Despite India opening up its automobile sector under the newly concluded free trade agreement (FTA) with the European Union (EU), more than 90% of the Indian auto market will remain protected, said the Commerce Ministry on Wednesday.
The government said it has adopted a calibrated, phased and development-oriented, quota-based liberalisation strategy to safeguard domestic manufacturers, while encouraging European original equipment manufacturers (OEMs) to set up local assembly operations in India.
“This serves as a stepping stone, moving foreign OEMs from importing to assembling and eventually to full localisation as they build local supply chains. This will bring high-end manufacturing processes, quality standards and advanced R&D practices into the Indian ecosystem,” the ministry said.
Under the agreement, import tariffs on EU-manufactured cars will be reduced from as high as 110% to 10% within an annual quota of 250,000 vehicles. This includes concessional duties for 160,000 internal combustion engine (ICE) vehicles and 90,000 electric vehicles (EVs) per year, with EV-specific concessions kicking in from the fifth year of implementation.
In addition, up to 75,000 completely knocked-down (CKD) ICE vehicles will be permitted annually at a reduced duty of 8.25%. Multiple pricing bands have been created, ranging from €10,000 (about ₹11 lakh) to €60,000 (around ₹66 lakh and above), with differentiated quotas and duty rates for each category. In the first year, duties will range between 30% and 35%.
“Nearly 90% of cars sold in India are priced below ₹15 lakh. The lowest price bands are fully protected, and some are partially protected. We have allowed competition, but not in a way that wipes out our industry,” Commerce Secretary Rajesh Agrawal said. “Our market is large. There is a chance that European manufacturers may not even be able to fully utilise the quota initially, but they may create demand.” The policy is aimed at stimulating demand and nudging European automakers to invest in India to serve the domestic market over the long term.
To prevent misuse of the concessional regime, the government has also built in safeguards to ensure that only traditional and long-standing EU automobile manufacturers benefit from the FTA.
“There were concerns that new manufacturers could set up shop in the EU and start dumping vehicles into India. That has been addressed,” said Darpan Jain, chief negotiator for the India-EU FTA. “India has reserved the right to allocate and limit quotas to established European manufacturers.”