India Plans Major EU Car Tariff Cut Ahead of Landmark Free Trade Agreement

India is preparing for a significant shift in its automobile trade policy as it moves closer to finalising a long-awaited free trade agreement with the European Union. According to sources familiar with the negotiations, New Delhi is considering sharply reducing import tariffs on cars from the EU to 40 per cent from the current peak of 110 per cent, marking one of the most substantial openings of India’s protected auto market to date.

The proposed tariff reduction is expected to be implemented in phases. Initially, India would lower duties on a limited number of fully built cars imported from the 27-member European Union, provided their import value exceeds approximately Rs 16.3 lakh. Over time, these tariffs could be further reduced to as low as 10 per cent, reflecting a calibrated approach aimed at balancing domestic manufacturing interests with broader trade commitments.

Such a move would significantly ease access to the Indian market for major European automobile manufacturers, including Volkswagen, Mercedes-Benz, and BMW. These companies have long sought lower import barriers in India, arguing that steep tariffs limit consumer choice and constrain deeper investment opportunities.

India currently imposes some of the highest import duties globally on fully built cars, a policy designed to protect domestic automakers and encourage local production under its manufacturing-focused economic strategy. Any substantial reduction in these duties is therefore expected to have wide-ranging implications for the auto sector, potentially influencing pricing, competition, investment inflows, and technology transfer.

The proposed tariff cuts come at a critical juncture in India–EU relations, as both sides aim to conclude trade negotiations that have been ongoing for several years. The agreement is expected to cover not only goods and services but also strategic areas such as supply chain resilience, digital trade, and sustainable development. For the European Union, improved access to India’s rapidly expanding automobile market is seen as a key priority within the broader trade framework.

The development also coincides with the ongoing visit of European Commission President Ursula von der Leyen to India, where discussions are focused on strengthening bilateral economic and strategic ties. Von der Leyen, along with European Council President Antonio Costa, is in New Delhi for high-level talks and Republic Day engagements.

Prime Minister Narendra Modi is scheduled to hold summit-level discussions with EU leaders, during which both sides are expected to outline the next phase of cooperation. In addition to the free trade agreement, talks are likely to address a strategic defence partnership and frameworks to facilitate the mobility of skilled Indian professionals across Europe.

If implemented, the tariff reduction plan would signal India’s willingness to make meaningful concessions to unlock a comprehensive trade pact with the EU, potentially reshaping bilateral trade dynamics and reinforcing India’s position as a key player in the global economic order.