The long pending free trade agreement between India and the European Union now seems to be gaining momentum. Under this, the Indian government is preparing to significantly reduce the import duty on cars coming from the European Union. It is proposed that the current import duty, which can be up to 110 percent, be reduced to 40 percent. It is being called the ‘mother of all deals’ and can give a new direction to trade relations between India and Brussels. Apart from this, if everything goes well, this deal will significantly reduce the prices of cars imported from Europe. According to a Reuters report, the Indian government has agreed to immediately reduce import duty on a limited number of European-made cars priced above 15,000 euros (about Rs 16.3 lakh). There is a plan to further reduce this tax to 10 percent in future. This will make it easier for European brands like Volkswagen, Mercedes-Benz and BMW to enter the Indian market.
Big announcement can happen any day
Media reports quoting sources have said that this agreement can be announced by Tuesday. However, the Indian Commerce Ministry and the European Commission have not yet made any official comment on the matter. Despite this, it is believed that both the parties have reached the final stage of negotiations and a major announcement can be made at any time.
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India and the European Union may soon announce the completion of negotiations on a free trade agreement. This announcement will mark the end of years of long negotiations and discussions. However, the process of finalizing the agreement and getting approval from both sides is still pending, which will take some more time.
Direct impact on prices, picture will change
The biggest impact of this proposal will clearly be seen on the prices of cars. Currently, cars priced between 45,000 and 50,000 euros in Europe are subject to import taxes in India that are often equal to or even more than the original price of the car. This is the reason why such cars become very expensive by the time they reach Indian showrooms. If import duty is limited to 40 percent, the tax burden will be significantly reduced. Even after adding GST and dealer margin, there will be a huge difference in ex-showroom prices. According to experts, after the implementation of the new tax system, the ex-showroom prices of European cars may reduce by 30 to 50 percent. This means that the prices of cars worth crores of rupees may be reduced by about Rs 25 to 30 lakh.
This means that cars that are currently available only to a few people may become available to more buyers. This decision can completely change the Indian luxury car market. Currently, India’s luxury car market share is only 1 percent, and many big car companies are struggling due to high import duties. India is the third largest car market in the world after America and China. It is considered one of the safest markets globally. Import duty ranges from 70 to 110 percent on cars imported into India through the Completely Built Unit (CBU) route. Foreign car companies have been criticizing this policy for a long time due to heavy import duties. He had demanded that these import duties should be reduced so that imported cars can be offered to Indian customers at fair and affordable prices.
Duty reduction on 200,000 cars every year
Under the proposal, India will reduce import duty by 40 percent on about 200,000 internal combustion engine (ICE), i.e. petrol and diesel, cars every year. However, the possibility of change in this quota at the last moment has not been ruled out. This means that this number may increase or decrease in the final stages. But this figure is very important for the luxury car segment.
Electric cars not included
Battery-powered electric vehicles will be kept out of this exemption for the first five years. The government wants to protect domestic EV companies and their significant investments. Tata Motors, Mahindra and Maruti Suzuki have recently entered the electric vehicle segment. Therefore, this decision will prove beneficial for Indian companies. It is expected that a similar duty reduction will be implemented on electric cars after five years. This means that major electric car manufacturers like Tesla, BYD and VinFast will not get any significant benefits for now. However, they can definitely expect benefits in the future.
Companies like Volkswagen, Renault, Stellantis, Mercedes-Benz and BMW will benefit the most from low import tax. Many of these brands already assemble vehicles in India, but have not been able to expand their business due to high import duties. Due to reduction in duty, these companies will be able to keep the prices of their imported cars as low as possible.
