India Offers EU Auto Quota Six Times Larger Than UK Deal

India has agreed to give European automakers a quota more than six times larger than any it has offered in recent times, slashing tariffs under a trade pact with the European Union and granting far greater access to its tightly protected car market.

The agreement will gradually allow up to 250,000 European-made vehicles to enter India at preferential duty rates, according to people familiar with the negotiations — far above the 37,000-unit quota extended to the UK under a separate deal.

Of this, about 160,000 units with internal combustion-engine cars will see import duties fall to 10% within five years while for 90,000 electric vehicles, this levy will kick in by the 10th year to protect the nascent Indian electric vehicle market, the people said. The initial in-quota tariffs will start at about 30% for most segments.

Beyond this quota, the trade pact has negotiated a rate cut to 35% over 10 years for fossil-fuel powered cars, they added. This is a substantial markdown since India currently charges as much as 110% on imported cars.

The larger allocation reflects the bloc's much bigger auto market and will benefit manufacturers including Volkswagen AG, Mercedes-Benz Group AG, Stellantis NV and Renault SA.

The pact includes a review clause allowing quotas to be reassessed periodically to reflect India's booming auto market and any concessions offered to future trade partners, including the US, one of the people said. Reviews will be linked to steel — a key priority for India — giving both sides leverage in future negotiations, the person said.

The unprecedented quota underscores how both sides are using the pact to reset their trade relationship. For Europe, it deepens access to the fast-growing market long shielded by steep tariffs, while India secures reciprocal access for its own automakers as it pushes to expand exports and boost manufacturing. The auto sector concessions are part of a larger trade pact that also slashes duties on wine, spirits and beer, while preserving protections for politically sensitive farm sectors on both sides.

The EU will offer Indian automakers such as Mahindra & Mahindra Ltd., Tata Motors Passenger Vehicles Ltd. and Maruti Suzuki India Ltd. import concessions covering up to 625,000 vehicles, a number calibrated to reflect the relative size of the two markets, one of the people said.

Tariffs on India-made electric vehicles imported into the bloc within quotas will be eliminated over 10 years, the person said. Smaller, lower-cost EVs will be phased in more slowly over 14 years, starting at 27,500 units in year five and rising to 125,000 units — about 2% of EU's market based on current forecasts, according to one of the people.

To be sure, while the agreement gives European carmakers a clearer pathway to deepen their presence in India — and potentially operate with lower levels of local manufacturing investment than they have long sought to avoid — the timing of the tariff cuts will be critical in determining how valuable the concessions prove in practice.

With the steepest reductions phased in over several years, companies' ability to capitalize on the deal will hinge on how quickly lower duties take effect and whether demand in India's premium and electric segments accelerates as expected.

India also agreed to reduce out-of-quota tariffs on European combustion-engine cars to between 30% and 35% over a decade, the people said.

In addition to finished vehicles, European carmakers will be allowed to export up to 75,000 cars a year, priced above €15,000 (about $17,800), for assembly in India from completely-knocked-down kits. Tariffs on those imports will be cut to 8.25% from 16.5%, according to a person familiar with the details.

Duties on car parts will be reduced to zero, the people said, supporting deeper supply-chain integration between Europe and India. Europe is a major export market for Indian auto component suppliers, while higher pricing for Europe-made parts is expected to limit the impact on India's domestic manufacturing industry.

The agreement stops short of sweeping market opening, the person said, adding that it underscored the constraints the bloc faced in talks with India, especially after New Delhi tied progress to its demands on steel. Even with the deal in place, new EU regulations on that sector are likely to curb India's effective access to the market, the person said.

Source: Bloomberg