FTA: Only genuine European car cos will get duty benefits

New Delhi: The benefits of lower duty access for passenger vehicles will flow to European Union’s “traditional” carmakers, providing further comfort to domestic players as the market opening up is for vehicles priced above Rs 25 lakh and for specific numbers.

Under the agreement, India will grant an annual quota of 1.6 lakh diesel and petrol vehicles, and 90,000 for electric vehicles (EVs), when the full benefits are given. While the benefits of lower tariff of 30% or 35%, depending on the cost, will flow to internal combustion engine vehicles in the first year, for electric vehicles no benefits are available until the fifth year. By the 10th year, duty will fall to 10% for a maximum 2.5 lakh cars. India’s quota starts with one lakh once the treaty is effective, then rises to 2 lakh units in the 10th year and then 2.5 lakh in 14th year.


Duty for completely knocked down (CKD) kits for 75,000 ICE vehicles will also be halved from the current 16.5%, a move that is expected to bring down the prices of luxury cars assembled in India.

Carmakers such as BMW and Mercedes have said that over 90% of the cars now sold in India are assembled locally. Industry players said that these companies, instead of importing kits have been shipping in components, which attract 5-7% duty.

Officials said the treaty provisions have been designed in a way that only genuine European carmakers, some seven-eight manufacturers, can take advantage of the concessions, addressing a major worry among auto players from both sides. As a result, the benefits are likely to flow to BMW, Mercedes, Audi, Skoda-Volkswagen, Stellantis (which has brands such as Citroen, Fiat and Jeep in its portfolio), Volvo and Renault.`

“What auto companies have told us is that they will use import route for testing the market for models that they intend to launch. We have designed the package in a way that there will be local assembly once the number of vehicles sold here goes up,” a senior govt official said, adding that the quota will not cross three lakh units at any time. Officials said overall number of vehicles imported will be under 2.5% the sales in India.

For Indian carmakers, EU will provide a quota that is 2.5 times higher than what India will offer to the trading bloc. This means that for vehicles that cost up to 50,000 euro, the quota for India will be 6.25 lakh vehicles. “We want to capture the market and bring in supply chains. Auto part concession goes down to zero in the 10th year, so that we can bring in supply chains here and do value addition,” another official.