In what could turn out to be a watershed moment for the Indian automotive industry, India is set to sharply reduce import duties on cars from the European Union, as part of an upcoming Free Trade Agreement (FTA) between the two sides. According to a Reuters report, import tariffs on European cars will be cut to 40% from the current 70–110%, with a roadmap to bring duties down further to as low as 10% over time. The trade pact, which is being described as the “mother of all deals”, is expected to be formally announced as early as this week, following years of negotiations between India and the 27-nation EU bloc.
Limited quota, phased liberalisation
As per sources familiar with the talks, the reduced import duty will initially apply to a limited number of vehicles, estimated at around 200,000 cars annually, all priced above Euro 15,000 (around Rs 15.5 lakh). This quota-based approach is aimed at preventing a sudden surge of imports while still giving European manufacturers significantly improved access to the Indian market. Over time, the import duty is expected to be reduced further to 10%, marking the most aggressive tariff liberalisation India has ever undertaken in the passenger vehicle segment.
EVs excluded to protect domestic investments
Crucially, battery electric vehicles (EVs) will be excluded from these duty cuts for the first five years. This move is intended to protect the rapidly growing domestic EV ecosystem, particularly investments made by Indian manufacturers such as Tata Motors and Mahindra. After the initial five-year protection period, EVs are expected to follow a similar tariff-reduction trajectory.
Major boost for European automakers
The proposed changes are expected to significantly benefit European carmakers including Volkswagen, Mercedes-Benz, BMW, Renault and Stellantis. Many of these brands already manufacture vehicles locally but have long argued that high import duties limited their ability to bring in premium and niche models. Lower tariffs will allow manufacturers to price imported models more competitively, expand their portfolios, and test market demand before committing to deeper localisation and fresh investments.
Strategic shift for India’s auto sector
India is currently the world’s third-largest car market, selling around 4.4 million vehicles annually, yet remains one of the most protected automotive markets globally. Imported cars face some of the highest duties in the world — a policy frequently criticised by global auto executives, including Tesla CEO Elon Musk.
With the Indian car market projected to grow to 6 million units annually by 2030, the government’s move signals a measured shift towards controlled liberalisation. While the market opens up to global competition, safeguards like quotas and EV exclusions ensure domestic manufacturers are not immediately exposed to disruptive shocks.
Trade-offs beyond automobiles
For India, lowering car tariffs is a strategic concession aimed at securing broader trade benefits. The EU trade deal is expected to improve access for Indian exports such as textiles and jewellery, sectors that have been impacted by higher tariffs in other global markets.
What it means for buyers
If implemented as outlined, the deal could eventually lead to significantly lower prices for imported European cars, particularly in the premium and luxury segments like Mercedes Benz, Audi, BMW, Jaguar Land Rover and Volvo. While mass-market vehicles may remain largely unaffected in the short term, the long-term impact could reshape India’s automotive landscape by increasing choice, competition and technology inflow. If finalised, this agreement will mark a historic turning point — opening India’s car market wider than ever before, while balancing growth, protection and long-term competitiveness.
