India-EU FTA to Allow Import of 1 Lakh Cars to India Initially at Lower Tariff

The India-EU Free Trade Agreement (FTA) will allow carmakers in Europe to import 1 lakh completely built-up (CBU) internal-combustion and non-plug-in hybrid cars into India in the first year of the FTA at concessional import duties, with the quota rising to 160,000 vehicles gradually from the tenth year, according to the schedule of tariff commitments under the deal.

The India-EU FTA talks concluded in January this year. The agreement is reportedly expected to be signed by the end of this year and could come into effect from next year. There are also reciprocal EU concessions given for cars exported to the EU from India, with a quota of 2.40 lakh CBU ICE and hybrid cars allowed in the first year at a concessional import duty of 8%.

The concessional duties on imports to India are only for ICE and hybrid cars priced above 15,000 euros (approximately Rs 16.63 lakh) from the first year, while pure electric and plug-in hybrid cars will receive concessional access only from the fifth year, that too, for vehicles priced above 20,000 euros (approximately Rs 22.17 lakh).

In the first year of the FTA, cars with a CIF value of 15,000 euros to 35,000 euros will attract a 35% duty within the quota. Cars valued at 35,000 euros to 50,000 euros and those above 50,000 euros will face a 30% duty. Cars priced below 15,000 euros will not receive a tariff concession in the first year.

Lower tariffs on imported cars to India will open a big opportunity for European automakers such as Volkswagen, Mercedes-Benz and BMW, looking to export CBUs from Europe. Many of these companies already assemble imported kits (CKD) in India at a tariff of around 16%. But lower duties on CBUs could make it viable for them to bring a wider range of niche, performance and high-end models from Europe. 

The first-year quota of 1 lakh cars will include 34,000 units in the 15,000-35,000-euro band, 33,000 units in the 35,000-50,000-euro band and 33,000 units for models priced above 50,000 euros. The quota will increase to 1.075 lakh vehicles in the second year, 1.30 lakh units in the fifth year and 1.60 lkah from the tenth year. The preferential duty across the three price bands will be 10% from the tenth year.

Cars imported outside the quota will face higher duties, ranging from 66-110%, depending on the applicable tariff line and the vehicle value. These out-of-quota rates will decline gradually to 30-35% by the tenth year.

The FTA provides a separate tariff quota for CBUs of battery-electric and plug-in hybrid vehicles starting from the fifth year. The quota will begin at 20,000 vehicles in the fifth year and gradually increase to 90,000 vehicles by the fourteenth year. The preferential duty for vehicles within the quota will be 30% in the fifth year and will decline over time to 10% from the 10th year.

Meanwhile, the deal would allow export of 2.50 lakh CBU of ICE and hybrid cars with a CIF value of up to 50,000 euros in the first year with a concessional duty of 8%. The quota rises to 3.25 lakh vehicles in the fifth year and 4 lakh units from the 10th year with the duty falling to zero from the fifth year.