India-EU FTA Deal Impact on Cars:
Today marks a new chapter between two of the world's largest economies. The long-discussed Free Trade Agreement (FTA Deal) between India and the European Union has now been finalized. Prime Minister Narendra Modi and European Commission President Ursula von der Leyen have given this historic agreement their seal of approval. This deal not only showcases India's economic strength on the global stage but also opens new avenues for trade, investment, and job creation. A key beneficiary of this deal will be the country's auto sector.
On Tuesday, Prime Minister Narendra Modi announced this agreement. The deal anticipates the elimination of tariffs and non-tariff barriers on more than 90% of India's products. This will significantly benefit sectors such as textiles, leather, chemicals, electronics, auto, and jewelry, especially where there is no direct competition from European companies, thereby widening the European market for Indian exporters.
This free trade agreement between India and the European Union began discussions in 2007. However, due to disagreements over tariffs, market access, and regulations, talks were halted in 2013. Negotiations resumed in 2022, and now the deal is finally complete after approximately 18 years of ups and downs. This has been one of India's longest trade negotiations. The agreement comprises a total of 24 chapters, which include rules around goods, services, and investment. It also includes separate talks on investment safety and geographical indication.
The massive agreement, often referred to as the 'Mother of All Deals', will significantly benefit India's automobile sector. Luxury and imported cars will become more affordable in the country. As per the European Union, import duties on European-made cars in India will be reduced from 110% to 10%. A quota of 250,000 units has been set, which means that this concession will initially apply to 250,000 cars. This provides European car companies an opportunity to strengthen their presence in India's rapidly growing car market.
Following this agreement, companies like Volkswagen, BMW, Mercedes-Benz, Audi, Porsche, Maserati, Skoda, and Volvo are likely to see major benefits in India. Mercedes-Benz's AMG G63, AMG S 63 E Performance, and Maybach S-Class, BMW's M Series, XM SUV, and Z4 Roadster, along with Audi's Q8 and RS Q8, could become more affordable.
Prices of Porsche 911, Panamera, Macan, and Cayenne made in Europe are expected to drop as well. The entire range of Lamborghini imported from Italy, including Urus, Revuelto, and Huracan, might also see a reduction in price. Additionally, the agreement could positively impact cars from Ferrari, Maserati, and Volvo.
The reduction in import duties (Import Duty) under the FTA will benefit only Completely Built Unit (CBU) cars, which means fully assembled vehicles brought into India. The tax concession will not apply to cars brought in through the Completely Knocked Down (CKD) route.
CKD refers to foreign products (like cars, bikes, or machinery) that are delivered to another country as completely disassembled parts, where they are reassembled. Many luxury car companies operate on a CKD model in India, so the agreement is not considered as beneficial for them.
Currently, imported cars priced below $40,000 are subject to an import duty of up to 70% in India, while cars priced over $40,000 carry a tax of up to 110%. The government has indicated a gradual reduction in these taxes under the FTA to bring them down to 10%. However, specific details on the annual reduction rate and timeline are yet to be clarified.
The world's wealthiest man, Elon Musk, will not see any benefits for his American electric car company Tesla from this deal. It's worth noting that Tesla's first and only major manufacturing plant in Europe is located in Grünheide, Germany, known as GigaFactory Berlin-Brandenburg or Gigafactory 4. This plant has been fully operational since March 2022 and plays an important role in Tesla's European strategy.
It was expected that this FTA deal might also benefit Tesla. However, the agreement stipulates an immediate reduction in import duties for petrol and diesel cars, whereas different rules apply to electric vehicles. No relief will be granted to European EVs for the first five years. Only after five years will the reduced duty for electric cars be applied, indicating that Tesla is not set to gain any significant advantage in the near term.
