India is set to dramatically reduce tariffs on European car imports, a move expected to open its vast market to brands like Volkswagen, Mercedes-Benz, and BMW.
The announcement comes as India and the EU near the conclusion of a free trade agreement, described by officials as “the mother of all deals.”
According to sources close to the negotiations, India will cut tariffs on imported cars from the EU to 40% from current rates of up to 110%. The immediate reduction will apply to vehicles with an import price exceeding €15,000 ($17,739).
Over time, tariffs for these cars are expected to fall further to 10%, giving European automakers greater flexibility in pricing and market testing before committing to local production.
Battery electric vehicles (EVs) will not benefit from tariff cuts for the first five years, a decision intended to protect domestic manufacturers such as Mahindra & Mahindra and Tata Motors. After this period, EVs are expected to follow similar duty reductions.
“Mother of all deals”
The India-EU trade pact, expected to be announced Tuesday, will expand bilateral trade and may help Indian exports such as textiles and jewelry that have been impacted by U.S. tariffs. Sources say the deal represents India’s most aggressive attempt yet to open its heavily protected auto sector.
Currently, India’s domestic car market—the third-largest in the world—is dominated by Suzuki, Tata, and Mahindra, with European carmakers holding less than 4% of the 4.4 million-unit market.
Lower tariffs will benefit both mass-market and luxury European brands, including Volkswagen, Renault, Stellantis, Mercedes-Benz, and BMW. The move allows these companies to import vehicles at competitive prices and assess demand before investing heavily in local manufacturing.
Renault is already strategizing a comeback in India, while Volkswagen plans further investments via its Skoda brand. The market is projected to grow to 6 million units annually by 2030, attracting significant foreign interest.
Background
India has traditionally maintained high tariffs to protect its domestic auto industry, with rates of 70% to 110% for imported cars. Tesla CEO Elon Musk has previously criticized these high duties, which have limited foreign brands’ ability to expand in the country.
By reducing tariffs, India is signaling a major shift toward global integration in the auto sector, while balancing protection for domestic EV manufacturers.
