India-EU FTA: BMW, Renault, Volkswagen cars to get cheaper as tariffs on imports may drop from 110% to 40%

India is preparing its biggest opening yet in the auto sector, with plans to sharply cut import tariffs on cars from the European Union as New Delhi and Brussels close in on a long-awaited free trade agreement that could be announced as early as Tuesday, according to a report by Reuters.

Under the proposed move, India would reduce duties on EU car imports to 40%, down from current rates that run as high as 110%, in what could be a major shift for one of the world’s most protected large auto markets.

According to the report, the Indian government has agreed to immediately reduce the tax on a limited number of cars from the 27-nation bloc, specifically those with an import price above 15,000 euros ($17,739). The same sources added that the tariff could be lowered further over time, eventually falling to 10%, improving access to India for European brands such as Volkswagen, Mercedes-Benz and BMW.

Trade pact could be announced Tuesday

India and the EU are expected to announce the conclusion of their free trade negotiations on Tuesday, after which both sides will finalise the details and move toward ratification of what is being described as “the mother of all deals”.

The agreement could significantly expand bilateral trade, and comes as Indian exports such as textiles and jewellery have faced pressure after being hit by 50% US tariffs since late August, the report said.

A major shift in a protected market

India is the world’s third-largest car market by sales after the US and China, but remains heavily shielded from global competition through steep duties. New Delhi currently levies tariffs of 70% and 110% on imported cars, a policy often criticised by automakers, including Tesla chief Elon Musk.

As part of the latest proposal, India has suggested an immediate duty reduction to 40% for roughly 200,000 combustion-engine cars annually, one source said, calling it India’s most aggressive move yet to open the sector. The quota could still change before a final announcement.

EVs kept out, at least for five years

Battery electric vehicles would remain outside the scope of duty cuts for the first five years, the sources said, as India looks to protect domestic investments in the segment by players such as Mahindra & Mahindra and Tata Motors. After five years, EVs would move onto a similar duty reduction path, they added.

Why this matters for European automakers

Lower import duties would support European mass-market players such as Volkswagen, Renault and Stellantis, as well as luxury makers Mercedes-Benz and BMW. While many of these brands already assemble or manufacture cars locally in India, they have struggled to grow beyond a point, with high import tariffs limiting their ability to expand portfolios and price imported models competitively.

Reduced duties would allow automakers to bring in more models at lower prices and test the market with a wider line-up before committing larger investments to local production, one of the sources said.

India’s market is still dominated by local players

European automakers currently hold less than 4% of India’s roughly 4.4-million-units-a-year passenger vehicle market. The segment is dominated by Suzuki Motor, along with homegrown brands Mahindra and Tata, which together control about two-thirds of total sales.

With India’s car market expected to expand to 6 million units annually by 2030, some global players are already positioning for the next cycle. Reuters reported that Renault is planning a new strategy for India as it looks for growth outside Europe, while Volkswagen Group is finalising the next phase of investment through its Skoda brand.

(With inputs from Reuters)