India is preparing to make its biggest move yet toward opening its tightly protected automobile market, with plans to sharply reduce import tariffs on cars from the European Union as part of a landmark free trade agreement expected to be announced imminently.
According to sources familiar with the negotiations, New Delhi has agreed to slash import duties on select European cars to 40%, down from current rates that can reach as high as 110%. Over time, those tariffs are expected to fall further to just 10%, significantly improving access for European automakers to one of the world’s largest and fastest-growing car markets.
The agreement, which could be unveiled as early as Tuesday, would mark a major breakthrough in long-running trade talks between India and the 27-nation European Union.
Immediate relief for premium EU carmakers
The tariff cuts would initially apply to a limited number of vehicles imported from the EU with a declared import value exceeding 15,000 euros (around $17,700), according to two sources briefed on the talks. This would directly benefit premium European brands such as Volkswagen, Mercedes-Benz, and BMW, which have long argued that India’s steep import duties make their vehicles prohibitively expensive.
Under the proposed framework, India will immediately reduce duties on these vehicles, with a phased plan to lower them further over time. While the final structure could still be adjusted before formal announcement, the move represents India’s most aggressive step yet toward liberalising its auto sector.
The sources spoke on condition of anonymity, citing the confidential nature of the negotiations. India’s commerce ministry and the European Commission have declined to comment publicly.
A deal already being called “historic”
Officials and trade insiders are describing the India-EU agreement as the “mother of all deals,” reflecting its scope and economic significance. Once formally announced, both sides will move to finalise technical details and complete the ratification process.
The pact is expected to substantially boost bilateral trade, particularly at a time when Indian exports have come under pressure from abroad. Sectors such as textiles, gems, and jewellery have been hit by steep U.S. tariffs — reportedly as high as 50% — imposed since late August, making improved access to the European market especially valuable for India.
India’s auto market: huge, but heavily protected
India is currently the world’s third-largest car market by volume, trailing only the United States and China. Despite its size, the country’s domestic auto industry has remained one of the most shielded globally.
At present, India imposes import duties of 70% to 110% on foreign-built cars, a policy frequently criticised by global auto executives. Even Tesla CEO Elon Musk has publicly questioned the sustainability of selling imported vehicles under such a high-tax regime.
As part of the trade pact, India has proposed reducing import duties to 40% immediately for up to 200,000 internal combustion engine vehicles per year, according to one source. This quota, however, could still change before the agreement is finalised.
Electric vehicles excluded — for now
Notably, battery electric vehicles (EVs) will not benefit from the reduced import tariffs in the early years of the agreement. The sources said EVs will be excluded from duty cuts for the first five years, a move aimed at protecting domestic investments in India’s emerging EV sector.
Indian automakers such as Tata Motors and Mahindra & Mahindra have poured significant resources into building local EV manufacturing capabilities. The government is keen to shield these investments as the sector gains traction.
After the initial five-year protection period, EVs imported from the EU are expected to follow a similar tariff-reduction pathway as combustion-engine vehicles.
A balancing act for New Delhi
The proposed changes highlight India’s delicate balancing act: attracting foreign investment and expanding trade while safeguarding domestic industries that employ millions and form a core pillar of the economy.
For European automakers, the tariff cuts could unlock a long-sought opportunity to compete more effectively in India’s premium car segment. For Indian consumers, the move may eventually translate into lower prices, greater choice, and more advanced vehicle technology.
If finalised as expected, the India-EU free trade pact would represent a pivotal shift in India’s trade and industrial policy — one that could reshape its auto market for decades to come.
