As India and the European Union move toward finalising a long-negotiated free trade agreement, the question of customs duties on imported automobiles has returned to the policy spotlight. BMW Group India has said that if the proposed India-EU Free Trade Agreement includes calibrated reductions in import duties on completely built units (CBUs), it could help expand India’s currently small luxury car market.
The comments reflect industry expectations, not confirmed policy outcomes, and any change would depend on final FTA provisions and subsequent tariff notifications.
India’s Luxury Car Market: Small Segment, High Entry Barriers
India is the third-largest passenger vehicle market globally by volume, after the US and China. However, the luxury segment remains structurally small, accounting for around 1% of total passenger vehicle sales.
One of the primary reasons cited by global automakers is India’s high effective customs duty on imported cars, which significantly raises retail prices and limits demand beyond a niche consumer base.
Current Customs Duty Structure on Imported Cars
At present, passenger vehicles imported as CBUs attract steep tariffs:
- Vehicles priced below USD 40,000 are subject to a basic customs duty of around 70%.
- Vehicles priced above USD 40,000 attract an effective customs duty of approximately 110%, once basic duty, social welfare surcharge, and applicable cess are taken into account.
These rates place India among the most protected auto markets, particularly for high-end vehicles.
BMW India’s Position: Conditional and Market-Linked
BMW India’s President and CEO has described the India-EU FTA as a potential milestone for trade and technology collaboration, while stressing the need for balanced, reciprocal provisions. From the company’s perspective:
- Reduced duties on CBUs could allow luxury manufacturers to expand product offerings, introduce globally popular models, and test demand in India.
- CBUs currently account for around 5% of BMW India’s sales, with the bulk of volumes coming from locally assembled models.
Importantly, BMW India has framed its position in conditional terms, emphasising that outcomes depend on final FTA terms.
Imports and Localisation: A Sequenced Argument
Luxury carmakers argue that initial demand creation through limited imports does not necessarily undermine domestic manufacturing. Instead, they suggest that:
- a larger luxury market base could, over time, justify deeper localisation, and
- imports can serve as a market-testing mechanism before committing to higher local investment.
However, such localisation is not automatic and would depend on sustained demand, policy stability, and cost competitiveness.
Trade Policy Sensitivities and Global Context
India’s automotive tariff regime has been repeatedly criticised by global industry leaders, including Elon Musk, as a barrier to market entry. Indian policymakers, in contrast, have defended high duties as a tool to:
- protect domestic manufacturers, and
- incentivise local production.
Any tariff concession under the India-EU FTA would therefore represent a selective and negotiated opening, rather than a broad liberalisation of the auto sector.
Why Luxury Cars Are Seen as a Limited-Risk Category
Industry executives argue that tariff concessions on luxury vehicles:
- would affect only a very small share of the overall market,
- would not directly compete with mass-market domestic players, and
- could expand consumer choice without materially disrupting the broader auto ecosystem.
This remains an industry position, not a policy determination.
Status of the India-EU Free Trade Agreement
While India and the EU are expected to announce the conclusion of negotiations, it is important to note that:
- the FTA has not yet been ratified,
- final tariff schedules have not been published, and
- no binding commitment on automobile duty reduction has been notified.
Any customs duty change would require:
- inclusion in the final FTA text, and
- corresponding amendments to India’s customs tariff framework.
Conclusion
BMW India’s comments highlight the ongoing tension between industrial protection and trade integration in India’s auto policy. The luxury segment, by virtue of its small size, is being positioned by industry as a testing ground for calibrated liberalisation under future trade agreements.
Whether the India-EU FTA ultimately delivers customs duty relief for imported cars will depend on how negotiators balance domestic manufacturing priorities with trade reciprocity. If adopted, such a move would signal targeted adjustment rather than a structural shift in India’s automotive tariff regime.
Source: ET