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Up to 2.5 lakh Indian-made passenger vehicles could initially qualify for concessional EU import duties. (Image: Google)
New Delhi: India’s automobile exports to Europe could get a significant push under the proposed India-EU Free Trade Agreement, with the European Union (EU) planning concessional import duties for thousands of passenger vehicles manufactured in India. Under the draft agreement, up to 2.5 lakh Indian-origin passenger vehicles could enter the EU market each year at an 8% tariff during the initial phase. The quota is designed to expand progressively, reaching 4 lakh vehicles annually from the 10th year of implementation.
The concessional arrangement will initially cover Indian-origin internal combustion engine cars and hybrid electric vehicles priced at up to Euro 50,000 on a CIF basis. The tariff will not remain at 8% for the entire period. Under the proposed schedule, the duty will decline to 6% in the second year, 4% in the third year and 2% in the fourth year. It is scheduled to reach zero in the fifth year. The tariff-rate quota mechanism means that the preferential duty will apply only to vehicles within the specified annual quota. Cars imported beyond the quota will remain subject to the applicable Most Favoured Nation (MFN) tariff.
The annual quota is also set to increase over time. Starting with 2.5 lakh vehicles in the first year, the permitted volume will gradually rise before reaching 4 lakh units from the 10th year onwards. The arrangement could create greater export opportunities for automakers manufacturing vehicles in India, particularly as the country continues to position itself as a competitive global production and export hub. However, the preferential quota for ICE and hybrid passenger cars will apply only to vehicles with a CIF value of up to Euro 50,000.
The agreement provides a separate tariff schedule for higher-priced ICE and hybrid passenger vehicles. Cars priced above Euro 50,000 will not receive the quota-based concession available to vehicles below that threshold. However, the import duty on these vehicles is also scheduled to decline gradually, falling from 8% in the first year to zero by the 10th year of the agreement's implementation. FTA is expected to be formally signed later this year and could come into effect from next year, subject to the required processes.
Battery electric vehicles, plug-in hybrid electric vehicles and other passenger vehicle technologies outside the ICE and HEV categories will come under separate tariff-rate quotas. For vehicles priced up to Euro 40,000 on a CIF basis, the concessional quota will begin from the fifth year of implementation. EU will initially permit 27,500 vehicles annually at an 8% duty. That quota will subsequently increase, reaching 60,500 vehicles in the ninth year and 1.25 lakh vehicles from the 14th year onwards. The tariff is scheduled to be eliminated from the ninth year.
Electric and other eligible passenger vehicles priced above Euro 40,000 and up to Euro 60,000 will also receive a separate quota from the fifth year. The initial annual quota will stand at 16,250 vehicles at an 8% tariff. It will gradually expand to 75,000 vehicles from the 14th year onwards, with the duty eventually reduced to zero. For vehicles priced above Euro 60,000, the concessional quota will begin in the fifth year with 6,250 vehicles eligible for the 8% tariff.
The quota is scheduled to rise to 13,250 vehicles in the ninth year and 25,000 vehicles from the 14th year onwards. The duty will be eliminated from the ninth year of implementation.
The tariff thresholds under the agreement are based on the CIF value of the vehicle. CIF refers to the cost, insurance and freight associated with bringing the vehicle to the EU port of entry. In simple terms, the CIF value includes the vehicle's purchase price along with shipping or freight expenses and insurance costs up to the destination port.
The proposed tariff concessions could strengthen India's position in the European automobile market by making vehicles manufactured in the country more competitive on price. For Indian automakers, the agreement could also provide greater visibility in a major global market while potentially encouraging investment in manufacturing capacity, supply chains and export-oriented production.
For European consumers, the phased reduction in tariffs could gradually expand access to vehicles manufactured in India, while the quota system will determine the number of vehicles eligible for preferential treatment during different stages of the agreement.
