India Eyes 40% Tariff Cut on European Cars in Major Trade Agreement

India is preparing to significantly open up its tightly guarded automobile sector as part of a sweeping free trade agreement with the European Union, a deal that officials have already begun calling the “mother of all agreements.” People familiar with the negotiations say the pact could be formally concluded as early as Tuesday.

As part of the proposed framework, the government led by Narendra Modi is set to sharply reduce import duties on cars brought in from the European Union. Tariffs that currently range between 70% and 110% would be cut to 40% initially for a limited number of high-value vehicles priced above €15,000, with duties gradually tapering down to 10% over time, according to sources briefed on the talks.

The move would mark the most decisive liberalisation yet of India’s passenger vehicle market, the world’s third largest after the US and China. Officials involved in the discussions said New Delhi has proposed allowing imports of up to around 200,000 petrol and diesel cars annually under the lower-duty regime, though the final quota may still be revised.

Electric vehicles, however, will be kept outside the scope of the tariff cuts for the first five years. The exemption is aimed at safeguarding investments made by domestic players such as Tata Motors and Mahindra & Mahindra in India’s still-developing EV ecosystem. After this protection window, EVs are expected to be brought under a similar duty-reduction structure.

Lower import barriers would provide a major boost to European carmakers including Volkswagen, Renault, Stellantis, as well as luxury brands Mercedes-Benz and BMW. While several of these manufacturers already assemble vehicles locally, high tariffs on imports have limited their ability to scale up and diversify their offerings.

Executives have long criticised India’s steep import taxes — including Elon Musk, whose company has repeatedly flagged tariffs as a hurdle to entering the market. Reduced duties would allow automakers to introduce a wider range of models at competitive prices and test demand before committing to deeper localisation.

At present, European brands account for less than 4% of India’s roughly 4.4 million-unit annual car market, which is dominated by Suzuki Motor and Indian manufacturers Tata and Mahindra, together controlling nearly two-thirds of sales. With industry forecasts projecting the market to expand to about 6 million vehicles a year by 2030, global carmakers are already positioning themselves for growth.

Renault is reworking its India strategy as it looks beyond Europe, where Chinese brands are gaining ground, while the Volkswagen Group is finalising its next phase of investment through its Skoda operations in the country.