The Indian government intends to reduce tariffs for cars imported from countries in the European Union from up to 110 per cent to 40 per cent, reported news agency Reuters quoting sources.
As the two entities move towards a free trade agreement, the tariff reductions represent the greatest achievement to date in opening up India's extensive automobile market.
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'Tariffs to be reduced further over time'
Prime Minister Narendra Modi has agreed to implement these reductions immediately for a select group of cars that are priced above 15,000 euros ($17,739) when imported, Reuters reported by quoting two sources involved in the negotiations.
The sources said that this will be lowered further to 10 per cent over time, which would help European car manufacturers such as Volkswagen, Mercedes Benz and BMW get access to the Indian market.
The sources did not wish to be named due to the confidential nature of the negotiations and the possibility of last-minute changes to the agreement. Both the European Commission and the Ministry of Commerce of India declined to comment.
'Mother of all deals'
On Tuesday, India and the European Union will likely announce the end of many months' worth of negotiations for a free-trade agreement. After this, both sides will be able to work together to finish drafting the necessary legal documents and approve this anticipated "mother of all deals".
The potential impact of this trade agreement will be large. It is expected that it will greatly increase bilateral trade between the two parties, allowing for an increase in the number of products exported from India. The increased trade would also provide a significant boost for India's textile and gemstone industries, which have suffered due to increased competition from US products. In addition, this agreement has the potential to allow for greater acceptance of Indian products by consumers worldwide.
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India is currently ranked as the third-largest automobile market worldwide, after the United States and China, based on units sold. However, its domestic auto industry has been highly protected. New Delhi currently imposes tariffs of 70 per cent and 110 per cent on imported cars. This level of tariffs is often criticised by executives, including Tesla chief Elon Musk.
According to one of the sources, the Indian government is proposing to cut import duties for approximately 2,00,000 combustion engine cars to 40 per cent, which would be a significant step toward liberalising the market. The exact numbers of cars that are eligible for the quota could be revised shortly before the implementation date, informed one of the sources.
Battery electric vehicles excluded
To help protect domestic manufacturers like Mahindra & Mahindra and Tata Motors, who have already made substantial investments in the development of battery electric vehicles (EVs), India has stated that it will not reduce the duty on imported EVs for the first five years. After five years, EVs will be treated in a similar manner as other vehicles and will receive similar reductions.
The growing Indian market
At present, European auto manufacturers account for less than four per cent of India's 4.4 million unit-a-year car market, with the majority being held by Japanese automaker Suzuki Motor and indigenous manufacturers Mahindra and Tata, who together control approximately two-thirds of the market.
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With predictions that India's car market will reach six million units a year by 2030, several automakers have begun to commit new investments. Renault will begin to re-establish itself in India under a new growth strategy, as it looks to expand its operations beyond Europe due to the threat posed by imports from China, while Volkswagen Group is working on its next phase of investment in India through its Skoda division.
