Unlocking Opportunities: How the India-UK FTA Benefits Both Trade Growth and Domestic Interests

India has opened its doors to UK carmakers with a new Free Trade Agreement (FTA). This deal offers lower import duties and generous quotas for luxury vehicles in the first few years. However, it holds tighter restrictions on mainstream luxury cars and prevents UK manufacturers from entering India’s electric vehicle (EV) market for five years.

The FTA mainly benefits high-engine capacity vehicles, like those with petrol engines over 3000 cc and diesel engines over 2500 cc. These cars usually cost around Rs 1 crore or more and make up a small part of India’s car market. Experts believe that even with reduced import duties, domestic automakers won’t feel much impact.

Saket Mehra, a partner at Grant Thornton Bharat, emphasized that the FTA could make British luxury brands more affordable for Indian buyers. At the same time, it ensures that mass-market cars are shielded by setting price limits and origin rules.

The agreement gradually lowers import duties on UK-built passenger vehicles from over 100% to 10%. In the fiscal year 2024, India imported around USD 78.3 million worth of cars from the UK, a figure likely to grow under the new rules.

Saurabh Agarwal, a partner and automotive tax leader at EY India, mentioned that the FTA includes measures to protect local manufacturers. The import quotas and rules ensure a balance between opening trade and supporting the domestic industry. In the long run, this could enhance technology in India’s high-end auto market, where imports play a vital role in filling capability gaps.

Starting in the sixth year, the FTA will also adjust the quota by reducing the number of internal combustion engine (ICE) vehicles allowed as EVs gain concessions. Cars priced below £40,000 will not have any market entry, helping protect the mass-market EV segment.

Positive Outlook for British Brands

Overall, this FTA is seen as a boost for British luxury car brands in India. Jaguar Land Rover (JLR), a subsidiary of Tata Motors, stands to gain the most. JLR is already making a mark in India, ranking as the third-largest luxury carmaker last year with 6,183 units sold. Remarkably, about 60% of JLR’s sales in India come from locally produced models, which helps them avoid higher taxes.

This trade agreement reflects a changing landscape in the automotive sector, where global partnerships are increasingly crucial. As luxury brands find new opportunities, Indian consumers may enjoy a wider variety of choices in the coming years, coupled with competitive pricing. The automotive industry’s evolution is a testament to the dynamic relationship between global trade and local markets.

For more on how trade agreements affect industry dynamics, you can check out research from The International Trade Centre.

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