India to Reduce Import Taxes on EU Cars from 110% to 40%
In a significant move towards opening up its automotive market, India is set to immediately reduce import taxes on European Union (EU) cars from 110% to 40%. This decision is part of a strategic trade agreement that could be announced this week, marking the most significant opening of the Indian automotive market to date.
Details of the Tax Reduction
According to Reuters, the government of Prime Minister Narendra Modi has agreed to apply this reduction to a limited number of European vehicles with an import price exceeding 15,000 euros. Over time, the tax could even drop to 10%, facilitating the entry of manufacturers such as Volkswagen, Mercedes-Benz, and BMW into the vast Indian market.
A Historic Agreement between India and the European Union
India and the European Union are preparing to announce on Tuesday the conclusion of negotiations for a free trade agreement that has been years in the making and is already being referred to by officials as “the mother of all agreements.” Following the announcement, both parties will need to finalize the details and move towards formal ratification.
The agreement aims to expand bilateral trade and boost key Indian exports, such as textiles and jewelry, which have been affected by the imposition of US tariffs of 50% since late August.
Impact on the Indian Automotive Market
India is the third-largest automotive market in the world, behind the United States and China. However, its industry has been characterized by strong protectionism. Currently, imported cars pay tariffs ranging between 70% and 110%, a scheme heavily criticized by industry executives, including Elon Musk, CEO of Tesla.
According to one source, New Delhi proposed to immediately reduce tariffs to 40% for about 200,000 combustion engine vehicles per year, although this quota could still be adjusted.
What Will Happen with Electric Cars?
Battery electric vehicles will be excluded from tariff reductions for the first five years of the agreement. This measure aims to protect the investments of local manufacturers such as Mahindra & Mahindra and Tata Motors in a segment that is still under development. After this period, similar cuts will also be applied to imported electric cars.
Benefit for European Automakers
The tax reduction represents a strong boost for European brands such as Volkswagen, Renault, and Stellantis, as well as premium manufacturers Mercedes-Benz and BMW, which already produce in India but have faced difficulties expanding due to high tariffs.
“Lower taxes will allow manufacturers to sell imported vehicles at a more competitive price and test the market with a broader offer before committing new local investments,” explained one source.
Currently, European automakers account for less than 4% of the 4.4 million units sold per year in India, a market dominated by Suzuki Motor and local brands Mahindra and Tata, which account for about two-thirds of the total.
With a growth projection of up to 6 million vehicles annually by 2030, several companies are already considering new investments. Renault is advancing with a strategy to return to the country, while the Volkswagen Group is preparing its next phase of expansion through its Skoda brand.
