Matthias Luhas, Head of International Region, Mercedes-Benz Cars, and Martin Schwenk, MD and CEO, Mercedes-Benz India, pose with the Mercedes-Benz A-Class Limousine and the new GLA at Auto Expo 2020 in Greater Noida, India on February 5, 2020.
Pradeep Gaur | Mint | Getty Images
India will cut tariffs on cars imported from the European Union from up to 110% to 40%, sources said, in the biggest opening yet to the country’s vast market as the two countries move closer to signing a free trade agreement that could be signed as soon as Tuesday.
Prime Minister Narendra Modi’s government has agreed to immediately cut taxes on a limited number of cars from the 27-nation bloc whose import price exceeds 15,000 euros ($17,739), two people briefed on the talks told Reuters.
This will be further reduced to 10% over time, making it easier for European automakers such as Volkswagen, Mercedes-Benz and BMW to access the Indian market, it added.
The sources declined to be identified because the talks are confidential and subject to last-minute changes. India’s Ministry of Commerce and the European Commission declined to comment.
The agreement has already been called the “mother of all deals”
India and the European Union are scheduled to announce the end of long-running negotiations for a free trade agreement on Tuesday, after which both sides will finalize details and ratify what is being called the “mother of all agreements.”
The deal could expand bilateral trade and increase exports of Indian products such as textiles and jewelry, which have been hit by 50% U.S. tariffs since late August.
India is the world’s third-largest car market in terms of sales, after the United States and China, but the country’s auto industry is one of the most protected. New Delhi currently imposes tariffs of 70% and 110% on imported cars, levels often criticized by executives such as: tesla Secretary Elon Musk.
The New Delhi government is proposing to immediately cut import duties to 40% on about 200,000 internal combustion engine cars a year, one of the people said, calling it the most aggressive move yet to open up the sector. This allocation is subject to change at the last minute, the official added.
Battery electric vehicles will be exempted from import duty cuts for the first five years to protect investments in the emerging sector by domestic companies such as Mahindra & Mahindra and Tata Motors, two people familiar with the matter said. After five years, EVs will be subject to similar tariff reductions.
The current market is dominated by local manufacturer Suzuki.
Lower import duties would be a boost not only to European automakers such as Volkswagen, Renault and Stellantis, but also to luxury car makers Mercedes-Benz and BMW. Although these companies locally produce cars in India, they are struggling to grow beyond a certain level due in part to high tariffs.
The tax cut will allow automakers to sell imported cars at lower prices and test the market with a broader portfolio before committing to producing more cars locally, one of the two sources said.
Currently, European automakers have less than 4% of India’s 4.4 million-unit annual car market, but the market is dominated by Japan’s Suzuki Motors and domestic brands Mahindra and Tata, which together account for two-thirds of the market.
The Indian market is expected to grow to 6 million units per year by 2030, and some companies are already planning new investments.
Renault is looking to grow outside Europe, where Chinese automakers are making strong inroads, and is making a comeback in India with a new strategy, while Volkswagen is finalizing its next investment in India through its Skoda brand.
