In a significant move that could reshape trade dynamics, Indian Prime Minister Narendra Modi announced on 27 January 2024 that India and the European Union have finalised a free trade agreement. This deal, dubbed ‘the mother of all deals’, aims to enhance India’s trade ties with Europe while providing substantial opportunities for both regions.
Key Highlights from the Agreement
- Tariff Reductions: India plans to reduce tariffs on European cars from as high as 110% to 40%, eventually easing them to 10%. This move is set to attract European automakers like Volkswagen, Mercedes-Benz, and BMW.
- Market Opening: The agreement will open up India’s substantial market to European goods, a vital step for enhancing bilateral trade which stood at US$136.5 billion in the last fiscal year.
- Broader Impact: The trade deal not only aims to benefit European manufacturers but also to bolster Indian exports, particularly in textiles and jewellery, which have faced steep tariffs from the United States.
Context and Implications
The agreement comes amid global shifts in trade partnerships. India’s commitment to liberalising its trade practices signals a desire to strengthen its economic resilience against uncertainties with the United States, especially post the 50% tariffs imposed by former President Donald Trump. The anticipated deal also follows similar recent agreements involving the EU with other countries, highlighting a broader strategy of diversifying trade relations.
The formal signing of the India-EU deal awaits legal vetting expected to last five to six months, with implementation anticipated within a year. It’s a pivotal moment for India’s burgeoning automotive industry as it seeks to draw in foreign investment while gradually transitioning to electric vehicles without compromising local manufacturers like Mahindra & Mahindra and Tata Motors.
Looking Ahead
As the world’s third-largest car market, India’s evolving trade policies could significantly alter the landscape for both domestic and global automakers. With projections estimating that the Indian car market will expand to 6 million units a year by 2030, international players are likely to keenly focus on this lucrative opportunity.