India–EU FTA outlines calibrated, quota-based auto liberalisation with scope for Make in India

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.

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 broader positive impact 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.” However, he underlined that Mercedes-Benz “will continue to value add to customers with local production of world-class models from our manufacturing plant.”

Audi India, too, struck a cautious but optimistic note. Balbir Singh Dhillon, Brand Director, Audi India, said the company welcomed the proposed agreement and its potential to deepen economic ties between India and the European Union.

“This constructive approach to trade could support the broader automotive ecosystem, including innovation, supply-chain efficiency, and technology collaboration,” Dhillon said, adding that “any implications for pricing and the market can only be assessed once the final terms are available and carefully reviewed, including the timeframe of implementation.” He noted that it would be premature to draw conclusions on specific commercial or product strategies at this stage, while expressing confidence that the FTA would “create a stable and predictable environment for European automakers to invest, innovate, and better serve customers in India.”

BMW Group India President and CEO Hardeep Singh Brar described the agreement as a significant strategic milestone. “The conclusion of the India–EU Free Trade Agreement is a historic and ambitious milestone, reflecting the growing strategic and economic relevance of India on the global stage,” he said, adding that free trade enhances fair market access, strengthens economic collaboration, and builds more resilient supply chains.

Brar said the phased reduction of tariffs on cars and auto components could positively impact consumer confidence, enable greater product choice, and foster technological innovation and sustainable growth, particularly in future mobility. He noted that over 95% of BMW Group India’s volumes come from locally manufactured models, with fully imported vehicles accounting for about 5% of sales. “While we do not foresee any immediate price changes in the near term, the FTA could create opportunities to introduce new and niche products and, if demand scales, support deeper localization over time,” he said, adding that the company would evaluate the implementation roadmap once the fine print is available.

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.