India and the European Union have finalized a free trade agreement that will significantly reduce import duties on European cars. The duty will decrease gradually from 70%-110% to 10% for a quota of 250,000 cars priced over 15,000 euros (approximately $17,952) annually.
This deal marks a shift in India’s longstanding protectionist stance regarding its auto market, which is the third largest in the world. Previously, high tariffs were employed to safeguard domestic manufacturers, while foreign companies were encouraged to establish local manufacturing facilities. The agreement has been hailed as a major win for European automobile manufacturers.
Despite the reduction in tariffs, analysts suggest that the final prices of imported European vehicles will likely remain high due to local taxes. Currently, around 95% of cars sold in India are priced below 2 million rupees (approximately $21,756), limiting the market’s addressable segment for these imports.
The five leading European luxury brands—Mercedes-Benz, BMW, JLR, Audi, and Volvo—sold 49,000 cars in India during the financial year ending March 2025, compared to total passenger car sales of 4.3 million. While European brands dominate the luxury segment, they face increasing competition from local players like Maruti Suzuki, Hyundai, Tata, and Mahindra.
Industry leaders have welcomed the deal, citing it as a positive development for Indian auto manufacturers who will gain duty-free access to the European market. However, concerns among investors persist as the agreement introduces greater competition in premium segments, particularly for high-margin SUVs priced above 2.3 million rupees.
Experts believe that even with lowered tariffs, it may take time for European companies to challenge the dominance of local manufacturers. Consumer preferences are evolving, and there is hope among potential buyers for improved amenities in vehicles following this trade agreement.
Source: Reported based on publicly available information from www.cnbc.com.
