India may bow to EU pressure, cut duty on cars

India may slash duties on import of luxury cars from European Union under the proposed free trade agreement, but with a quantitative restriction on the number of vehicles to be shipped in, sources said.

The option is being considered by the Commerce Ministry as a compromise between protecting the interest of the domestic automobile industry and the hard bargain being sought by the the 27-nation bloc for the much-delayed FTA to conclude, they said.

Under the FTA, officially known as Bilateral Trade and Investment Agreement (BTIA), the EU has sought substantial reduction or even elimination of duties in export of its automobiles,particularly the high-end passenger cars, to India.

"India may put restrictions on number of cars exported by automobile companies in EU. For example, we will fix a quota upto which a German or French automobile company can export cars every year," an official said.

Though Indian automobile industry has raised its serious concern over duty reduction, it has to be a 'give-and-take'. "Each of the big EU members is seeking market access for its dominant product/industry;otherwise why will they be interested to join BTIA," he asked.

The Indian industry,on the other hand, has cautioned against granting any such concession arguing that such an option would hit future investment.

Interestingly, some of the European giants like Skoda, Volkswagen, Mercedes, Audi and Renault have also set up their manufacturing facilities which may be impacted by cheap imports.

India and the EU have already been completed  10 rounds of negotiations, which started in June 2007. The pact is likely to conclude this year.

In return,India is seeking greater access for the services sector in EU among other things.

It is understood that the EU wants the import duty on luxury cars with minimum engine capacity of up to 1,500 cc to be reduced to 30 per cent from the existing 60%.

The domestic automobile industry has been citing India's FTA with Japan, which has given enough safeguard to the automobile sector. It has argued that two sets of rule cannot be applied for signing two FTAs.

The BTIA would liberalise trade in goods, services and opening of investments.

The EU is India's largest trading partner; bilateral trade in 2009-10 aggregated to $75 billion.