India is preparing its biggest opening yet of the tightly protected automobile sector by agreeing to sharply cut import tariffs on cars from the European Union, as New Delhi and Brussels move toward finalising a long-awaited free trade agreement that could be announced as early as Tuesday (Jan 27), sources said.
Under the proposed deal, India plans to reduce import duties on certain EU-made cars to 40 per cent from current levels that can reach as high as 110 per cent. Over time, the tariff would be lowered further to just 10 per cent, significantly easing access to one of the world’s fastest-growing car markets for European automakers such as Volkswagen, Mercedes-Benz and BMW, according to two sources briefed on the talks.
The immediate cut would apply to a limited number of cars imported from the 27-nation EU bloc with a price above 15,000 euros (US$17,739). The sources, who declined to be identified because the negotiations are confidential and subject to last-minute changes, said the move reflects a major compromise by Prime Minister Narendra Modi’s government as it seeks to seal what officials have described as “the mother of all deals” with the EU.
India’s commerce ministry and the European Commission declined to comment.
The free trade pact, once concluded, is expected to boost bilateral trade and help Indian exporters of textiles, jewellery and other labour-intensive goods, which have been hit by steep 50 per cent US tariffs since late August. For the EU, improved access to India’s massive consumer market has been a central demand throughout years of stop-start negotiations.
India is the world’s third-largest car market by sales after the United States and China, but it has long shielded its domestic auto industry behind some of the highest import tariffs globally. New Delhi currently imposes duties of about 70 per cent on smaller imported cars and as much as 110 per cent on larger vehicles, a policy repeatedly criticised by global auto executives, including Tesla chief Elon Musk.
As part of the proposed agreement, India has offered to immediately slash import duties to 40 per cent for around 200,000 combustion-engine cars a year, one of the sources said, calling it the most aggressive step yet to liberalise the sector. The quota could still be revised before the deal is formally announced, the source added.
Battery electric vehicles will be excluded from any tariff reductions for the first five years, the sources said, reflecting India’s desire to protect heavy investments by domestic players such as Tata Motors and Mahindra & Mahindra in the nascent EV segment. After that period, electric vehicles would be subject to similar duty cuts as part of the phased liberalisation.
Lower import taxes would be a significant boost for European carmakers, including Volkswagen, Renault and Stellantis, as well as luxury brands Mercedes-Benz and BMW. While several of these companies already assemble or manufacture vehicles locally in India, high tariffs on imports have limited their ability to expand product offerings and grow market share beyond a certain point.
Cheaper imports would allow automakers to test Indian consumer demand with a wider range of models before committing fresh capital to local production, one of the sources said. European brands currently account for less than 4 per cent of India’s annual car sales of about 4.4 million units, a market dominated by Japan’s Suzuki Motor and Indian manufacturers Mahindra and Tata, which together control roughly two-thirds.
With India’s car market expected to expand to around 6 million units a year by 2030, European automakers are already lining up new investments. Renault is reworking its India strategy as it looks for growth beyond Europe, where Chinese carmakers are rapidly gaining ground, while Volkswagen Group is finalising the next phase of investment in the country through its Skoda brand.
If finalised, the EU-India trade pact would mark a watershed moment for India’s auto policy, signalling a gradual shift from protectionism toward deeper integration with global manufacturing and trade networks.
