Will India-UK FTA drive down prices of British luxury cars?
What's the story
The recently signed Free Trade Agreement (FTA) between India and the UK could make British luxury cars more affordable in India. The deal will drastically cut import duties on select luxury models from the current 100-110% to just 10% over a period of time. However, this benefit will only be applicable to a limited number of completely built units (CBUs) imported each year.
Quota details
Limited supply under the quota
The exact number of units that will benefit from the lower tariffs has not been revealed yet. However, the quota varies by vehicle type, with up to 20,000 units for ICE vehicles in the first year, and fewer for other categories. Once this limit is crossed, the regular high duties will apply again. This means that while some luxury models could become significantly cheaper, others might continue to be priced at their current levels due to higher import duties.
Manufacturer impact
JLR likely to benefit the most
Luxury carmakers like Jaguar Land Rover (JLR) are likely to benefit the most from this deal. Models such as the Range Rover SV and new electric vehicles are likely to fall under this quota. However, it is worth noting that most JLR cars sold in India are already assembled locally, which means they aren't affected by the high CBU duties anyway.
Brand advantage
Other brands that could benefit
Other popular British brands like Aston Martin, Bentley, Mini, and Rolls-Royce could also take advantage of this agreement to reduce prices for a few select models. But managing the limited supply under the quota will be key. Some popular models, such as the Land Rover Defender, may not qualify for these reduced duties as they are manufactured outside India.
Strategic moves
Some manufacturers may opt for local assembly instead
The FTA presents a unique opportunity for luxury car manufacturers to rethink their strategies. For instance, JLR is considering locally assembling the Defender in India, which could cut its price by up to 20%. This move would be a departure from relying solely on the limited import quota and could make high-end vehicles more accessible to Indian consumers.
Market transformation
FTA will transform the Indian car market
Saurabh Agarwal, partner and automotive tax leader at EY India, said the reduction of import duties to 10% in five years for UK cars is one of the biggest wins from this FTA. He added that it will transform India's car market, especially for CBUs due to the steep duty reduction. However, he emphasized that these cars must meet the originating criteria of 35% Qualifying Value Content (QVC).