Informed sources have revealed that India is poised to take a bold economic step by reducing tariffs on cars imported from the European Union to 40%, down from the current high rate of 110%. This move is part of a major effort to open India's vast market to European manufacturers, coinciding with expectations that a comprehensive free trade agreement between the two sides will be signed next Tuesday.
Details of the customs reduction and its immediate effect
Two sources familiar with the negotiations have indicated that Prime Minister Narendra Modi's government has given the green light to an immediate reduction in tariffs on a specific segment of vehicles imported from the European Union. This decision specifically targets vehicles with an import price exceeding €15,000 (approximately $17,700). The ambition doesn't stop there; plans suggest that these tariffs, levied on vehicles from the 27 EU member states, will be gradually reduced to just 10% over time, paving the way for European automakers to strengthen their presence in the Indian subcontinent.
Historical context: The end of the era of excessive protectionism
India has long been known for its strict protectionist policies toward its domestic automotive industry. New Delhi currently imposes tariffs ranging from 70% to 110% on imported cars, a policy intended to protect national companies like Tata and Mahindra. These tariffs have faced widespread international criticism, most notably from Tesla CEO Elon Musk, who considers them a barrier to the entry of advanced electric vehicles into the market. The new agreement represents a strategic shift in Indian economic policy, moving away from relative isolation toward greater integration into global supply chains, particularly after years of stalled trade negotiations with the European Union since 2013.
"The mother of all deals": mutual gains
The two sides are expected to officially announce the conclusion of marathon negotiations for a free trade agreement, after which the final touches will be put on and ratified in what observers are calling the "mother of all deals." The benefits of this agreement extend far beyond automobiles, encompassing a significant expansion of bilateral trade. For India, this agreement represents a lifeline for vital sectors such as textiles and jewelry, which have been suffering from pressure and declining exports due to the high US tariffs (50%) imposed since late August, making the European market a crucial strategic alternative.
Economic importance of the Indian market
This move is significant given the size of the Indian market, the world's third-largest car market in terms of sales after the United States and China. Opening this market to European giants like German and French automakers will create strong competition that could benefit Indian consumers in terms of both quality and price. It will also enhance India's attractiveness as a global investment destination amidst geopolitical tensions that are pushing companies to seek manufacturing and marketing alternatives outside of China.
