India and the European Union have concluded negotiations on a landmark Free Trade Agreement (FTA) that places automobiles at the centre of a carefully sequenced and quota-based liberalisation strategy, balancing market access with long-term domestic manufacturing interests.

Under the agreement, import tariffs on European-built cars will be gradually reduced from as high as 110% to as low as 10%, subject to an annual quota of 2,50,000 vehicles. The calibrated approach is intended to allow European automakers to introduce higher-priced models in India, while opening possibilities for Make in India manufacturing, exports from India, and reciprocal access for India-made vehicles into the EU market.

SIAM President and Tata Motors Passenger Vehicles MD and CEO Shailesh Chandra said the FTA would play a key role as India progresses towards ‘Viksit Bharat’, adding that a calibrated approach balancing market access and domestic manufacturing would create a win-win by encouraging greater global participation while supporting investments, employment and growth in the domestic auto industry. He added that the agreement would also expand consumer choice in both regions.

Current duty structure and phased reductions

At present, completely built units (CBUs) imported into India attract a 70% Basic Customs Duty, with models priced above USD 40,000 also subject to an additional 40% Agriculture Infrastructure and Development Cess, taking the effective import tax to around 110%. In contrast, completely knocked down (CKD) kits imported for local assembly attract a significantly lower Basic Customs Duty of about 16.5%.

As part of the FTA, tariffs on automobile components will be fully abolished over a period of five to ten years, according to the European Commission, potentially lowering input costs and encouraging deeper localisation over time.

EU automakers eye growing Indian luxury market

In calendar year 2024, EU exports of motor vehicles to India were valued at 1.6 billion euros (around Rs 17,400 crore). India’s luxury passenger vehicle market, dominated by German brands such as Mercedes-Benz and BMW, recorded sales of around 51,000–52,000 units in CY25, with nearly 90% of volumes coming from locally assembled models.

Mercedes-Benz, BMW, Audi and Jaguar Land Rover operate assembly plants in Maharashtra and Tamil Nadu, while importing select models as CBUs to cater to niche demand.

Industry sees opportunities, awaits fine print

Reacting to the agreement, Mercedes-Benz India MD and CEO Santosh Iyer said the India–EU FTA could have a positive cascading effect on the luxury car market.

“Mercedes-Benz welcomes the India-EU FTA as it will have a positive cascading effect on customer sentiments for the luxury segment, with boost in overall economic growth. A gradual tariff reduction on vehicles and fully liberalized automotive parts are strategically important decisions in the FTA for the automotive industry,” Iyer said.

He added that the agreement “opens up new avenues for customers with improved vehicle allocations, better availability of top-end global models for Indian market, faster access to latest technology and creating a stronger luxury car ecosystem,” while underlining that Mercedes-Benz would continue to add value through local production at its Indian manufacturing facility.

Audi India struck a cautious but optimistic note. Balbir Singh Dhillon, Brand Director, Audi India, said the company welcomed the agreement’s potential to deepen economic ties with the EU. “This constructive approach to trade could support the broader automotive ecosystem, including innovation, supply-chain efficiency, and technology collaboration,” he said, adding that pricing or market implications could only be assessed once the final terms and timelines are available. He said it would be premature to draw conclusions on specific commercial strategies, while expressing confidence that the FTA would create a stable and predictable environment for European automakers.

BMW Group India President and CEO Hardeep Singh Brar described the agreement as a historic and ambitious milestone reflecting India’s growing global relevance. He said the phased reduction of tariffs on cars and auto components could boost consumer confidence, expand product choice, and foster technological innovation, particularly in future mobility. With over 95% of BMW Group India’s volumes coming from locally manufactured models, Brar said the FTA could create opportunities to introduce niche products and support deeper localisation over time, even as no immediate price changes are expected.

From the components sector, ACMA President Vikrampati Singhania said the FTA could unlock opportunities for exports, technology partnerships and investment-led growth. He added that a calibrated approach on tariffs, regulatory standards and sustainability-related issues, including CBAM, would be critical to fully realising the agreement’s potential.

Škoda Auto Volkswagen India MD and CEO Piyush Arora also welcomed the agreement, calling it a win-win for both regions. He said greater tariff certainty and a predictable trade framework could help evaluate the introduction of more European models in India and support long-term technology transfer and investment. Arora added that SAVWIPL’s near-term strategy remains unchanged, reiterating the group’s commitment to offering high-quality, competitively priced vehicles backed by strong service and ownership benefits.

Broader trade gains beyond automobiles

Beyond automobiles, the India–EU FTA eliminates tariffs of up to 10% on nearly US$ 33 billion of Indian exports across labour-intensive sectors such as textiles, apparel, leather, gems and jewellery, and engineering goods. Overall, the agreement reduces trade barriers on 96.6% of EU goods exports to India, with annual tariff savings estimated at around 4 billion euros.

The agreement also includes provisions to help small and medium-sized enterprises benefit from new export opportunities, reinforcing confidence in India’s long-term growth trajectory and its integration into global value chains.