A quota in car concessions that will largely benefit traditional EU carmakers under the free trade agreement

New Delhi: India has fully protected its mass-market cars in a trade pact with the EU, extending import duty concessions only in a calibrated and phased manner for passenger vehicles priced above Rs 25 crore, subject to an annual quota of 2.5 million units, an official said on Wednesday.

In addition, the quota will largely be extended to traditional European Union (EU) carmakers, the official said.

India and the EU announced the conclusion of negotiations on the deal on Tuesday. It is expected to be signed and implemented only this year.

Under the agreement, India has provided a total annual quota of 1.6 lakh for diesel and petrol cars and 90,000 for electric vehicles (EVs).

India has not extended any customs concessions to cars priced below 15,000 Euros (CIF – Cost, Insurance, Transport) which after adding components like customs duty, GST and other charges like road tax etc.

About 90 percent of the Indian mass market in the domestic passenger car segment comes from the sub-Rs 25 lakh price bracket. The country’s passenger vehicle market, now the third largest in the world, amounts to more than 43,000 units per year.

“India is giving quotas mostly to large ICE (internal combustion engine) vehicles and high-end EVs while protecting sensitive segments of the Indian auto industry (small engine displacement ICEs and mid-low end EVs),” the official said. According to the free trade agreement, the quota is divided into three price bands for diesel and gasoline cars.

Cars with a price below 15,000 euros do not receive any customs relief.

For cars priced between €15,000 and €35,000, the import duty will be reduced to 35 percent in the first year of the pact’s implementation, with a quota of 34,000 units. Currently, the Indian market is around 2.5-3 thousand units in this range.

For cars priced between €35,000 and €50,000 and cars priced above €50,000, the duty will be reduced to 30 percent in the first year, with a quota of 33,000 units for each.

The total quota in the first year will be 100,000 units.

The 30-35 percent duty range will be gradually reduced to 10 percent for vehicles in all the above price bands by the fifth year from the current 110 percent, with the quota increasing to 160,000 units.

Duty on CKD (completely knocked down) units for 75,000 ICE vehicles will be reduced from 16.5 percent to 8.25 percent, a move expected to reduce prices of luxury cars assembled in India by makers such as Mercedes-Benz, BMW and Audi.

In the same way, there will be no concessions for electric cars with a price of up to 20,000 euros.

The quota of 90,000 is divided into three price bands: €20,000 to €40,000; €40,000 to €60,000; and over 60,000 euros.

EDS duty relief will begin in the fifth year of the pact’s implementation.

The duty and quota cuts will help EU manufacturers to launch new models and gradually start production in the country, the official said, adding that India’s quota starts at 100,000, then goes to 2,00,000 units in year 10 and then to 2.5 lakh in year 14.

The quota for CKD also starts from 75,000 till the fifth year and reduces to 50,000 in the 10th year. India’s quota will never exceed 3,000,000,000,000,000,000,000,000,000. There is no duty reduction for Semi-Knocked Down (SKD) units.

“And we expect the numbers to be less than 2.5 percent of our markets,” the official added.

For Indian car manufacturers, the EU will provide a quota that is 2.5 times higher than what India will offer to European manufacturers under the agreement. The EU has agreed to fully liberalize CKD and all vehicles over €50,000.

Below 50,000 euros, the quota for India is 6.25 lakh vehicles.

“We want to capture the market and bring supply chains. Auto parts concession will be reduced to zero in the 10th year so that we can bring supply chains here and create value addition,” the official said.

The EU will offer complete liberalization of the Indian automotive sector for ICEs, hybrids and battery electric vehicles.

The official added that easing norms for CKD imports will encourage OEMs (original equipment manufacturers) in the EU to set up local assembly lines.

This serves as a springboard that moves foreign OEMs from import to assembly, eventually to full localization as they build local supply chains.

This brings superior manufacturing processes, quality standards and advanced R&D practices to the Indian ecosystem, the official said.