India is preparing proposals such as lower duties on wines from the European Union (EU) and hopes to be recognized as a data-secure nation by the trading bloc, which will open up huge opportunities for outsourcing.
Indian officials are drawing up the first set of proposals two days after India and the EU agreed to resume talks on the proposed Free Trade Agreement
The EU has continuously pushed India to for greater market access and lower import duties on its major exports.
The customs duty on wines and spirits ranges from the minimum of 40.8 percent to as high as 150 percent. Earlier, the EU had wanted this to be reduced to nil over five years.
"We will be reworking our proposal to offer a differential duty structure on wines. To begin with, it will have a relatively high duty on low-cost wines. For more expensive wines, the tariff can be lowered (over a period),” a senior official said. Earlier, India had proposed that whiskey bottled in India would attract lower duty.
New Delhi remains hopeful that its concessions, especially on alcohol, may sway the bloc, which is looking for more market access, particularly since October 2019 when the US has imposed 25 percent duties on Single Malt Scotch Whisky, Single Malt Irish Whiskey from Northern Ireland; liqueurs and cordials from Germany, Ireland, Italy, Spain and the United Kingdom, and certain wines from Germany, France, Spain & the UK.
“The Comité Européen des Entreprises Vins - the largest association for the European wine industry - has therefore advised their governments to actively start looking to expand the list of export destinations. The pressure on them is increasing and India has a robust, growing middle class with interest in European products,” the official said.
However, talks on lower duties for auto imports may be more tricky. Customs duty on cars is more than 110 percent, with the figure going up if it is a luxury vehicle. Automobiles attract a Goods and Services Tax rate of 28 per cent. With an additional cess over and above it, the effective tax on luxury cars go up to 50 per cent over and above the customs duty. The EU had wanted this to be reduced to zero.
"Import duties on auto components had been raised by 15 percent in the latest budget as well. But we will hear out the European proposal," the official said. Duties have also been raised on ignition wiring sets, safety glass and parts of signalling equipment to 15 percent from February 2, 2021. The parts would also attract agriculture infrastructure and development cess of 5 percent.
The government is hopeful about a positive outcome, particularly as the EU would value India as a growing market for luxury goods, although some Commerce Department officials said the signalled duty cuts may be regarded as 'old wine in a new bottle'.
In FY21, disruption by COVID-19 pandemic disrupted trade. Exports to EU fell to $55.2 billion from $ 60.5 billion in the previous year. This was the second consecutive year that outbound trade had fallen. Imports fell to $ 64.3 billion from $71.5 billion in FY20.
After maintaining a trade surplus over the bloc for long, India had a trade deficit with the EU in FY19.
While the government is still waiting for the EU's first official list of demands, the bloc is widely expected to demand a strong intellectual property regime, while India is likely to ask EU to give it the status of a data-secure nation.
The country is among the nations not considered as data secure by the EU. The EU Data Protection Directive of 1995 requires member countries to ban transfer of personal data to a non-EU country unless the nation ensures adequate privacy protection. In return, India will ask for easier migration access, sources said.
The proposed trade deal had been first proposed in the form of the Broad-based Trade and Investment Agreement (BTIA) in 2007, and had has seen 16 formal rounds of talks till 2013. Concerns over investment protection for European companies and deep differences over tariffs have been major hurdles.