordable in India, too. Mass-market European carmakers such as  Volkswagen and Skoda should also benefit from the India-EU FTA, with the path for importing their models now more accessible.