India and the European Union are expected to announce a free trade agreement on Tuesday after lengthy negotiations, and India plans to reduce tariffs on car imports from the EU to 40% from 110%, Reuters reports, citing sources, writes UNN.
Details
The agreement, the publication writes, will pave the way for lower tariffs on European cars and wine and an expanded market for Indian electronics, textiles, and chemicals. Amid some observers expecting India to abolish 150% tariffs on European wine and cheese, The Economist writes that the agreement will be "less deep than others recently signed by the EU." "Controversial segments, including many agricultural products with high tariff rates, will be excluded. Others are reserved for individual agreements, including geographical indications that protect collective brands such as Greek feta cheese and French champagne or Indian Darjeeling tea and basmati rice."
Regarding cars, Reuters writes that Prime Minister Narendra Modi's government has agreed to immediately reduce the tax on a limited number of cars from 27 countries in the bloc with an import price of over 15,000 euros ($17,739), two sources familiar with the negotiations told Reuters.
They added that over time, this rate will be reduced to 10%, which will facilitate access to the Indian market for European automakers such as Volkswagen, Mercedes-Benz, and BMW.
The pact has already been called the "mother of all deals"
India and the EU are expected to announce on Tuesday the conclusion of lengthy negotiations on a free trade agreement, after which both sides will finalize the details and ratify what is being called the "mother of all deals."
The agreement could expand bilateral trade and increase Indian exports of goods such as textiles and jewelry, which have been subject to 50% US tariffs since late August.
India is the third-largest automotive market in the world after the US and China, but its domestic automotive industry has been one of the most protected. New Delhi currently levies tariffs of 70% and 110% on imported cars, a level often criticized by executives, including Tesla CEO Elon Musk.
New Delhi has offered to immediately reduce import duties to 40% for approximately 200,000 internal combustion engine vehicles per year, one source said. This, it was stated, is the most aggressive step towards opening up the sector. The source added that this quota could be changed at the last minute.
Two sources said that electric vehicles with batteries would not have reduced import duties for the first five years to protect investments by domestic players such as Mahindra & Mahindra and Tata Motors. After five years, electric vehicles will similarly have their duties cut.
The reduction in import taxes will be a boost for European automakers such as Volkswagen, Renault, and Stellantis, as well as luxury players Mercedes-Benz and BMW, who locally produce cars in India but have struggled to grow beyond a certain level partly due to high tariffs.
Lower taxes will allow automakers to sell imported vehicles at a lower price and test the market with a wider portfolio before committing to producing more cars locally, one of the two sources said.
Currently, European automakers hold less than 4% of the Indian car market, which produces 4.4 million cars annually, and is dominated by Japanese Suzuki Motor, as well as domestic brands Mahindra and Tata, which together account for two-thirds.
With the Indian market expected to grow to 6 million units per year by 2030, some companies are already planning new investments.
Renault is returning to India with a new strategy, trying to expand beyond Europe, where Chinese automakers are making strong moves, and the Volkswagen Group is finalizing its next round of investments in India through its Skoda brand, the publication writes.
If finalized and ratified by the European Parliament, which could take at least a year, the trade pact will boost Indian exports, such as textiles and jewelry, an Indian official said. Negotiations resumed in 2022 after a nine-year hiatus, gaining momentum last year amid rising global trade tensions.
The announcement could come after Indian Prime Minister Narendra Modi's meeting with European Council President António Costa and European Commission President Ursula von der Leyen, who will co-chair the India-EU summit during their visit to India from January 25 to 28, an Indian government source said.
An EU official said the bloc aims to "conclude negotiations on a free trade agreement" during the summit, before both sides go through internal procedures prior to signing.
Both sides also expect to sign a security and defense pact – Europe's third in Asia after agreements with South Korea and Japan – along with a mobility agreement covering highly skilled workers and students, the official said.