The recently signed Free Trade Agreement (FTA) between the UK and India is set to significantly alter the landscape of India's luxury car market. While the agreement slashes import duties on premium British cars, offering a potential boon for luxury car enthusiasts, the liberalization of import duties on electric vehicles (EVs) will take a more gradual approach.
Under the FTA, India will reduce tariffs on automotive imports from the UK from the existing 100-110% to as low as 10%. This reduction, however, comes with a caveat: it will be implemented under a quota-based system. This means that only a fixed number of vehicles, primarily completely built units (CBUs), will be eligible for the lower tax rate. Once the quota is exhausted, the standard duties will continue to apply. The exact quota hasn't been specified yet.
This move is expected to significantly reduce the prices of high-end models from Jaguar Land Rover's (JLR) UK portfolio, such as the Range Rover SV and upcoming Jaguar EVs. A spokesperson for JLR welcomed the agreement, anticipating reduced tariff access to the Indian car market for JLR's luxury vehicles. However, the FTA's impact will be limited for models like the Range Rover Sport, Velar, and Evoque, as they are already locally assembled and do not attract full CBU duties. Also, the Land Rover Defender, manufactured in Slovakia, will continue to be taxed at the regular CBU rate.
The government has decided to postpone import duty concessions for EVs and other green vehicles to protect domestic manufacturers. During the first five years of the agreement, no concessions will be granted to electric, hybrid, and hydrogen-powered vehicles. This measure aims to safeguard the interests of Indian companies that are investing in the production of clean cars.
Market access has primarily been granted to high-priced EVs exceeding £80,000 (approximately Rs 94 lakh). Vehicles priced below £40,000 will not receive market access, ensuring complete protection for the mass-market EV segment, where India aspires to achieve global leadership. Starting in the sixth year, any increase in EV imports under concessional rates will lead to a proportional reduction in quotas for internal combustion engine (ICE) vehicles. The aim is to maintain a cap of 37,000 units by the 15th year.
For large-engine petrol cars (above 3000 cc) and diesel cars (over 2500 cc), India has committed to reducing the current customs duty to 10% over 15 years, within a quota that starts at 10,000 units and increases to 19,000 in the fifth year. Mid-sized cars (1500–2500 cc diesel / up to 3000 cc petrol) will face a 50% in-quota duty initially, which will decrease to 10% by the fifth year. Small cars (under 1500 cc) will follow a similar tariff reduction path with a growing quota.
The FTA's carefully structured framework aims to promote collaboration in electric mobility and R&D. By excluding vehicles under £40,000 from duty concessions, the agreement protects the mass-market segment. While the reduction in import duties is expected to make high-end vehicles more accessible, the implementation of quotas is intended to prevent a sudden surge in imports and protect the Indian auto industry. The long-awaited FTA is a significant step forward in the economic ties between India and the UK, with a phased, quota-based liberalization strategy focused on development and protection of domestic interests.
