India is planning to sharply reduce tariffs on cars imported from the European Union, cutting duties to 40 per cent from levels as high as 110 per cent, in its biggest move yet to open up the domestic auto market, sources said. The step comes as India and the EU near the conclusion of a long-awaited free trade agreement that could be announced as early as Tuesday.
According to sources familiar with the talks, the Narendra Modi government has agreed to immediately lower import duties on a limited number of cars from the 27-nation EU bloc with an import price exceeding €15,000 ($17,739). Over time, these tariffs will be further reduced to 10 per cent, significantly improving market access for European automakers such as Volkswagen, Mercedes-Benz and BMW.
The sources requested anonymity as the negotiations are confidential and subject to last-minute changes. India’s commerce ministry and the European Commission declined to comment.
India and the EU are expected to announce the conclusion of negotiations for the free trade pact on Tuesday, after which both sides will finalise details and move towards ratification. The agreement has already been dubbed the “mother of all deals” and is expected to significantly expand bilateral trade. It could also boost Indian exports of goods such as textiles and jewellery, which have been impacted by 50 per cent US tariffs since late August.
India is the world’s third-largest car market after the US and China, but remains one of the most protected. At present, the country levies import duties of 70 per cent to 110 per cent on foreign cars, a policy frequently criticised by global auto executives, including Tesla CEO Elon Musk.
As part of the proposed liberalisation, India has offered to cut import duties to 40 per cent immediately for around 200,000 combustion-engine cars annually, marking its most aggressive opening of the sector so far. The final quota, however, may still change.
Battery electric vehicles will be excluded from these duty reductions for the first five years to protect investments by domestic manufacturers such as Mahindra & Mahindra and Tata Motors. After that period, EVs are expected to be brought under a similar duty-reduction framework.
Lower import tariffs are expected to benefit European automakers including Volkswagen, Renault and Stellantis, as well as luxury carmakers Mercedes-Benz and BMW. Although these companies have local manufacturing operations in India, high tariffs have limited their growth.
Reduced duties would allow carmakers to price imported vehicles more competitively and test the Indian market with a wider product range before committing to additional local manufacturing, sources said.
European brands currently account for less than 4 per cent of India’s annual car market of about 4.4 million units, which is dominated by Suzuki Motor of Japan and Indian manufacturers Mahindra and Tata Motors, together controlling nearly two-thirds of sales.
With India’s car market projected to grow to around 6 million units annually by 2030, several automakers are preparing new investments. Renault is re-entering the Indian market with a revised strategy as it seeks growth beyond Europe, while Volkswagen Group is finalising the next phase of its investment in India through its Skoda brand.