India is set to significantly reduce import duties on cars from the European Union, cutting tariffs from as high as 110% to 40%, according to sources familiar with the matter. This move is part of the final stages of negotiations on a free trade pact between India and the EU, expected to be announced as soon as Tuesday.
Prime Minister Narendra Modi’s government will initially lower taxes on a limited number of cars priced above 15,000 euros ($17,739). Over time, these duties could fall further to 10%, making it easier for European automakers such as Volkswagen, Mercedes-Benz, and BMW to access the Indian market.
The agreement, described by officials as “the mother of all deals,” is expected to boost bilateral trade and support Indian exports in sectors such as textiles and jewellery, which have faced high U.S. tariffs. India, the world’s third-largest car market, has long maintained high protection for its domestic auto industry, with tariffs of 70% to 110% on imported vehicles, a level criticised by industry leaders, including Tesla CEO Elon Musk.
The new proposal includes a quota of around 200,000 combustion-engine vehicles annually, though final numbers may change. Battery electric vehicles will initially remain excluded from duty cuts for five years to protect local EV investments by companies like Mahindra & Mahindra and Tata Motors. After five years, EVs would follow a similar reduction schedule.
Lower tariffs are expected to benefit European carmakers, including Renault and Stellantis, by allowing them to offer imported cars at more competitive prices and test the market before committing to local manufacturing expansion. Currently, European brands hold less than 4% of India’s 4.4-million-unit annual car market, which is dominated by Japan’s Suzuki and homegrown Mahindra and Tata, together controlling around two-thirds of sales.
With India’s car market projected to grow to six million units annually by 2030, automakers are planning fresh investments. Renault is repositioning for growth in India, while Volkswagen is preparing its next investment phase through the Skoda brand. The tariff reductions mark New Delhi’s most significant effort yet to open up the country’s auto sector.
