India-EU Trade Pact Opens Door for Luxury Automakers

According to Reuters, India will immediately reduce import duties on high-end European cars to 30% from as high as 110% under its newly finalized trade agreement with the European Union.

The deal, announced on Tuesday, marks a significant opening of India's tightly controlled automotive market, which has historically been among the world's most protected with tariffs ranging between 70% and 110% on imported vehicles. India is the third-largest car market globally by sales after the United States and China.

Under the agreement, Reuters reports that India will implement immediate tariff reductions on 100,000 traditional internal combustion engine and hybrid cars annually in the first year, divided into three price categories. European cars with an import price between €15,000 and €35,000 will see tariffs cut to 35%, with imports capped at 34,000 units annually. Vehicles priced between €35,000 and €50,000 will face a 30% duty with a 33,000-unit limit, while cars exceeding €50,000 will also be subject to the reduced 30% tariff, with 33,000 units permitted.

Tariff relief for combustion-engine and hybrid vehicles begins immediately. Duties in all price bands will fall to 10% by year five, while the combined annual quota rises to 160,000 units over roughly a decade, a senior Indian government official told Reuters.

For electric vehicles, tariff concessions will begin after a five-year delay, in year six of the deal. The EV tariff structure includes three price bands with European EVs priced between €20,000 and €40,000 facing a 35% duty, vehicles priced between €40,000 and €60,000 charged at 30%, and EVs above €60,000 also carrying a 30% tariff. The total EV import quota starts at 20,000 units per year, rising to 90,000 units by year 10. Duties will fall to 10% by year five after EV concessions begin, protecting domestic manufacturers like Tata Motors and Mahindra in the near term.

While luxury vehicles currently represent less than 1% of India's 4.4 million annual passenger vehicle sales, the tariff cuts are expected to allow European automakers including BMW, Mercedes-Benz, Volkswagen, Renault, and Stellantis to expand their product offerings in the country. At a time when a growing number of Indians are developing a taste for opulence, from expensive homes to watches and even bathroom fittings, the reduced tariffs present a significant opportunity for luxury carmakers.

Industry executives indicated that while lower tariffs may not result in immediate price reductions, the agreement will enable them to bring more vehicle models to India's growing luxury market. Reuters reports that increased trade will also result in increased technology transfer and shared supply chains between European manufacturers and Indian partners.