India Plans Major Cut in Import Duties on EU Cars as Free Trade Deal Nears
India is preparing to significantly reduce import tariffs on cars from the European Union, marking one of the biggest openings yet of its tightly protected automobile market. According to sources familiar with the discussions, import duties could be cut to 40% from the current peak of 110% as part of an upcoming India–EU free trade agreement.
The move comes as negotiations between India and the 27-nation European bloc enter their final stages, with an official announcement on the long-awaited trade pact expected as early as Tuesday.
Under the proposed framework, the government led by Narendra Modi has agreed to immediately lower import taxes on a limited number of European-made cars priced above €15,000 (around $17,700). Over time, these duties are expected to be reduced further, eventually reaching 10%, according to two sources briefed on the talks.
The sources requested anonymity as the negotiations are confidential and subject to last-minute changes. India’s commerce ministry and the European Commission have declined to comment.
‘Mother of All Deals’ Between India and EU
The proposed trade agreement has already been dubbed the “mother of all deals”, reflecting its potential scale and economic impact. Once formally announced, the pact will move into a ratification phase, with both sides finalising detailed schedules and sector-specific commitments.
The agreement is expected to significantly expand bilateral trade and provide relief to Indian exporters, particularly in sectors such as textiles and jewellery, which have faced headwinds from higher U.S. tariffs in recent months.
India, the world’s third-largest car market after the United States and China, has long maintained some of the highest import tariffs globally to protect its domestic auto industry. Currently, imported cars face duties ranging between 70% and 110%, a policy that has frequently drawn criticism from global auto executives, including Elon Musk.
Limited Quota, EVs Temporarily Excluded
As part of the initial phase, India has reportedly proposed allowing imports of around 200,000 internal combustion engine vehicles per year at the reduced tariff rate. This quota may still be revised before the deal is finalised.
Notably, battery electric vehicles (EVs) will be excluded from duty reductions for the first five years. The decision is aimed at safeguarding investments by domestic manufacturers such as Tata Motors and Mahindra & Mahindra, which are building capacity in India’s growing EV segment. After the five-year window, EVs are expected to follow a similar tariff reduction path.
Boost for European Automakers
Lower import duties could provide a significant boost to European carmakers, including Volkswagen, Renault, and Stellantis, as well as luxury brands like Mercedes-Benz and BMW.
While several of these companies already assemble vehicles locally in India, high import duties have limited their ability to introduce a broader range of models. Lower tariffs would allow manufacturers to test demand with imported vehicles before committing to larger manufacturing investments.
At present, European automakers account for less than 4% of India’s annual car sales of roughly 4.4 million units. The market is dominated by Suzuki Motor, along with domestic brands Tata and Mahindra, which together command nearly two-thirds of total sales.
Long-Term Growth Outlook
India’s passenger vehicle market is projected to grow to 6 million units annually by 2030, making it increasingly attractive for global manufacturers. Several companies are already lining up fresh investments, with Renault outlining a renewed India strategy and Volkswagen Group finalising its next phase of expansion through its Skoda brand.
If implemented as planned, the proposed tariff cuts could reshape India’s auto sector, increase competition, and offer consumers greater choice—while signalling a broader shift in India’s trade and industrial policy.
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