India is likely to offer some import duty concessions on cars to the European Union (EU) as part of the free trade agreement (FTA) being negotiated between the two parties, government officials told Moneycontrol.
Currently, the import duty levied by India on completely built-up (CBU) passenger vehicles is 110% for cars costing over $40,000, and 70% for cars costing up to $40,000.
“The EU has raised the issue of high import duty on its cars. India is working on a nuanced duty reduction framework for EU’s automotive sector. It will be somewhat similar to what India offered to the United Kingdom (UK). The final outcome will, however, be subject to further negotiations between the two sides,” said a government official privy to the matter.
The 13th round of talks between India and the EU started from September 8 an is scheduled to continue throughout the week. Thereafter, the next round of trade talks will happen in Brussels next month. Both the sides are aiming to conclude negotiations for an FTA by December this year.
A second government official said the issue was also flagged by Germany, an automobile giant which is home to global brands like BMW, Mercedes-Benz and Audi. German Foreign Minister Johann David Wadephul visited New Delhi last week during which he met PM Modi and his counterpart S Jaishankar, as well as Union commerce minister Piyush Goyal in separate meetings.
As per its FTA with the UK, concluded on May 6, India will implement a structured and gradual reduction in import duties on automobiles, with specific provisions based on engine capacity and vehicle price. For example, for internal combustion engine (ICE) powered CBUs with a duty of 110%, the India-UK trade agreement has lowered the import tariffs to 30% from the first year, with the levies set to go down to 10% from the fifth year. This applies to petrol models with an engine capacity of over 3,000 cc and diesel models with more than 2,500 cc engine capacity.
Although the tariffs on ICE CBUs vary depending on the engine type and size, they reduce to 10% in all cases from the fifth year, and this will significantly lower the acquisition cost of such models. Also, the quota for models with lower tariffs has been set at 20,000 units for the first year, with a gradual advancement till the fifth year to 37,000 units, after which there will be a reduction, according to the India-UK agreement.
The luxury car segment, which accounts for less than 2% of the total passenger vehicle (PV) volumes in India, is dominated by German brands such as Mercedes-Benz and BMW, with the former clocking sales of 18,928 units in FY25 and the latter following at 15,266 units.
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