Impact of India–EU FTA Deal on Car Prices:
After years of delays, the Free Trade Agreement between India and the European Union is finally gaining momentum. The Indian government plans to drastically reduce import duties on cars from the European Union. The current import duty, which can be as high as 110%, is proposed to be reduced to 40%. This “Mother of All Deals” could redefine trade relations between India and Brussels. If all goes well, we may see a significant reduction in the prices of European cars imported to India.
According to a Reuters report, the Indian government has agreed to immediately reduce import duties on European cars priced above 15,000 Euros (approximately 1.63 million INR) for limited units. There are plans to further reduce this tax to 10%, making it easier for European brands like Volkswagen, Mercedes-Benz, and BMW to enter the Indian market.
Media sources suggest that this agreement could be announced as early as Tuesday. Although the Ministry of Commerce and Industry in India and the European Commission have not made any official comments, it is believed that both parties are in the final stages of negotiations, with a big announcement expected soon.
India and the European Union could soon announce the completion of negotiations for the Free Trade Agreement. This announcement would bring an end to years of prolonged discussions, although finalizing the agreement and obtaining approvals from both sides will take additional time.
The most significant impact of this proposal will be observed in car prices. Currently, cars priced between 45,000 and 50,000 Euros become exceedingly costly by the time they reach Indian showrooms due to high taxes that often match or exceed the car's original price.
If import duties are limited to 40%, the tax burden will be significantly reduced. Even after adding GST and dealer margins, a significant difference in ex-showroom prices will be evident. Experts suggest that with the new tax structure, ex-showroom prices of European cars may drop by up to 30–50%. In monetary terms, this translates to a reduction of about 2.5 to 3 million INR for high-end cars.
This means that cars currently accessible only to a select few could find many more buyers. This decision could completely transform the Indian luxury car market, which currently accounts for only 1% of sales, and relieve several major car manufacturers troubled by high import duties.
India is the third-largest car market in the world, after the United States and China. It is also considered one of the safest markets globally. Import duties on cars arriving via the Complete Built Unit (CBU) route are as high as 70–110%. Foreign car companies have long criticized this policy, demanding a reduction in import duties to safely offer reasonably priced imported cars to Indian consumers.
Under the proposal, India will reduce import duties on about 200,000 Internal Combustion Engine (ICE) vehicles — petrol and diesel cars — to 40% annually. However, adjustments might still be made to this quota at the last moment, meaning the figures could change. Nevertheless, this figure is quite significant for the luxury segment of cars.
Battery-powered electric vehicles will be excluded from this relief for the first five years. The government aims to protect domestic electric vehicle companies and their substantial investments. Recently, Tata Motors, Mahindra, and Maruti Suzuki have ventured into the electric vehicle market. This decision could prove beneficial for Indian companies. After five years, similar duty cuts are expected for electric cars, although giants like Tesla, BYD, and VinFast won’t see immediate benefits, they can expect advantages in the future.
The greatest beneficiaries of reduced import taxes will be companies like Volkswagen, Renault, Stellantis, Mercedes-Benz, and BMW. Many of these brands already assemble vehicles in India. However, due to high import duties, they couldn’t expand their operations significantly. Reduced duties will allow these companies to offer their imported cars at minimal prices and test new models in India. This could lead to decisions on local manufacturing and investment. Overall, this shift could herald a new era in the Indian automotive market.
