Exclusive: India to slash tariffs on cars to 40% in trade deal with EU, sources say

By Admin

27 Jan, 2026

Introduction
India is preparing for its biggest-ever opening of the automobile sector as part of a landmark free trade agreement with the European Union. According to sources familiar with the negotiations, New Delhi plans to sharply cut import tariffs on cars from the EU, a move that could reshape competition in one of the world’s fastest-growing auto markets.

Tariff Cuts Signal Major Policy Shift
India currently imposes import duties ranging from 70% to as high as 110% on foreign-built cars, making it one of the most protected automobile markets globally. Under the proposed deal, the government led by Prime Minister Narendra Modi has agreed to immediately reduce tariffs to 40% on a limited number of cars imported from the 27-nation European Union.
These vehicles will be priced above 15,000 euros and the duty will be gradually reduced further to 10% over time. This is seen as the most aggressive liberalisation of India’s auto import regime to date.

Free Trade Pact Nears Completion
India and the European Union are expected to announce the conclusion of long-running free trade negotiations as early as Tuesday. Officials have already dubbed the agreement the “mother of all deals,” reflecting its scale and economic impact.
Beyond automobiles, the pact is expected to boost bilateral trade and support Indian exports such as textiles and jewellery, which have faced pressure due to higher US tariffs in recent months.

What the Deal Means for Automakers
Lower import duties will significantly benefit European manufacturers such as Volkswagen, Renault and Stellantis, along with luxury brands Mercedes-Benz and BMW.
Although many of these companies already manufacture cars locally, high tariffs have limited the viability of importing a wider range of models. Reduced duties will allow them to test the Indian market with broader portfolios before committing to further local production.

EVs Kept Out to Protect Domestic Players
Battery electric vehicles will remain excluded from import duty reductions for the first five years. This provision is aimed at protecting investments made by domestic automakers such as Mahindra & Mahindra and Tata Motors in India’s emerging EV ecosystem.
After this five-year period, electric vehicles are expected to follow a similar duty-cut path as combustion-engine cars.

A Market Dominated by Local Giants
India is currently the world’s third-largest car market after the US and China, with annual sales of around 4.4 million units. The market is dominated by Suzuki Motor along with Mahindra and Tata, which together account for nearly two-thirds of total sales.
European carmakers currently hold less than 4% market share, but this could change rapidly as India’s auto market is projected to grow to nearly 6 million units annually by 2030. Companies such as Renault are already planning a strategic comeback, while Volkswagen Group is finalising its next phase of investment through its Skoda brand.

Conclusion
If finalised as expected, the India-EU trade deal will mark a turning point for the Indian automobile sector. By balancing gradual market opening with protection for domestic EV investments, India is signalling a more competitive, globally integrated future for its car industry one that could attract fresh investment, expand consumer choice, and redefine the country’s automotive landscape.