India plans sharp cut in car import tariffs to 40% as EU trade deal nears: Sources

What happened:
India is preparing to significantly lower import duties on cars from the European Union, slashing tariffs to 40% from current levels as high as 110%, as part of a long-awaited free trade agreement (FTA that could be announced as early as January 27, 2026, sources familiar with the negotiations said.

Why it matters now:
This would mark India’s biggest opening yet of its highly protected automobile market and could reshape competition in the world’s third-largest car market, while giving a major boost to trade ties between India and the EU.

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Big tariff cut on select EU cars

Under the proposed deal, India has agreed to immediately reduce import duties on a limited number of EU-made cars priced above €15,000 (around ₹16 lakh). Over time, these duties would be lowered further to as little as 10%, according to sources briefed on the talks.

The move would ease market access for European automakers such as Volkswagen, Mercedes-Benz and BMW, which have long argued that India’s high tariffs make imported cars prohibitively expensive.

While discussions remain confidential and subject to last-minute changes, officials on both sides are preparing for a formal announcement following years of negotiations.

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‘Mother of all deals’ between India and EU

The India–EU free trade agreement has already been dubbed the “mother of all deals” due to its scale and strategic importance. Once announced, the pact will still require finalisation of legal text and ratification by both sides.

Beyond automobiles, the deal is expected to expand bilateral trade and support Indian exports such as textiles, gems and jewellery, sectors that have faced pressure following steep US tariffs imposed in late 2025.

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Quotas and safeguards for domestic industry

India has reportedly proposed an annual quota of around 200,000 imported combustion-engine cars eligible for the reduced duty, making this the most aggressive liberalisation of the auto sector so far.

However, battery electric vehicles (EVs) will be excluded from duty cuts for the first five years. The safeguard is aimed at protecting domestic investments by Indian automakers such as Tata Motors and Mahindra & Mahindra, which are heavily investing in EV manufacturing.

After the five-year period, EVs are expected to follow a similar tariff reduction pathway.

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European automakers stand to gain

European carmakers currently account for less than 4% of India’s 4.4-million-unit annual car market, which is dominated by Maruti Suzuki along with Tata Motors and Mahindra.

Lower tariffs would allow European brands to:

• Offer imported models at more competitive prices

• Test demand with a wider range of vehicles

• Delay large manufacturing investments until sales volumes justify them

Luxury players like Mercedes-Benz and BMW already assemble cars locally but have struggled to expand beyond niche segments due to pricing constraints.

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India’s auto market growth in focus

India’s car market is expected to grow to nearly 6 million units annually by 2030, making it a key battleground for global automakers.

Several European companies are already lining up new investments. Renault is reworking its India strategy as it seeks growth beyond Europe, while Volkswagen Group is finalising the next phase of investment through its Skoda brand.

The proposed tariff cut signals a broader shift in India’s trade policy, balancing protection of domestic manufacturing with the need to attract global investment and deepen strategic partnerships.