As India and the European Union are set to sign the ‘mother of all trade deals’ soon, India is reportedly preparing to reduce tariffs on cars imported from the EU. According a report by Reuters citing sources, tariffs on cars imported from EU countries will be reduced to 40% as part of the long-awaited free trade agreement (FTA) with the European Union.
The proposed tariff cut on automobiles, which currently face duties as high as 110% for luxury models, is expected to particularly benefit European manufacturers like Mercedes-Benz, BMW, and Volkswagen, potentially spurring a surge in imports of high-end vehicles. Moreover, the import duty will be reduced to 10% over time, the report claimed.
As per the report, the Modi government has agreed to immediately reduce the tax on a limited number of cars with an import price of over €15,000 (Around ₹16.26 lakh). Around 2,00,000 internal combustion engine cars will be allowed to be imported a year under this reduced tariff. However, the discussions remain confidential, and these decisions can change during the ongoing negotiations.
Electric vehicles will be excluded from this exemption for the first five years after the deal is finalised, in an effort to protect the nascent domestic EV industry.
The EU leaders, President of the European Commission Ursula von der Leyen and President of the European Council António Costa, are in India as chief guests for the Republic Day celebration tomorrow. They will also attend the India-EU summit, and both sides are expected to announce the conclusion of the ongoing trade talks on Tuesday.
India also stands to gain significantly from the FTA, which aims to counterbalance the EU’s recent suspension of Generalised System of Preferences (GSP) benefits, a move that has impacted nearly 87% of Indian shipments to the bloc, raising tariffs on key exports from 2026 onward.
The agreement is projected to restore lost market access and lower duties on Indian goods, potentially widening the country’s trade surplus with the EU by over $50 billion by FY31. This could lift India’s GDP by up to 0.5% annually through expanded exports.
India will benefit from an export boost driven by reduced EU tariffs on textiles, garments, pharmaceuticals, steel, petroleum products, and chemicals, which could add $30-40 billion in annual exports. Sectors like IT services and manufacturing are also set to expand, with opportunities for deeper value chains and cost reductions on inputs.
The pact will help India to reduce reliance on volatile markets amid global uncertainties, including the ever-increasing U.S. tariffs. It could attract more EU investments in areas like renewables and technology, enhancing supply chain resilience.
The India-EU trade deal has been hailed as the ‘mother of all deals’ by EU leaders. European Commission President Ursula von der Leyen had said, “We are on the cusp of a historic trade agreement.”
