The sources reported that India will also reduce the tariffs on cars imported by the European Union to 40 percent, the highest rate of 110 percent, in the major opening of the country’s vast market as the two sides close in on a free trade agreement, which could be effective as early as Tuesday.
Sources informed Reuters that the Prime Minister Narendra Modi’s government has settled on cutting the tax on a small number of cars of the 27-nation bloc with an import price of more than 15,000 euros ($17,739).
In further reports, it was stated that this will further reduce to 10 percent in the long run, making access to the Indian market easy for European automakers like Volkswagen, Mercedes-Benz, and BMW.
The sources refused to be cited since the negotiations are sensitive and might even go through last-minute changes. The Ministry of Commerce of India and the European Commission refused to comment.
India and the EU are set to declare on Tuesday the end of long-standing talks on the free trade agreement, after which the two parties will negotiate the finer points and ratify what is being termed as “the mother of all deals.”
The agreement would broaden the bilateral trade and remove Indian goods exports, including textiles and jewellery, which have been impacted by 50 percent. U.S. tariffs since the end of August.
India is the third-largest car market in the world in terms of car sales, following the U.S. and China, yet it remains one of the best-protected domestic auto industries. New Delhi now imposes tariffs of 70 percent and 110 percent on imported vehicles, which is frequently criticized by executives, such as Tesla chief Elon Musk.
One of the sources has stated that New Delhi has suggested a reduction of importation duties to 40 percent instantly on approximately 200,000 combustion-engine cars each year, its most profound advancement to date to liberalize the industry. The source added that this quota might be changed at the last minute.
Two sources indicated that battery electric vehicles will be excluded from import duty reductions for the first five years to protect investments by domestic players like Mahindra & Mahindra and Tata Motors in the nascent sector.
EVs will be allowed to receive similar duty reductions after five years. The reduction of importation taxes will help the European automakers, including Volkswagen, Renault, Stellantis, luxury manufacturers such as Mercedes-Benz, and BMW, who locally produce cars in India but have not been able to expand further due to high tariffs, will benefit.
The reduced taxes will enable the carmakers to offer imported cars at a lower price and experiment with a larger portfolio before the company makes a commitment to produce more cars locally.
However, the European carmakers currently hold a less than 4 percent share of India’s 4.4-million units a year car market, which is headed by Japan’s Suzuki Motor 7269, as well as homegrown brands Mahindra and Tata that together hold two-thirds.
The Indian market would be 6 million units a year by 2030, and some companies already wait in the queue to make new investments. Renault is returning to India under a new plan as it tries to grow beyond Europe, where the Chinese carmakers are making serious inroads, and the Volkswagen Group is setting the next phase of investment in India under its Skoda brand.
