India is preparing to lower its import tariffs on European Union-manufactured cars to 40% from current levels as high as 110%, according to Reuters citing individuals familiar with the matter. The tariff reduction is part of negotiations on a potential free trade agreement between New Delhi and the EU that could be finalized soon, offering global automakers enhanced access to one of the world’s largest car markets.
Reuters reported, citing sources, that the Indian administration, led by Prime Minister Narendra Modi, has agreed to cut duties on a designated quantity of EU vehicles priced above 15,000 euros, with the new 40% tariff taking effect immediately. Over time, this rate is set to drop further to 10%, representing India’s most significant market liberalization for car imports to date.
At present, foreign automakers face duties ranging from 70% to 110% when exporting cars to India. These high tariffs have been a point of criticism among international industry leaders, including Tesla’s CEO.
Under the new proposal, India would allow up to 200,000 imported combustion-engine vehicles per year at the lowered rate, though the quota may be adjusted before the agreement is implemented.
For the first five years, battery electric vehicles will not benefit from the tariff decreases, a measure intended to protect local manufacturers such as Tata Motors and Mahindra & Mahindra. After this period, similar duty reductions may be extended to electric vehicles.
The lower import taxes could benefit European automotive companies including Volkswagen, Renault, Stellantis, Mercedes-Benz, and BMW, helping them overcome market barriers that have previously limited growth despite local manufacturing operations. The Indian passenger vehicle market, forecast to reach six million units by 2030, could see increased diversity as automakers test imported models and assess future manufacturing investments.
Currently, European brands hold less than a 4% stake in India’s car market of 4.4 million annual units, with Japanese and domestic firms holding the majority share.
The reduction in tariffs forms part of broader trade discussions, with a finalized agreement between India and the European Union possibly expected as soon as Tuesday.
