India ‘mulls tax cut on British car imports under trade deal’

Indian carmakers have agreed to eliminate import tax on a limited number of vehicles in a trade deal with Britain “if the need arises”, according to a document seen by Reuters, offering better access to the world’s third-largest automobile market.

India currently levies 70 per cent and 100 per cent tax on car imports which will be reduced in a phased manner to 10 per cent by year five, but only for a maximum of 46,200 vehicles, according to a proposal made by the country’s leading auto lobby group to the government.

“As a fall back, zero per cent would also be acceptable, if the need arises during the negotiations,” the Society of Indian Automobile Manufacturers (SIAM) said in a submission to the commerce ministry which was seen by Reuters.

Outside of this limited quota, SIAM has proposed reducing the import tax on cars to 30 per cent over a 10-year period, a move Reuters has previously reported.

SIAM is now also willing to explore more cuts after the fifth year depending on how the overall import volume from Britain grows, it said. SIAM, which groups car makers from India’s top-seller Maruti Suzuki, to majors such as Tata Motors and Mahindra & Mahindra, and the commerce ministry did not respond to a request for comment.

India is one of the most protected automobile markets where import taxes are among the highest in the world of any major car making nation. This has drawn the ire of companies like Tesla, which shelved its entry plans last year.

The import tax reductions are aimed at opening up the Indian market, some experts say it might not do much as the number of vehicles proposed under the scheme is small.

India sold a record four million cars in the country last fiscal year ending March 31, 2023. SIAM’s proposal for zero duties is limited to 26,400 cars in the first year, and increasing to a maximum of 46,200 over a decade.

“The number of units that will benefit from this quota should also be seen in the context of the Indian market size,” said an industry source aware of the proposal, which applies only to combustion engine cars with electric, hybrid, hydrogen and fuel cell vehicles excluded.

Britain has only a handful of car factories run by the likes of Nissan, BMW and Tata’s Jaguar Land Rover. SIAM’s proposal on zero duties, however, is more geared towards cars with smaller engines which could provide greater benefit to companies like Nissan.

This is the first time Indian car makers have agreed to such cuts, caving to pressure from a government that wants them to give up their protectionist position.

The companies have previously argued such a move would dry up investment in domestic manufacturing by making imports cheaper and easier for global automakers. They also fear this could set a precedent in negotiating deals with others like the European Union (EU), Japan or South Korea, sources have said.

India and Britain started negotiations in January last year for a trade pact that could double trade to $100 billion (£79.9bn) by 2030.

The two countries previously missed an October 2022 deadline to conclude the deal and continue talking through the proposed deal. (Reuters)