In a historic move poised to reshape global trade dynamics, India has agreed to dramatically reduce import tariffs on European Union automobiles as part of a comprehensive free trade agreement expected to be finalized imminently. According to sources familiar with the negotiations, New Delhi will slash levies on EU-sourced vehicles from their current peak of 110% down to 40%, marking the most significant opening of India’s protected automotive market in decades.
The breakthrough agreement, potentially announced as early as Tuesday, will immediately benefit premium European automakers including Volkswagen, Mercedes-Benz, and BMW. The reduced tariffs will apply to combustion-engine vehicles with an import value exceeding €15,000 ($17,739), with approximately 200,000 units annually qualifying under the new framework. The duty reduction represents a phased approach, with further decreases to 10% planned over subsequent years.
This monumental pact, informally dubbed the ‘Mother Of All Deals’ by negotiators, extends beyond automotive trade. The agreement is expected to substantially boost bilateral commerce between the world’s largest trading bloc and one of its fastest-growing economies. Indian export sectors previously hampered by recent 50% U.S. tariffs—particularly textiles and jewelry—stand to gain significant market access to European consumers.
Notably, battery electric vehicles (EVs) will be excluded from the tariff reductions for an initial five-year period. This protective measure aims to safeguard investments by domestic manufacturers Mahindra & Mahindra and Tata Motors in India’s emerging electric vehicle sector before eventually aligning with the reduced duty structure.
The tariff reduction promises to transform market dynamics in India’s 4.4-million-unit automotive market, currently dominated by Japan’s Suzuki and domestic brands controlling two-thirds of sales. European manufacturers presently hold less than 4% market share, constrained by prohibitive import costs. The new framework will enable automakers to introduce broader product portfolios at competitive prices while testing consumer demand before committing to expanded local manufacturing.
With India’s automotive market projected to reach 6 million annual units by 2030, several European manufacturers are already preparing increased investment. Renault is implementing a renewed India strategy seeking growth beyond Europe, while Volkswagen Group is finalizing additional investment plans through its Skoda brand. The agreement signifies India’s strategic pivot toward deeper economic integration with Western markets amid shifting global trade alliances.