Report: India plans to reduce EU car import tariffs from 110% to 40%

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India and the European Union are close to reaching a landmark free trade agreement. According to the agreement, India plans to significantly reduce tariffs on imported cars from the EU, with rates dropping from the current maximum of 110% to 40%.

According to Reuters, quoting informed sources, the Modi government in India has agreed to immediately lower tariff rates on EU-imported cars priced above 15,000 euros (about $17,700), and plans to further gradually reduce tariffs to 10% in the future. This move will provide substantial market access for European automakers such as Volkswagen, Mercedes-Benz, and BMW in India.

Both sides are expected to announce the conclusion of years of negotiations as early as Tuesday, after which details will be finalized and the so-called "mother of all agreements" will be formally approved. The agreement is expected to significantly expand bilateral trade and boost exports of Indian products such as textiles and jewelry, which have been under pressure from a 50% U.S. tariff since the end of August last year.

According to CCTV News, on August 25 local time, the U.S. Department of Homeland Security issued a pre-notice stating it intended to impose a 50% tariff on Indian goods from midnight August 27. On August 6, President Trump signed an executive order to impose an additional 25% tariff on Indian products exported to the U.S., citing India’s “direct or indirect import of Russian oil.”

India is currently the world’s third-largest auto market, but its automotive industry has long been highly protected. New Delhi levies tariffs of up to 70% to 110% on imported vehicles, a policy that has drawn criticism from several international business leaders, including Tesla CEO Elon Musk. This reduction in tariffs is seen as an important turning point for opening India's market.

Major tariff cut for fuel vehicles; EVs temporarily excluded

According to media citing informed sources, New Delhi has proposed in negotiations to immediately cut tariffs on about 200,000 imported fuel vehicles, with rates dropping from current maximum levels to 40%. This is regarded as India's most aggressive move so far in opening up the automotive sector. The source also pointed out that the relevant quota may still be adjusted in the final agreement.

Two other sources said that, to protect domestic companies such as Mahindra & Mahindra and Tata Motors’ investments in the new energy vehicle sector, electric vehicles will be excluded from this round of tariff reductions for the first five years after the agreement takes effect. After the five-year period, EVs may be subject to similar tariff reductions.

At present, both the Indian Ministry of Commerce and the European Commission have declined to comment on the news. Because the negotiations are still confidential, the informed sources requested anonymity and emphasized that the relevant terms could change before the agreement is signed.

Market opportunities for European carmakers

Lowering import tariffs will present significant opportunities for European automakers such as Volkswagen, Renault, Stellantis, as well as luxury brands like Mercedes-Benz and BMW. Although these companies have already established production bases in India, high tariffs have long limited their market expansion and product introductions.

According to media reports quoting informed sources, the tariff cut will allow car companies to sell imported models at more competitive prices, so they can test market responses and assess demand potential with a richer product range before committing to expanded local production.

Currently, European automakers account for less than 4% of India's car market, which sells about 4.4 million vehicles annually. The market has long been dominated by Japan's Suzuki and local companies Mahindra and Tata, which together hold about two-thirds of the market share.

Investment plans are underway

As India's auto market is expected to grow to 6 million vehicles a year by 2030, multiple international automakers have already begun planning new investments. Renault is returning to India with a new strategy, aiming to seek growth opportunities outside Europe to address multiple competitive pressures at home. Meanwhile, Volkswagen Group is actively driving the next phase of its investment in India through its Skoda brand.

Prime Minister Modi has also previously stated that India and the EU will deepen bilateral cooperation and exchanges, and create a more favorable policy environment for economic and trade activities, including the automotive sector.

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