India to cut car import tariffs from 110% to 40% under new EU trade deal

India will lower taxes on cars brought in from European Union countries, dropping rates from as high as 110% down to 40%, according to sources familiar with the matter. The move marks the biggest step yet in opening India’s large auto market and could be announced as soon as Tuesday when the two sides reveal a new free trade agreement.

Prime Minister Narendra Modi’s administration has agreed to cut the tax right away on a set number of vehicles from the 27 EU countries, as long as those cars cost more than 15,000 euros, which equals about $17,739.

Two sources that know about the discussions told Reuters this information. The tax will drop even more over time, going down to just 10%. This makes it easier for European car companies like Volkswagen, Mercedes-Benz and BMW to sell in India.

Deal expected to boost bilateral trade

The sources asked not to be named because the talks are private and things could still change at the last minute. India’s commerce ministry and the European Commission both said they would not comment.

India and the EU expect to announce on Tuesday that they have finished long-running talks for the free trade deal. After that, both sides will work out final details and approve what people are calling “the mother of all deals.”

The agreement could increase trade between the two and help Indian exports of products like textiles and jewelry, which took a hit from 50% tariffs imposed by the United States since late August.

India ranks as the world’s third-biggest car market by sales, coming after the United States and China. But its car industry has had strong protection from outside competition. Right now, New Delhi charges tariffs of 70% and 110% on cars brought in from other countries. Business leaders, including Tesla chief Elon Musk, have often criticized these high rates.

New Delhi wants to cut import duties to 40% immediately for roughly 200,000 combustion-engine cars each year, one source said. This represents India’s most aggressive effort so far to open up the sector. The quota number might still change before everything is final, the source added.

Electric battery vehicles will not see any import duty cuts for the first five years. This protects money already put in by Indian companies like Mahindra & Mahindra and Tata Motors, which are building up this new part of the market, both sources said. After five years pass, electric vehicles will get similar tax cuts.

European brands hold small share of Indian market

Lower import taxes will help European carmakers such as Volkswagen, Renault and Stellantis, along with luxury brands Mercedes-Benz and BMW. These companies already make some cars in India but have had trouble growing beyond a certain point, partly because of the high tariffs.

Cheaper taxes let carmakers sell imported vehicles at lower prices and try out the market with more models before deciding to build more cars in India, one of the two sources explained.

European car companies hold less than 4% of India’s car market, which sells 4.4 million units each year. Japan’s Suzuki Motor dominates, and Indian brands Mahindra and Tata together control two-thirds of sales.

The Indian market should grow to 6 million units yearly by 2030, and some companies are already planning new investments. Renault is returning to India with a fresh strategy as it looks for growth outside Europe, where Chinese carmakers are gaining ground. Volkswagen Group is working on its next round of investment in India through its Skoda brand.

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