India plans a sharp reduction in tariffs on cars imported from the European Union (EU), lowering duties to 40% from as high as 110%, Reuters reported.
As New Delhi and Brussels move closer to sealing a long-awaited free trade agreement, Reuters reported that Prime Minister Narendra Modi’s government has agreed to immediately slash import taxes on a limited number of EU-made cars priced above 15,000 euros ($17,739).
The move would mark India’s biggest opening yet of its tightly protected automobile market. The Reuters report said that India and the EU are expected to announce what officials are calling “the mother of all deals” on Tuesday, this week.
Over time, the import duty on these vehicles will be further lowered to 10%, the report added. However, India’s commerce ministry and the European Commission have declined to comment.
Boost for European Carmakers
Under the proposal, India would cut import duties to 40% immediately for around 200,000 combustion-engine cars annually, calling it New Delhi’s most aggressive step to liberalise the sector. The quota, however, could still be subject to last-minute changes.
Battery electric vehicles will be excluded from the duty cuts for the first five years, a move aimed at protecting domestic investments by companies such as Mahindra & Mahindra and Tata Motors.
Lower import taxes are expected to benefit European automakers including Volkswagen, Renault, and Stellantis, as well as luxury brands Mercedes-Benz and BMW. While these companies already manufacture vehicles locally, high tariffs have limited their expansion in India.
With reduced duties, automakers will be able to sell imported models at lower prices and test the market with a wider range of vehicles before committing to additional local manufacturing.
At present, European carmakers hold less than 4% of India’s annual car market of 4.4 million units. The sector is dominated by Suzuki Motor of Japan and Indian brands Mahindra and Tata, which together control nearly two-thirds of the market. Reuters noted that India’s car market is projected to grow to 6 million units annually by 2030, prompting some firms to line up fresh investments.
Wider Strategic Stakes
More broadly, the proposed trade pact could significantly expand bilateral trade, particularly boosting Indian exports of textiles and jewellery, which have been affected by 50% U.S. tariffs imposed since late August, Reuters said.
India currently levies import tariffs of 70% to 110% on foreign cars, levels that have drawn criticism from global executives, including Tesla chief Elon Musk. India is the world’s third-largest car market after the United States and China.
Signalling a deepening engagement between the two sides, European Council President Antonio Luís Santos da Costa and European Commission President Ursula von der Leyen are attending India’s Republic Day celebrations as chief guests.
Speaking in New Delhi, von der Leyen said a “successful India makes the world more stable, prosperous and secure.”
The European Union is India’s largest trading partner, with bilateral goods trade reaching $135 billion in the 2023–24 financial year. Experts suggest the free trade agreement could deepen ties across multiple sectors, especially as global commerce faces disruption from Washington’s tariff-driven policies.
For India, the pact would be its ninth free trade agreement in four years, following deals with the UK, Oman, and New Zealand. For the EU, it comes after recent trade agreements with Mercosur, Japan, South Korea, and Vietnam.
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