India–EU Trade Deal to Cut Car Import Tariffs Sharply

India is set to significantly open its automobile market under a proposed free trade agreement with the European Union, marking a major shift in its long-protected trade policy. As part of the deal, India will reduce import duties on select European passenger cars from as high as 110 per cent to 40 per cent, signalling a breakthrough in the long-stalled India–EU free trade negotiations.

Key tariff cuts under the proposed agreement

Under the agreement, India will immediately lower import duties to 40 per cent on a limited number of EU-built passenger vehicles priced above €15,000. Over time, these tariffs are expected to be reduced further, potentially reaching as low as 10 per cent. The concession is among the most substantial India has offered in the auto sector and is expected to reshape competition in the world’s third-largest car market.

Boost for European automakers

Lower duties will directly benefit major European manufacturers such as Volkswagen, Mercedes-Benz and BMW, allowing them to price premium models more competitively in India. While several European brands already assemble vehicles locally, high import tariffs have constrained the launch of fully built and niche models. The reduced duties will enable automakers to test demand before committing additional investments in local manufacturing.

Safeguards for domestic EV industry

Electric vehicles will remain excluded from tariff reductions for the first five years of the agreement. This provision is aimed at protecting domestic EV manufacturers such as Tata Motors and Mahindra & Mahindra, which are expanding capacity in the early-stage electric mobility segment. After the initial protection period, EVs are expected to see gradual duty reductions similar to conventional vehicles.

Important Facts for Exams

• India–EU FTA negotiations have continued intermittently for over a decade.
• India currently levies up to 110% duty on fully built imported cars.
• EVs are excluded from tariff cuts for the first five years.
• European brands hold under 4% share of India’s car market.

Strategic and economic implications

Beyond automobiles, the trade pact is expected to expand bilateral trade across sectors such as textiles, apparel and jewellery. The timing is significant, as Indian exporters face pressure from high US tariffs, while European firms seek growth outside slowing home markets. If finalised, the agreement would represent one of the most consequential shifts in India’s trade and industrial policy in decades.