India’s proposed free trade agreement with the European Union could sharply cut car import duties, reshape competition in the world’s third-largest auto market, and open the door wider for European brands while shielding domestic EV players
India is set to sharply lower import tariffs on cars from the European Union, marking the most significant opening yet of its heavily protected automobile market as India and EU prepare to announce the conclusion of their long-awaited free trade agreement (FTA).
Under the proposed deal, India will immediately cut import duties on certain passenger cars from the EU to 40 per cent from current levels of up to 110 per cent, Reuters reported on Monday, citing sources briefed on the negotiations. The reduced tariff will apply to a limited number of vehicles with an import price above €15,000 (around $17,700), the report said.
According to the report, over time, the duty is expected to be reduced further to as low as 10 per cent, dramatically improving access for European carmakers such as Volkswagen, Mercedes-Benz and BMW to the world’s third-largest car market.
India and the EU are expected to formally announce the conclusion of the trade talks on Tuesday, ending years of on-and-off negotiations over what officials have dubbed the “mother of all deals”.
A breakthrough in a long-stalled negotiation
The proposed tariff cuts represent a major concession by Prime Minister Narendra Modi’s government, which has long shielded the domestic auto sector with steep import levies. India currently imposes duties of 70 per cent and 110 per cent on fully built imported cars, a policy that has repeatedly drawn criticism from global auto executives, including Tesla CEO Elon Musk.
According to the report, India has offered to cut import duties immediately to 40 per cent for around 200,000 internal combustion engine (ICE) cars a year from the EU. The quota and timelines could still be tweaked before the final announcement, the report said
Electric vehicles (EVs), however, will remain excluded from tariff cuts for the first five years of the agreement. This carve-out is aimed at protecting domestic investments by Indian manufacturers such as Tata Motors and Mahindra & Mahindra, which are scaling up production in the nascent EV segment. After the five-year period, EVs are expected to follow a similar path of gradual duty reductions.
India’s commerce ministry and the European Commission did not immediately respond to Firstpost’s request for comment.
Big boost for European automakers
Lower import duties are expected to benefit a wide range of European carmakers, including Volkswagen, Renault, Stellantis, Mercedes-Benz and BMW. While several of these companies already assemble vehicles locally in India, high import tariffs have limited their ability to bring in premium models or test the market with a broader product range.
Reduced duties would allow automakers to price imported vehicles more competitively and assess demand before committing additional capital to local manufacturing, the report said.
European brands currently account for less than 4 per cent of India’s annual car sales of about 4.4 million units. The market is dominated by Maruti Suzuki — the local arm of Japan’s Suzuki Motor — along with Indian manufacturers Tata Motors and Mahindra, which together control roughly two-thirds of sales.
However, with India’s car market projected to grow to nearly 6 million units a year by 2030, the FTA could alter competitive dynamics and unlock fresh investment. Renault is preparing a renewed push in India as it looks for growth beyond Europe, where Chinese automakers are rapidly gaining ground. Volkswagen Group, meanwhile, is finalising its next phase of investment in the country through its Skoda brand.
Trade deal comes amid global pressures
The India–EU trade pact is expected to go well beyond automobiles. Officials say it could significantly expand bilateral trade and help boost Indian exports of labour-intensive goods such as textiles, apparel and jewellery.
The timing is also critical. Indian exporters have been under pressure following the imposition of steep US tariffs — as high as 50 per cent — on certain goods since late August. A comprehensive deal with the EU could partially offset those losses and diversify India’s export markets.
For the EU, improved access to India’s fast-growing consumer market offers a strategic counterweight as European firms face slowing growth at home and intensifying competition from Chinese manufacturers globally.
If finalised as expected, the agreement would mark one of the most consequential shifts in India’s trade and industrial policy in decades.
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