Impact of Tariff Reductions on the Luxury Car Market
By Shivangi Acharya and Aditi Shah
Details of the Trade Agreement
NEW DELHI, Jan 28 (Reuters) – India will immediately slash duties on high-end European cars to 30% from as high as 110% under its new trade deal with the EU, an official said, opening the tightly controlled market to luxury carmakers like BMW and Mercedes-Benz.
Effects on Domestic and European Automakers
India and the European Union finalised a long-delayed deal on Tuesday that will cut tariffs on most goods and boost trade, at a time when governments worldwide are seeking to hedge against fickle U.S. policy and manage growing trade tensions.
Future of Electric Vehicle Imports
India is the third-largest car market globally by sales after the United States and China. But its domestic auto industry has been among the world’s most protected, with the government levying tariffs of between 70% and 110% on imported cars.
PRICIEST EUROPEAN CARS BENEFIT FROM BIGGEST DUTY CUTS
While India agreed under the deal to reduce import tariffs on cars above an import price of 15,000 euros ($17,963) to 10% over time, details of how the reductions will be implemented were not disclosed publicly.
A senior Indian government official, however, said New Delhi agreed to immediately reduce import duties on 100,000 traditional internal combustion engine cars annually split between three price categories.
European cars with an import price of 15,000 euros to 35,000 euros will see tariffs reduced to 35%, with annual imports capped at 34,000 units, said the official, who asked not to be named as the deal still requires legal vetting.
Cars priced 35,000 euros to 50,000 euros will be charged a 30% duty, with imports limited to 33,000 units a year, the official said. And 33,000 cars priced over 50,000 euros will also be subject to a reduced tariff of 30%.
The two highest price categories will see the largest tariff reductions. And the cap for all three categories combined will be raised to 160,000 units over 10 years, the official said.
India’s trade ministry did not immediately respond to a request for comment on the details of the agreement.
MORE INDIANS DEVELOPING A TASTE FOR LUXURY
At a time when a growing number of Indians are developing a taste for opulence – from expensive homes to watches and even bathroom fittings – luxury cars made up less than 1% of the 4.4 million passenger vehicles sold in the country last year.
While executives have said that lower tariffs are unlikely to translate into immediate price cuts, they said the reductions will allow them to bring more vehicles to the market.
Lower import taxes should also be a boost for other European automakers such as Volkswagen, Renault and Stellantis, which have said increased trade will also result in increased technology transfer and shared supply chains.
LOCAL EV MANUFACTURERS TO REMAIN PROTECTED FOR NOW
India will, meanwhile, also cut import duties to 30% to 35% on a total of 20,000 European-made electric vehicles, the official said, but only five years after the trade deal is implemented.
Those tariff cuts will only apply to EVs priced above 20,000 euros in order to protect domestic players like Tata Motors and Mahindra.
Similar to combustion engines, the duty on EVs will reduce to 10% over five years and the annual import quota will rise to 90,000 units, the official added.
($1 = 0.8367 euros)
(Reporting Shivangi Acharya; Editing by Joe Bavier)
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