India Cracks Open Auto Market: 40% Tariff Cut for EU Cars

In a significant shift for its traditionally protected automotive sector, the Indian government is reportedly preparing to drastically reduce import duties on vehicles coming from the European Union. According to sources familiar with the ongoing negotiations, New Delhi plans to lower tariffs from the current highs of 70% to 110% down to a more competitive 40%. This move is part of a landmark free trade agreement that could be announced as early as Tuesday, marking a pivotal moment in the economic relationship between India and the 27-member European bloc.

The proposed deal, often referred to as "the mother of all deals," initially targets a specific quota of approximately 200,000 internal combustion engine vehicles annually, provided they have an import value exceeding 15,000 euros. While the immediate cut to 40% is substantial, the long-term vision involves a gradual reduction to just 10%. This policy shift is expected to provide a major boost to European automotive giants like Volkswagen, BMW, and Mercedes-Benz, who have long struggled to expand their footprint in India due to prohibitive tax barriers. Currently, European brands claim less than 4% of the Indian market, which sees 4.4 million units sold annually and is largely dominated by domestic manufacturers and Japanese firms.

To safeguard the interests of local players like Tata Motors and Mahindra & Mahindra, the Indian government has decided to exclude electric vehicles (EVs) from these immediate tax breaks. For the first five years of the pact, the high tariffs on EVs will remain in place to allow domestic companies to strengthen their position in the emerging green energy sector. Following this grace period, electric cars will eventually transition to the same reduced tariff structure as their combustion-engine counterparts.

Beyond the automotive industry, the free trade pact is expected to revitalize Indian exports in sectors such as jewelry and textiles, which have recently faced challenges from high American tariffs. For European carmakers, the deal offers a strategic "test bed" to gauge consumer demand with a wider variety of imported models before committing to large-scale local manufacturing. With India’s car market projected to reach 6 million units by 2030, the timing is critical. Companies like Renault and the Volkswagen Group are already signaling their intent to increase investment in the region, viewing India as a vital growth engine outside of a saturated and increasingly competitive European market.