New Delhi: Premium European cars like BMW, Mercedes, Lamborghini, Porsche, and Audi are about to get cheaper in India. This change comes with a new free trade agreement (FTA) expected to begin next year. Under this agreement, India will reduce import duties for a limited number of these luxury vehicles.
The FTA negotiations between India and the European Union (EU) were finalized recently, with implementation projected for early next year. This is exciting news for both European manufacturers and Indian consumers. For example, Lamborghini, which sells cars starting at around ₹3.8 crore in India, imports all its vehicles. Lower duties could mean more sales.
Talks for this trade pact began back in 2007. There were hiccups along the way, especially concerning duty concessions, leading to stalled discussions until 2013. But now, as India’s automotive sector strengthens, the government is more open to negotiating these tariffs.
According to a government official, the FTA will feature a “quota-based” import system. This means that India will impose reduced duties only for a set number of vehicles. The official noted that the EU has strong interests in this sector as it has one of the most advanced automotive industries. The current import duties for vehicles in India can range from 66% to 125%.
Here’s the crux: the agreement is designed to protect India’s growing auto market, especially when it comes to cheaper cars. Cars priced below ₹25 lakh, a significant segment of India’s market, won’t be exported from the EU. European companies will need to consider manufacturing these vehicles locally if they want to compete in that price bracket.
The FTA aims to create a balanced trade system. As stated by the official, “For every car quota we give them, we take 2.5 quotas back.” This means that for every 1 lakh cars exported to India, Indian manufacturers will export 2.5 lakh cars to the EU, creating a win-win scenario. This will be particularly beneficial considering that the EU market is over twice the size of India’s.
Moreover, the agreement will gradually increase the quota of vehicles eligible for reduced duties over five years. It also foresees specific timelines for electric vehicles (EVs), introducing quotas starting from the fifth year of the agreement. In the early years, duty reductions will vary by vehicle segment, with plans for gradual decreases.
Overall, this FTA is a significant stride toward making the Indian automobile industry more competitive globally. As part of its “Make in India” initiative, the government aims to support domestic manufacturing and create jobs. The Automotive Mission Plan 2047 seeks to enhance the industry’s global standing, showing a commitment to growth and innovation.
For those interested in more details on trade agreements, click [here](https://www.worldbank.org/en/topic/trade) for an authoritative overview.
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