India plans to reduce tariffs on cars imported from the European Union to 40% from 110%, sources said, in the biggest-ever move in the country’s huge market as the two sides look to sign a free trade deal that could come as soon as Tuesday.
Prime Minister Narendra Modi’s government has agreed to immediately reduce taxes on a limited number of cars from the Group of 27 countries with an import price of more than 15,000 euros ($17,739), two sources briefed on the talks told Reuters.
He said this will be reduced to 10% over time, making it easier for European automakers like Volkswagen, Mercedes-Benz and BMW to access the Indian market.
The sources declined to be identified because the talks are confidential and could change at the last minute. India’s commerce ministry and the European Commission declined to comment.
The agreement has already been dubbed the ‘mother of all deals’
India and the EU are expected to announce the conclusion of lengthy 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 deals”.
The agreement could expand bilateral trade and boost Indian exports of goods such as textiles and jewellery, which have been hit by 50% US tariffs since late August.
India is the world’s third-largest car market by sales after the US and China, but its domestic auto industry has been one of the most protected. New Delhi currently imposes tariffs of between 70% and 110% on imported cars, which is often criticized by officials including Tesla chief Elon Musk.
New Delhi has proposed to immediately reduce import duties by 40% for about 200,000 combustion-engine cars per year, one of the sources said, the most aggressive move yet to open up the sector. This quota may be subject to last-minute change, the source said.
Battery electric vehicles will be kept out of import duty cuts for the first five years to protect investments in the emerging sector by domestic players like Mahindra & Mahindra and Tata Motors, two sources said. After five years, there will be a similar reduction in duty on EVs.
The market is currently dominated by Suzuki and local manufacturers
Lower import taxes will boost European automakers like Volkswagen, Renault and Stellantis as well as luxury players Mercedes-Benz and BMW, which manufacture cars locally in India but are struggling to grow at a point due to high tariffs.
Lower taxes will allow carmakers to sell imported vehicles at cheaper prices and test the market with a broader portfolio before committing to building more cars locally, one of the two sources said.
European carmakers currently account for less than 4% of India’s 4.4 million unit annual car market, which is dominated by Japan’s Suzuki Motor as well as homegrown brands Mahindra and Tata, which together hold two-thirds of the total.
With the Indian market expected to grow to 6 million units per year by 2030, some companies are already preparing for new investments.
Renault is returning to India with a new strategy as it looks to grow outside Europe, where Chinese carmakers are making strong inroads, and Volkswagen Group is finalizing its next phase of investment in India through its Skoda brand.