India is poised to slash import duties on European cars from as high as 110% to 40%, in a landmark move that signals the country’s most significant opening of its protected auto market. The reduction, part of an imminent India-EU free trade agreement expected to be announced as early as Tuesday, could reshape the competitive landscape of India’s rapidly expanding car market.
After years of shielding its domestic industry with some of the world’s steepest import tariffs, New Delhi has reportedly agreed to an immediate cut in duties for a limited number of European-made cars priced above €15,000 ($17,739). Sources familiar with the negotiations said the move will eventually bring tariffs down to 10%, a change that would substantially ease market access for European brands such as Volkswagen, Mercedes-Benz and BMW.
The decision comes as India and the European Union near the end of protracted negotiations for what officials have already dubbed “the mother of all deals.” While both sides have kept details tightly controlled, the pact is expected to be announced soon, with final technical and ratification work to follow. The deal is being framed as a major catalyst for bilateral trade expansion, potentially bolstering Indian exports of textiles and jewelry that have suffered under 50% U.S. tariffs since August.
India’s auto sector has long been one of the country’s most heavily protected industries, despite the nation’s status as the world’s third-largest car market. With domestic sales surpassing those of the U.S. and China, India has nevertheless maintained tariff levels that have made imported vehicles prohibitively expensive, drawing criticism from global executives including Tesla’s Elon Musk. Under the new agreement, India has reportedly proposed slashing import duties to 40% immediately for roughly 200,000 combustion-engine cars per year. This quota could be adjusted before the final pact is signed, according to sources.
However, the tariff relief will not extend to battery electric vehicles (EVs) for at least five years. New Delhi plans to maintain current import protections for EVs to safeguard early investments by domestic manufacturers such as Mahindra & Mahindra and Tata Motors. After five years, EVs are expected to follow a similar schedule of tariff reductions.
For European automakers, the move represents a long-awaited opening into a market that has been largely out of reach. European brands currently account for less than 4% of India’s annual 4.4 million unit market, which is dominated by Suzuki and domestic giants Mahindra and Tata. High tariffs have long limited European companies to niche segments, particularly luxury models, preventing them from building scale in India.
Lower import duties will enable these automakers to test a wider range of models in India at more competitive prices before deciding whether to ramp up local manufacturing. In recent years, companies such as Renault and Volkswagen have signaled renewed interest in the market, with plans to expand investment and revamp strategies as they seek growth outside Europe, where competition from Chinese brands is intensifying.
With India’s car market projected to grow to 6 million units annually by 2030, the tariff reduction could accelerate foreign investment and force domestic manufacturers to face stronger competition. The proposed agreement marks a historic shift in India’s trade policy, opening the door to a more integrated auto market while preserving a protective window for electric vehicles that reflects New Delhi’s cautious balancing of industrial growth and global integration.
