India Proposes Sharp Reduction in EU Car Tariffs Ahead of Free Trade Deal

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 New Delhi: India is preparing to dramatically cut import duties on cars from the European Union to 40%, down from current rates as high as 110%, under a free trade agreement (FTA) nearing conclusion, informed sources told Reuters. The prospective deal widely characterized by officials as one of the most consequential in recent times could be formally announced as early as this week.

 As part of the provisional pact, New Delhi has agreed to immediately apply the reduced tariff on a limited number of EU-built cars with an import price above roughly €15,000 (~₹16.3 lakh). Over time, duties on such vehicles are expected to decline further, ultimately dropping closer to 10%, according to parties familiar with the negotiations.

 Trade ministers on both sides have maintained strict confidentiality as discussions wrapped up, with official spokespeople from the Indian Commerce Ministry and the European Commission declining to comment ahead of a formal announcement.

 Observers describe this shift as the biggest opening yet of one of the world’s most protected automobile markets. India is currently the third-largest car market globally by annual sales, but high import levies have made the entry of foreign brands relatively limited with EU companies holding under 4% of the market.

 Under the emerging trade framework, battery electric vehicles (EVs) will initially remain outside the reduced tariff regime for the first five years, part of New Delhi’s efforts to shield nascent domestic EV investments led by firms such as Tata Motors and Mahindra & Mahindra. After that period, EVs are expected to join the broader tariff reduction schedule.

 According to the sources, the quota for cars eligible for immediate tariff cuts applies to about 200,000 combustion-engine vehicles annually, though final figures might shift before the official unveiling.

 Lower tariffs are likely to benefit a range of European manufacturers  from mainstream names like Volkswagen, Renault, and Stellantis to luxury brands such as Mercedes-Benz and BMW some of which already assemble vehicles in India but have struggled with limited growth due to steep import duties.

 In parallel, industry leaders project that cheaper imported models could help expand India’s premium and luxury car segments, drawing new consumer interest and encouraging deeper investment by foreign automakers. For example, executives at BMW Group India recently noted that lower customs duties would “help expand the luxury car segment more effectively” and make premium vehicles more competitively priced in the Indian market.

 The pending tariff move comes as India and the EU prepare to finalise long-running FTA negotiations, potentially ratifying a pact heralded as the “mother of all deals” for its wide scope in facilitating trade across goods and services. Bilateral exchanges valued at over €120 billion in recent years could receive a significant boost if the pact is finalized and implemented.

 Analysts say the accord would not only recalibrate customs structures but also send a signal about the trajectory of global trade alliances amidst broader geopolitical shifts. In recent months, changes such as the EU’s suspension of preferential trade benefits for Indian exports have underscored the urgency for India to secure new market access and strengthen economic ties.

 Once announced, India and the EU are expected to begin formal ratification processes, which could take several months and involve detailed legislative approvals on both sides. The expected timeline for implementation suggests that tariff reductions could start appearing in market pricing and trade flows later this year.

 This tariff overhaul could reshape competitive dynamics in the Indian automobile industry opening new options for consumers and prompting fresh investment commitments from overseas manufacturers while also marking a milestone in India’s broader strategy of trade engagement with global partners.