A visiting delegation of members of European Parliament has warned that India has to reduce duties on cars and wines and spirits if the long overdue Indo-EU free trade agreement is to be finalised by the end of this year.
The FTA has been under discussion for over 5 years and has already missed three deadlines. It is expected to more than double the current bilateral trade of $100 billion ( Rs. 530,000 crore). However, negotiations are stuck on a variety of issues like duties on cars and wines and spirits, intellectual property rights, labour reforms and environmental protection.
"The difference in the rate of duties on cars in India and Europe is huge and needs to be rationalised," said Graham Watson, member, committee on foreign affairs, European Parliament. "I would say that along with the duties on wines and spirits, it is one of the critical issues that are holding up the FTA. We are hopeful we will hammer out a solution by December but nothing is certain."
Import duty on cars in India ranges from 60% to 75%. The effective rate goes up between 115 and 150% with the addition of other levies. The domestic industry has, however, strongly opposed any reduction in duties. "They are giving it on a platter to EU because of the pressure and the Auto Mission Plan (AMP) that has laid out a roadmap of achieving a turnover of $145 billion by 2016 has been completely hijacked by the commerce ministry," said Sugato Sen, senior director, SIAM.
EU is reported to have asked for lowering duties for cars with engines bigger than 1500 cc to 30% over the next 3 years and for those with smaller engines at a more extended timeline. Another formula being devised could be allowing a fixed number of cars to be imported at a concessional duty between 10 and 15% every year.
"I do not think lowering duties will mean European companies in India would rethink their investments, either from the past or in future," said Jo Leinen, member, European Parliament. "The cost of production in Europe is high and to compete here on volumes, a factory here would always make sense. Be it BMW, Audi, Mercedes or Volkswagen, all of them have factories here anyway."