India-EU FTA Impact on Automotive Sector Likely Limited, Analysts Say

The India-European Union Free Trade Agreement signed yesterday is expected to have a limited impact on Indian automotive manufacturers, according to a sector analysis by BNP Paribas Securities India.

The trade deal, which will gradually reduce import duties on vehicles, has prompted concerns about increased competition for domestic automakers. However, analysts suggest these worries may be overstated.

Under the agreement, effective customs duty on cars priced below $40,000 will gradually decline to 10% from the current 70%, with an annual quota of 250,000 units. For vehicles above $40,000, tariffs will fall from 110%. Completely Knocked Down (CKD) unit tariffs will be reduced to 8.25% from 16.5% for approximately 75,000 units annually.

The agreement will take at least a year to become effective.

BNP Paribas analysts Kumar Rakesh and Mehul Mistry note that most European original equipment manufacturers already operate assembly plants in India. "All European OEMs already have plants in India, which they are using for CKD units," the report states, suggesting limited potential for large-volume completely built unit imports.

The analysis indicates that while CKD prices could fall by approximately 8% to at least INR 2.1 million, most automakers are expected to use tariff reductions to improve profitability rather than engage in aggressive price competition.

European brands including Renault, Stellantis, and Volkswagen already sell key models in the Indian market. The FTA is anticipated to help these manufacturers expand product offerings marginally rather than cause major market disruption.

India's passenger vehicle exports to the EU represented approximately 2% of total car exports as of November 2025, with the bulk of shipments going to South Africa and Latin American markets. Two-wheeler exports to the EU accounted for roughly 1% of India's total motorcycle exports.

The report identifies potential beneficiaries including Royal Enfield, for which the EMEA region contributed 26% of exports in FY25, and Maruti Suzuki, which has begun exporting its eVitara electric vehicle to Europe. Mahindra & Mahindra could leverage the agreement to export premium models from its INGLO and NUIQ platforms, while Tata Motors may benefit from increased EV exports.

The Indian automotive market remains dominated by vehicles priced below INR 1.5 million, with compact hatchbacks, sedans, and SUVs representing the largest segments. Analysts suggest the premium segment above INR 2 million, where European imports might compete most directly, accounts for a relatively small portion of overall sales.

Stock market reactions to previous trade developments, including the India-UK trade discussions and Tesla's potential entry, have historically normalized after initial volatility, the analysts noted.

The agreement's tariff details have not been fully released, and the analysis is based on available media reports and industry data.