India Plans Sharp Cut in Car Import Tariffs to 40% Under Proposed EU Trade Pact: Reuters

India is preparing to significantly lower import tariffs on cars from the European Union as part of a long-awaited free trade agreement, two sources told Reuters, marking the biggest opening yet of the country’s heavily protected automobile market.

According to Reuters, the Indian government has agreed to immediately reduce duties on a limited number of EU-built cars priced above €15,000, bringing tariffs down to 40% from current levels of up to 110%. Over time, these duties are expected to be further lowered to 10%, easing access for European automakers such as Volkswagen, Mercedes-Benz and BMW.

The sources, who spoke to Reuters on condition of anonymity due to the confidentiality of the negotiations, said the agreement could be announced as early as Tuesday. India’s commerce ministry and the European Commission declined to comment when contacted by Reuters.

‘Mother of all Deals’

As reported by Reuters, India and the EU are set to conclude negotiations on what officials have dubbed the “mother of all deals”, ending years of talks over a comprehensive free trade pact. Once announced, the agreement will still need to be finalised and ratified by both sides.

The pact is expected to boost bilateral trade and support Indian exports such as textiles and jewellery, which have been hit by steep U.S. tariffs since late August, Reuters reported.

India, the world’s third-largest car market after the United States and China, currently levies import duties of 70% to 110% on fully built vehicles—among the highest globally. These tariffs have frequently drawn criticism from global auto executives, including Tesla CEO Elon Musk, according to Reuters.

Limited Quota, EVs Excluded Initially

India has proposed cutting import duties immediately to 40% for around 200,000 internal combustion engine cars annually, one of the sources told Reuters, though the final quota could still change.

Battery electric vehicles will be excluded from these duty reductions for the first five years, the sources said, as New Delhi seeks to protect domestic investments by companies such as Mahindra & Mahindra and Tata Motors in the early-stage EV market. After five years, EVs are expected to follow a similar duty-reduction path, Reuters reported.

Lower import taxes would benefit European mass-market and luxury carmakers including Volkswagen, Renault, Stellantis, Mercedes-Benz and BMW, many of which already assemble vehicles locally but have struggled to scale operations due to high import barriers, according to Reuters.

Reduced tariffs would allow automakers to price imported models more competitively and test broader product portfolios before committing to fresh local manufacturing investments, one source told Reuters.

European brands currently account for less than 4% of India’s 4.4-million-unit annual car market, which is dominated by Suzuki Motor and domestic players Mahindra and Tata Motors, together controlling about two-thirds of sales, Reuters said.

With the Indian car market expected to expand to 6 million units annually by 2030, several global automakers are lining up new investments. Reuters noted that Renault is reworking its India strategy as it looks beyond Europe, while Volkswagen Group is finalising its next phase of investment through its Skoda brand.