Stock markets, whether it is in India or across the globe, are currently driven by the tariff war. While Trump is after all the countries with its tariff sword, which has heavily impacted India with the reciprocal tariff last week, now it is the European Union that is asking India to remove its car import tax on automobiles, and this has been in talks for many years now. Finally, our Prime Minister is probably ready to offer a better deal to the EU, as per sources, to finalize the agreement. 

How much tariff reduction is under consideration?

As per Reuters, India may cut down tariffs from 100% and above to 10% on automobiles in different stages. However, the local automobile manufacturers want the tariff not to fall below 30%. They want India to charge a minimum of 30% tariff on the exports to the European Union. 

For the electric vehicles, the car manufacturers want the car import duties to remain as it is for the next four years at least, so that their businesses do not get hurt. This is justified by the reason EV is a new industry and needs time to grow. 

It is not just EU but the US has also asked India to remove the tariffs even on the EVs which has put immense pressure on the automobile industry in India. India sells around 4 million units of automobiles annually and have rigid entry barriers in the foreign markets. So, reducing the US car import tariffs can hurt the industry massively. 

Is India going to reduce the Tariffs?

As per sources, India’s Commerce Ministry has discussed the demands placed by the EU with the heavy industries ministry and auto industry representatives already in the previous week. India is ready to offer a better deal for the EU. Having said that, the EU is yet to provide any details of the discussion, but they said in the previous month that India and the EU have certain differences in the approach and objectives due to differences in goals, however, both countries are making an effort to close the deal. 

How will a reduction in tariffs affect the auto industry?

If tariffs are reduced, then Indian automobile manufacturers can see a reduction in their profit margins. Moreover, their revenue can dip as imported cars will be easily available at a lower price. This would heighten the competition for the domestic automakers. This is why they want the government to reduce tariffs on a limited number of cars (petrol-based) to 70% as of now from the current 100%. Then, later on, the car import tax can be reduced to 30% on these cars to help the domestic industry thrive. For EVs, they want the car import duties to remain unchanged until 2029 and then slash them to 30%, but on a limited number of EV models. 

Since the European Union is trying to explore the Indian market and thus, they are asking the country to reduce the tariff, the Indian government wants to capitalize on this situation and thus they also want the deal to close by the end of this year. 

The foreign carmakers that will get easy and better access to the Indian automobile industry include Volkswagen, BMW, and Mercedes-Benz. The US-based Tesla will also get better access with lower tariffs, and it is already planning to sell EVs in India, which are made in its Berlin factory.  

So, it will be interesting to see how these car tariffs are planned and how much India will reduce to offer a better deal to the EU. 

Source: CNBC TV

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