India-EU FTA: New Delhi Likely to Cut Car Import Tariffs from 110% to 40%

India is preparing for a significant shift in its automobile trade policy as it moves closer to finalising a long-awaited free trade agreement (FTA) with the European Union. According to sources familiar with negotiations, New Delhi is considering a sharp reduction in import duties on cars from the EU, lowering tariffs to 40 per cent from current levels that go as high as 110 per cent.

The Tariff Transformation

India currently imposes import duties ranging between 70 per cent and 110 per cent on foreign cars—among the highest in the world. These barriers have long been criticised by global auto executives, including Tesla CEO Elon Musk, as a key deterrent to market entry.

Limited Tariff Cuts, Phased Approach

Under the proposal, India would immediately reduce import taxes on a limited number of cars originating from the 27-nation European Union. The concession would apply to vehicles priced above €15,000, allowing a capped volume of imported cars to enter the Indian market at the lower duty rate.

Over time, these tariffs could be reduced further to as low as 10 per cent, significantly improving access for European automakers such as Volkswagen, Mercedes-Benz, and BMW. The gradual approach is intended to give India's domestic auto industry time to adjust while signalling policy stability to global manufacturers.

A Major Shift for a Protected Auto Sector

If implemented, the move would mark India's most substantial opening yet of its heavily protected automobile market and could be announced as early as this week, alongside broader progress on the India–EU FTA.

Growth Opportunity for European Automakers

Despite being the world's third-largest car market, India remains a relatively small destination for European carmakers, who together account for less than 4 per cent of annual vehicle sales. India's passenger vehicle market currently stands at around 4.4 million units per year and is projected to grow to nearly six million units by 2030.

Lower tariffs could allow European manufacturers to test consumer demand through imports before committing to large-scale local production. Industry analysts say this flexibility could make India a more attractive long-term market, particularly for premium and mid-segment vehicles.

Trade Boost Amid Global Uncertainty

Beyond automobiles, the India–EU FTA is expected to provide a significant boost to bilateral trade at a time of rising global tariff pressures. The European Union is already India's largest trading partner in goods, with trade valued at approximately $136.5 billion in 2024–25. Services trade between the two sides has crossed $83 billion.

The agreement is also viewed as a strategic effort by both partners to diversify supply chains and reduce dependence on China, amid ongoing geopolitical and economic realignments.

'Mother of All Deals' Nearing Conclusion

Negotiations for the India–EU FTA began in 2007 but faced repeated delays due to disagreements over tariffs, market access, and regulatory standards. After nearly 18 years, talks are now approaching the finish line.

Commerce and industry minister Piyush Goyal has described the agreement as the "mother of all deals," highlighting its scale and strategic importance. An official announcement is expected during the upcoming India–EU Summit, where Prime Minister Narendra Modi is scheduled to meet European Commission President Ursula von der Leyen and European Council President Antonio Costa.

Conclusion

If concluded, the India-EU FTA could redefine India's trade relationship with Europe and reshape the future of its automobile market. The agreement represents a delicate balance between global integration and domestic industrial priorities, potentially creating new opportunities while protecting key sectors during their transition phase.

As the world's third-largest automobile market opens up to greater European competition, the coming months will reveal how Indian manufacturers adapt and whether European brands can capitalize on this historic market access opportunity.