India currently levies import duties of 70 per cent and 110 per cent on cars.India plans to reduce import tariffs on cars from the European Union to 40 per cent from levels as high as 110 per cent, people familiar with the talks told Reuters, marking its biggest step yet to open the auto market as both sides move towards a free trade agreement that could be announced as early as Tuesday.
The government has agreed to immediately lower duties on a limited number of cars from the 27-nation bloc priced above €15,000, two sources briefed on the negotiations said. The tariff will be reduced further to 10 per cent over time, easing access for European automakers including Volkswagen, Mercedes-Benz and BMW.
According to Reuters, the sources declined to be identified because the talks are confidential and subject to last-minute changes. India’s commerce ministry and the European Commission declined to comment.
Scope of tariff cuts and exclusions
India currently levies import duties of 70 per cent and 110 per cent on cars. Under the proposal, New Delhi would cut duties to 40 per cent immediately for about 200,000 combustion-engine vehicles a year, one of the sources said, adding that the quota could change before an announcement.
Battery electric vehicles will be excluded from the duty cuts for the first five years to protect domestic investments by Mahindra & Mahindra and Tata Motors, the sources said. After five years, electric vehicles would be brought under a similar reduction schedule.
The proposed pact, described by officials as a major agreement, could expand bilateral trade and support Indian exports such as textiles and jewellery, which have faced 50 per cent US tariffs since late August. India is the world’s third-largest car market by sales after the United States and China.
Impact on automakers and market
Lower import taxes would help European carmakers, including Volkswagen, Renault and Stellantis, as well as luxury brands Mercedes-Benz and BMW, which manufacture locally but have struggled to scale amid high tariffs. Reduced duties would allow companies to price imports more competitively and test demand with a wider range of models before committing to additional local manufacturing, one source said. European manufacturers currently hold less than 4 per cent of India’s roughly 4.4-million-unit annual car market, which is dominated by Suzuki Motor and Indian brands Mahindra and Tata, together accounting for about two-thirds of sales.
With the market projected to reach 6 million units a year by 2030, companies are lining up investments. Renault is revising its India strategy as it seeks growth beyond Europe, while Volkswagen Group is finalising its next phase of investment in the country through its Skoda brand.
