India to cut EU car import duties to 40% under proposed trade pact: Report

India plans to slash tariffs on cars imported from the European Union to 40 per cent from as high as 110 per cent, Reuters reported quoting sources, marking the biggest opening yet of the country’s car market as the two sides move closer to finalising a free trade agreement that could come as early as Tuesday.

Prime Minister Narendra Modi’s government has agreed to immediately reduce import duties on a limited number of cars from the 27-nation bloc that have an import price of more than 15,000 euros ($17,739), two sources briefed on the talks told Reuters.

The tariff will be further lowered to 10 per cent over time, the sources said, easing access to the Indian market for European automakers such as Volkswagen, Mercedes-Benz and BMW.

India and the European Union are expected to announce on Tuesday the conclusion of protracted negotiations for the free trade pact, after which both sides will finalise the details and move towards ratification of what has already been dubbed the “mother of all deals”.

The pact could expand bilateral trade and boost Indian exports of goods such as textiles and jewellery, which have been hit by 50 per cent US tariffs since late August.

India is the world’s third-largest car market by sales after the United States and China, but its domestic auto industry remains among the most protected globally. New Delhi currently levies tariffs of 70 per cent and 110 per cent on imported cars, levels that have often been criticised by industry executives, including Tesla chief Elon Musk.

New Delhi has proposed cutting import duties to 40 per cent immediately for around 200,000 combustion-engine cars a year, one of the sources said. The quota could still be subject to last-minute changes.

Battery electric vehicles will be excluded from import duty reductions for the first five years to protect investments by domestic manufacturers such as Mahindra & Mahindra and Tata Motors, the sources said to Reuters. After five years, electric vehicles will be subject to similar duty cuts.

Lower import taxes are expected to benefit European automakers including Volkswagen, Renault and Stellantis, as well as luxury manufacturers Mercedes-Benz and BMW. While several of these companies manufacture vehicles locally in India, they have struggled to expand their market share due in part to high tariffs.

Lower duties would allow automakers to sell imported vehicles at lower prices and test the market with a wider range of models before committing to further local manufacturing, one of the sources said.

European carmakers currently account for less than four per cent of India’s annual car market of 4.4 million units, which is dominated by Japan’s Suzuki Motor and domestic brands Mahindra and Tata, which together control around two-thirds of the market.

With India’s car market expected to grow to six million units a year by 2030, several automakers are lining up fresh investments.

Renault is preparing a renewed push in India as part of its strategy to seek growth outside Europe, where Chinese carmakers are gaining ground. Volkswagen Group is also finalising the next phase of its investment in India through its Skoda brand.

(With inputs from Reuters)