India is preparing for a significant shift in its long-standing protection of the automobile sector, with plans to sharply reduce import duties on cars from the European Union as part of the impending India–EU Free Trade Agreement. Import tariffs that currently go as high as 110 per cent could soon be lowered to 40 per cent for a select category of vehicles, signalling one of the boldest openings of the Indian car market in decades.
As reported by Reuters based on source inputs, the government has agreed to immediately reduce duties on a limited number of cars priced above 15,000 euros from the 27-nation bloc. Over time, this duty could fall further to 10 per cent, offering European carmakers far easier access to Indian consumers than ever before.
Guarded Market Begins To Ease
India has historically imposed steep duties ranging between 70 per cent and 110 per cent on fully imported vehicles, a policy frequently criticised by global automobile leaders, including Tesla CEO Elon Musk. The proposed change marks a notable departure from this approach.
According to Reuters, the initial reduction to 40 per cent would apply to around 200,000 combustion engine vehicles annually. However, battery electric vehicles will remain outside the scope of this relaxation for the first five years. This exemption is seen as a measure to safeguard domestic manufacturers such as Tata Motors and Mahindra & Mahindra before similar concessions are gradually extended to the EV segment.
European brands such as Volkswagen, Mercedes-Benz and BMW, which currently account for less than 4 per cent of India’s 4.4 million unit annual car market, stand to gain the most from this policy shift. With projections placing India’s car market at nearly six million units by 2030, the reduced tariffs offer foreign manufacturers an opportunity to gauge demand through imports before committing to large-scale local production.
Trade Calculus Beyond Automobiles
The tariff rethink is closely tied to the broader India–EU Free Trade Agreement, which is expected to deepen economic ties between the two partners at a time of rising global trade pressures. The European Union is already India’s largest goods trading partner, with bilateral trade reaching $136.53 billion in 2024–25. Trade in services has crossed $83 billion.
Officials view the deal as a way to cushion Indian exporters against the impact of high US tariffs while also helping diversify supply chains away from China amid changing geopolitical realities.
‘Mother Of All Deals’ Inches Closer
Commerce and Industry Minister Piyush Goyal has earlier described the India–EU FTA as the “mother of all deals”. Negotiations that began in 2007 are now close to conclusion after nearly 18 years of back and forth.
The announcement of the agreement is expected during the India–EU Summit on January 27, where Prime Minister Narendra Modi will meet European Commission President Ursula von der Leyen and European Council President Antonio Costa. The tariff relaxation on cars is expected to be one of the most closely watched outcomes of this long-awaited trade pact.
