The proposed India-EU free trade agreement — likely to be signed by April — seeking the removal of import duties on automotive products, will see a drastic reduction in prices of imported luxury cars by as much as 38%.
For instance, a BMW 7 series car made in Germany that presently costs Rs 84 lakh will become cheaper by over Rs 30 lakh.New cars and SUV imports at present attract 60% duties that turns out to be more than 100% finally with the addition of various other levies like countervailing duty to neutralise the effects of subsidies and VAT which, for the buyer is a tax on purchase.
Thus, the price of a completely imported car from Europe is more than doubled by the time it finds a customer in India.
Prices of cars of which components are imported and assembled here will also go down, as the 10% import duty on components will be scrapped. But the fall in prices will work out to 9% only.
But chances of import duties getting completely removed seem unlikely, as the domestic industry is already claiming the pact will have a disruptive effect on the market.
What's more, the two prominent players in Indian market — Japan and South Korea — do not enjoy any duty relief, as cars feature in the negative list in the bilateral trade pacts with them.
So, while a made in Sweden Volvo XC60 will see its price fall from Rs 40.5 lakh to Rs 25 lakh, its Japanese competitor Mitsubishi Montero will still cost Rs 39 lakh.
“A preferential treatment with the EU will be unfair to the industry at large,” an executive of a leading Japanese automaker said.
“The government should encourage domestic production, and not incentivise imports."
Also, an internal report of the European Commission revealed that the free trade pact would be detrimental to India's car industry, as 4% of India's automobile production — worth $1.3 billion (Rs 6,000 crore) — would move out of the country and would be replaced by cars made in Europe.
It said the EU's share in the Indian market would go up from 26% to 82.5% by 2020, while the share of vehicles made in India in the EU market will rise only marginally to 1.3% during the period.
The increased market-share will jack up the value of European vehicle industry by $1.8 billion (Rs 8,100 crore) by 2020, while the benefit to the Indian industry will be $87 million (Rs 392 crore).